Abstract
The manufacturing sector remains a major contributor to greenhouse gas emissions, intensifying environmental degradation and threatening long-term sustainability. Addressing this challenge requires leadership approaches that actively promote environmental responsibility and strategic adaptation. Drawing on the natural resource-based view, this study investigates whether green inclusive leadership enhances environmental performance through the development of green absorptive capacity—both potential and realized—and the adoption of a proactive environmental strategy. A time-lagged survey was administered to 430 managerial employees working in manufacturing firms across Pakistan, and the data were analyzed through structural equation modeling. The results reveal that green inclusive leadership has a significant positive effect on both potential and realized green absorptive capacities. These capacities, in turn, mediate the relationship between green inclusive leadership and proactive environmental strategy, thereby improving environmental performance. Furthermore, government regulations positively moderate the relationship between environmental strategy and environmental performance, reinforcing the effectiveness of strategic environmental initiatives. By empirically examining the mechanisms linking leadership, organizational capabilities, strategy, and the regulatory context, this study advances research on environmental management in the manufacturing sector of a developing country and offers actionable insights to enhance firm-level environmental performance. © 2026 ERP Environment and John Wiley & Sons Ltd.