Unpacking the Role of Digital Dynamic Capabilities in ESG Performance: A Social Exchange Perspective on Organizational Trust and Identification

ABSTRACT This study examines the role of digital dynamic capabilities (DDCs) in enhancing ESG performance, integrating insights from social exchange theory (SET). By conceptualizing organizational trust and organizational identification as key antecedents of DDCs, we propose that firms fostering trust‐based and identification‐driven environments are more effective in leveraging digital transformation to advance sustainability initiatives. Utilizing a two‐wave survey of 257 firms, we employ structural equation modeling to test our hypotheses. Findings reveal that organizational trust and identification positively influence DDCs, with DDCs serving as a partial mediator in the relationship between organizational trust and ESG performance. Moreover, organizational identification exhibits a direct effect on ESG performance rather than operating through DDCs. These results underscore the contingent role of digital transformation in sustainability strategies, emphasizing that trust and digital readiness are essential enablers of corporate ESG outcomes. The study contributes to both SET and dynamic capability perspectives by demonstrating how relational capital, when combined with digital adaptation mechanisms, facilitates ESG success.