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Today, corporations can no longer choose between digital transformation and sustainable development—it is imperative to achieve both simultaneously (Alojail & Khan, 2023; Tiron-Tudor & Deliu, 2025). In China, this imperative is amplified under the powerful confluence of state-led ambition: the binding national commitments of the Dual Carbon goals and the sweeping technological vision of the Digital China strategy (Pan & Meng, 2025). As regulatory expectations intensify and digital disruption accelerates, a critical puzzle emerges. Some firms demonstrate a remarkable ability to convert constraints into advantages, achieving genuine and lasting sustainability. This divergence points beyond the mere presence of policy or technology, revealing a fundamental gap in our understanding of strategic transformation within firms: through what specific internal pathways, and under what external conditions, do organizations effectively transform institutional mandates into embedded, high-performance sustainability? While insightful, the current literature offers a fragmented view. Institutional theory robustly explains the external “why” of sustainability adoption—the quest for legitimacy under coercive, mimetic, and normative pressures. Distinctly, research on strategic leadership and dynamic capabilities illuminates the internal “how,” focusing on executive action and organizational learning (Abdeen et al., 2025). Yet these streams have progressed largely in parallel, creating a theoretical blind spot at their intersection. Specifically, there is a lack of an integrated framework that explicates how institutional pressure (IP) conditions the effectiveness of strategic leadership in building the precise capabilities necessary for sustainability.
The role of digital leadership (DL) is related to a distinct form of executive competence focused on leveraging emerging technologies for strategic renewal, as the critical linchpin that translates external pressure into the dynamic environmental, social, and governance (ESG) integration capability remains inadequately theorized and empirically untested (Attah et al., 2023; Su et al., 2023b). Prevailing studies often treat the institutional environment as a static backdrop or a simple direct antecedent, overlooking its potential as a contingent moderator that can strengthen or weaken the vital link between leadership vision and organizational capacity. Consequently, the complete mediated sequence, where pressure shapes leadership’s impact on capability-building (which in turn drives performance), constitutes an unmapped causal chain, particularly within the complex, state-embedded institutional context of contemporary China.
This study addresses this central gap by developing and empirically testing a moderated mediation model that explains this integrated strategic process. It also theorizes IP not as a mere setting but as a catalytic condition that amplifies the influence of DL, which is defined as the top management’s ability to envision and orchestrate technology-driven strategic change aid on the development of a sophisticated ESG integration capability (Li et al., 2024; Suljic, 2025; Waqas & Naseem, 2025). This capability, conceptualized as a higher order dynamic capability, is subsequently positioned as the core mediating mechanism that directly enables superior organizational sustainability (OS). Grounded in a synthesis of institutional theory, upper echelons theory (UET), and the dynamic capabilities view (DCV), our model provides a coherent, multilevel explanation for achieving sustainable performance under duress. The current study investigated this framework within China, a paradigmatic setting offering a powerful natural laboratory due to its intense, state-directed institutional forces and its concerted national drive for digital sovereignty. In doing so, this research makes three pivotal contributions.