Driving Circular Business Strategies for Sustainability Transitions Through Green Innovation, Strategic Environmental Orientation, and Digital Transformation

ABSTRACT The transition to sustainability has become an urgent priority for firms in emerging economies, where rapid industrial growth often collides with environmental limits. Against this backdrop, circular business strategy offers a pathway to decouple development from ecological harm, yet the organizational capabilities that enable its adoption remain underexplored, particularly in contexts shaped by institutional constraints and uneven digital readiness. To address this gap, this study examines how green innovation supports the adoption of circular practices, while also assessing the mediating role of strategic environmental orientation and the moderating effect of digital transformation. Drawing on Dynamic Capabilities Theory and the Technology–Organization–Environment framework, the analysis uses panel data from 413 listed manufacturing firms in India, Brazil, South Africa, and Kenya between 2010 and 2023, and applies advanced econometric techniques with instrumental variables to ensure robust estimation. The results show that innovation significantly strengthens circular adoption, especially when firms intensify their innovation efforts. Moreover, strategic environmental orientation provides the alignment needed to embed innovation into long‐term sustainability goals, while digital transformation amplifies the influence of both, particularly in digitally advanced firms. Variation across ownership types and industry sectors further underscores the role of context in shaping outcomes. Taken together, the study advances theoretical understanding of how innovation, environmental orientation, and digitalization interact to accelerate circular transitions in emerging markets, while offering practical guidance for managers, policymakers, and development actors.