Green Leadership and <scp>AI</scp> ‐Enabled Innovation Pathways Toward Circular Supply Chain Practices

ABSTRACT The study examines how AI‐enabled capabilities, innovation ambidexterity, and green leadership affect the circular supply‐chain practices in the Chinese furniture industry. The current research is motivated by increasing environmental pressures, regulatory expectations, and the strategic necessity of manufacturing firms to unite digital technologies with sustainability‐oriented ventures. Based on the Resource based View and the Dynamic Capability Theory, the paper develops a framework in which dynamic routines (sensing, coordinating, learning, integrating, and reconfiguring) supplement AI‐mediated capabilities of firms, enhancing both exploratory and exploitative innovation. The responses of 387 managers working in production, operations, supply‐chain, and sustainability departments were collected and analyzed using Partial Least Squares Structural Equation Modelling (PLS‐SEM). The results show that AI‐driven functions have a significant influence on both types of innovation that, in turn, stimulate the introduction of circular supply‐chain practices. The mediation analysis also shows that innovation is the important component by which AI‐enabled capabilities contributes to sustainable supply‐chain. Further, green leadership has a positive direct impact on circular practice and increases the impact of innovation on sustainability performance. These results support the idea that technological resources, balanced innovation strategies, and strong leadership commitment all accelerate firms to shift towards the practice of a circular economy, therefore providing a more accurate understanding of how AI‐enabled capabilities are translated into measurable sustainability results. The combination of AI capabilities, innovation ambidexterity, and green leadership into a single system leads to a scientific impact on sustainability and digital transformation literature, as well as providing practical solutions to industry practitioners and policymakers that aim to encourage the deployment of circular supply chains.