AI ‐Enabled Environmental Auditing and Sustainability Disclosure: Green Reporting Capability as Mediator and Digital Compliance Culture as Moderator

ABSTRACT Small and medium‐sized enterprises (SMEs) represent a vital yet vulnerable segment of emerging economies, requiring strategic resources and dynamic capabilities to achieve long‐term sustainability. Drawing on resource‐based theory (RBT) and the Legitimacy Theory, this study examines the impact of AI‐enabled environmental auditing (AIEA) on corporate sustainability disclosure (CSD), investigating the mediating role of green reporting capability (GRC) and the moderating role of digital compliance culture (DCC). Using structural equation modelling (SEM) on survey data from 344 SMEs operating in manufacturing and service sectors in South Asia (Pakistan, India, and Bangladesh), the findings reveal that AIEA significantly enhances both GRC and CSD, as well as the relationship between AIEA and CSD, highlighting the strategic role of a strong DCC. The results further indicate that GRC partially mediates the relationship between AIEA and CSD, underscoring the importance of robust green reporting systems in translating AI‐based auditing practices into improved sustainability transparency. The study contributes to the sustainability and digital governance literature by demonstrating how the synergy between AI‐enabled auditing mechanisms and DCC fosters credible, accountable, and sustainability‐oriented disclosure practices among SMEs in emerging economies.