Why AI Adoption Fails to Create Digital Green Innovation: The Transformative Role of Knowledge-Based Dynamic Capabilities

Environmental challenges, such as climate change, resource scarcity, and pollution, increasingly demand organizational strategies that integrate artificial intelligence (AI) into sustainable innovation. This study examines how employee-level artificial intelligence capabilities (AIC) enable digital green innovation, a strategic approach that leverages AI-powered digital technologies to enhance green product development, green processes, and sustainable supply chains. Drawing on knowledge-based view (KBV) and the dynamic capability view (DCV), this study develops a theoretical framework linking AIC, knowledge-based dynamic capabilities (KBDC), and digital green innovation. Using survey data from 299 employees in Chinese High-Tech firms, results show that higher employee AIC strengthens KBDC, which in turn facilitates effective digital green innovation. The findings contribute theoretically by extending the antecedents of digital green innovation to the individual level and clarifying the multilevel mechanism through which AIC translates into organizational environmental performance, thereby enhancing both theories’ explanatory power in digital environments. Practically, the study highlights the importance for environmental managers of strengthening employee AIC and organizational KBDC to implement AI-driven sustainability strategies more effectively.