Digital Transformation and Sustainable Performance: The Capability–Innovation Pathway

Abstract

Manufacturing firms in emerging economies face growing pressure to address environmental challenges while adopting digital technologies. However, how digital transformation translates into sustainability improvements remains unclear. Drawing on stakeholder theory and dynamic capability theory, this study examines a capability–innovation pathway linking digital transformation to sustainable performance. Data from 286 Vietnamese manufacturing firms were analyzed using partial least squares structural equation modeling. The results show that digital transformation is not directly associated with green innovation or sustainable performance but is positively associated with AI capability and corporate social responsibility (CSR). AI capability is associated with sustainable performance indirectly through green innovation, indicating that technological capabilities may need to be translated into environmentally oriented innovation to create sustainability benefits. Green innovation shows the strongest direct association with sustainable performance, while CSR and green organizational culture are associated with stronger sustainability outcomes by promoting responsible behavior and embedding environmental values into practices. These findings clarify how digital transformation supports sustainability in emerging economy manufacturing firms.