["Journal of Product Innovation Management, EarlyView. ", "\nABSTRACT\nThis article explores how family firms leverage environmental investments to drive innovation, proposing that their environmental efforts are more conducive to innovation compared to non‐family firms. We also propose that family firms' ability to transform environmental investments into superior innovation performance is particularly pronounced when they have easier access to local external green knowledge and when they are more locally embedded. Analysis of 1698 companies over the 2009–2017 confirms our hypotheses. The results bridge two key research streams—family firms' sustainability and innovation—that have remained largely disconnected so far, highlighting the role of environmental strategies as a crucial factor in explaining whether and under which circumstances family firms become more innovative than non‐family firms.\n"]