Over the last several years, AI turned out to be extremely relevant when it comes to environmental concerns, primarily waste management and sustainability. The paper explores the relationship between AI and green innovation, addressing how the concept of AI-related systems is transforming urban waste management to be more efficient, environmentally less harmful, and sustainable. This research examines the performance, benefits and challenges of AI in the environmental sector by analysing a real-life pilot project in New Delhi, India where AI-controlled robots were implemented to sort wastes. This study concluded that AI is more accurate in sorting waste, up to 94% versus the 68% of humans. Due to the better quality of sorting, the recycling rate increased by 26% and the waste amount in a landfill reduced by 15% indicating that AI can be used to improve recovery and utilization of resources. Moreover, AI usage also contributed to decreasing the amount of greenhouse gases by approximately 760 tons annually. Nonetheless, AI application in waste management has led to issues, including expensive infrastructures, worker training, and complicated servicing. Although there are these problems, AI application in waste management has ensured that operation is more efficient, less work is needed by the employees, and the net impact on the environment is achieved. The policy, governance, and social dimensions of green innovation using AI are also the focus of this paper. Some of the most prominent recommendations are the creation of new regulations that involve AI, the establishment of AI sustainability teams within cities, and the facilitation of the co-operation between the population and the business sector to promote innovation and develop required digital services. It is also highlighted in the study that training programs are essential to help people transition fairly and avoid job loss from AI. It concludes that AI can greatly support global sustainability by focusing on waste management in cities and helping achieve the United Nations Sustainable Development Goals (SDGs). Cities can achieve the SDGs and reduce their impact on the environment by using AI solutions for environmental management. The research provides useful information on using AI for green innovation and offers a plan for successful AI use in environmental management systems everywhere.