How institutional pressures shape human-centric Industry 5.0 and ESG: insights from the China–Pakistan economic corridor

Purpose In the digital transformation era from Industry 4.0 to Industry 5.0 (I5.0), firms face numerous challenges, especially balancing technology with human-centric and sustainable development. Existing studies investigate the interplay between institutional forces, digitalisation and ESG (economic, social and governance) performance. However, limited evidence has been available in I5.0. Thus, this study investigates the direct impact of institutional forces on the I5.0 transformation (people, technology and business) and ESG performance. Moreover, this study examines the mediating role of I5.0 business transformation in these relationships. Design/methodology/approach A theoretical framework has been developed based on institutional theory (INT) and sociotechnical systems theory (STS). A cross-sectional survey approach was employed to collect 277 responses from manufacturing and service firms located along the western route of the China–Pakistan Economic Corridor which were analysed using partial least squares structural equation modelling (PLS-SEM). Findings The study’s findings indicate that institutional forces significantly drive people-centric I5.0 transformation. Furthermore, the results highlight that coercive forces are dominant in adopting the I5.0 transformation. Moreover, the findings highlight that multifaceted I5.0 transformation emerges as a mediating construct between institutional forces and ESG performance. Originality/value This study integrates institutional and STS theories to explain how external pressures and socio-technical factors jointly enable human-centric Industry 5.0, which ultimately promotes ESG performance in an emerging economy context.