When Eco‐Innovation Backfires: Governance Thresholds That Reverse Green Business Strategy in Sub‐Saharan Africa

Sub‐Saharan Africa is attracting an increasing share of international climate finance, yet whether eco‐innovation consistently translates into environmental improvements remains unclear and highly variable across the region. This study examines the effect of eco‐innovation on carbon intensity and identifies the governance and infrastructural conditions under which its environmental benefits materialise. Using a balanced panel of 32 Sub‐Saharan African countries from 2002 to 2024, the study employs two‐way fixed‐effects estimation with Driscoll–Kraay standard errors, Hansen threshold regression, interaction models and two‐stage least squares estimation to address cross‐sectional dependence, nonlinearity and endogeneity. The results show that eco‐innovation reduces carbon intensity on average, but its effectiveness is highly governance‐dependent. Although eco‐innovation lowers carbon intensity in West and Southern Africa, it is associated with higher carbon intensity in East and Central Africa, revealing an eco‐innovation paradox. Threshold analysis identifies a critical governance breakpoint at a Worldwide Governance Indicator score of −0.35, below which eco‐innovation increases carbon intensity and above which its environmental effect becomes negative. Approximately 42% of country‐year observations fall below this threshold. The findings further show that digital infrastructure strengthens the environmental benefits of eco‐innovation, whereas renewable energy consistently reduces carbon intensity irrespective of governance quality. The study advances the eco‐innovation literature by identifying a measurable institutional threshold that explains heterogeneous environmental outcomes and provides a practical governance benchmark for firms, policymakers and development finance institutions seeking to maximise the environmental returns to green investment in Sub‐Saharan Africa.