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ABSTRACT This study examines how Environmental, Social, and Governance (ESG) performance mediates the relationship between managerial ability and carbon emission reduction across developed and developing economies. We address a critical gap: understanding how executive capabilities translate into environmental outcomes through organizational systems. Using unbalanced panel data from 50 developed and 147 developing countries (2018–2023), we employ the Hayes Process Model for mediation analysis and the Heckman two‐stage method to address endogeneity. Our findings reveal partial mediation: ESG performance transmits managerial ability's impact on carbon reduction, but transmission mechanisms differ systematically by institutional context. In developed economies, managerial ability exerts stronger direct effects on emission reduction. Conversely, ESG performance plays a more critical mediating role in developing economies, compensating for institutional voids. These results demonstrate the necessity of context‐specific sustainability strategies. For practitioners, we show that emerging markets require robust ESG infrastructure as governance substitutes, while developed economies benefit from strengthening direct regulatory mechanisms. This research advances corporate environmental governance theory by revealing how institutional quality moderates managerial effectiveness pathways.
Setiabudi et al. (Mon,) studied this question.