["Business Strategy and the Environment, EarlyView. ", "\nABSTRACT\nThis systematic review examines how ESG disclosure and green innovation jointly shape sustainable business strategy. Applying a PRISMA‐guided approach to 77 peer‐reviewed studies, we find a virtuous but deeply contingent equilibrium in which transparency and innovation reinforce each other. However, our synthesis reveals that this documented cycle is heavily conditioned by a state‐led, policy‐intensive institutional environment and by proxies that tend to capture disclosure quantity and patent counts rather than material environmental outcomes. We identify the key mechanisms linking transparency and innovation, but argue that the observed relationship may conflate genuine transformation with a systemic “report and patent” ritual. We propose an integrative framework in which the institutional context acts as a meta‐moderator, determining whether a substantive virtuous equilibrium or a self‐perpetuating greenwashing trap prevails. The review offers actionable insights for managers and policymakers and outlines a dual‐axis research agenda that prioritizes real environmental performance, innovation quality, and comparative institutional analysis.\n"]