From digital transformation to environmental value creation: the role of green digital culture and circular economy adoption

Purpose Despite growing agreement on the role of digital transformation in sustainability, many small and medium-sized enterprises (SMEs) struggle to translate digital initiatives into tangible environmental values. Drawing on dynamic capabilities theory and stakeholder theory, this study aims to examine how digitally enabled organizational capabilities, green digital culture and digital sustainability, drive circular economy (CE) adoption and enhance sustainable environmental practices. Design/methodology/approach Survey data were collected from 322 managers and decision-makers working in SMEs in the United Arab Emirates. The proposed conceptual model was tested using partial least squares structural equation modeling. Findings The findings indicate that green digital culture and digital sustainability significantly improve sustainable environmental practices, with digital sustainability exerting a stronger effect on CE adoption. CE adoption partially mediates the relationship between digitally enabled capabilities and environmental practices, revealing the mechanism through which digital transformation generates environmental value. Practical implications This study offers actionable insights for managers and policymakers by highlighting the importance of aligning digital strategies, organizational culture and circular initiatives to accelerate sustainability transitions in SMEs. Originality/value This study offers clear scientific value by moving beyond direct-effect models and empirically establishing CE adoption as a critical value-creation mechanism linking digital transformation to environmental sustainability in an emerging economy context.