Leveraging Digital Capabilities for Environmental Performance: The Mediating Role of Ambidextrous Innovation in China

ABSTRACT This study explores whether firms' digital capabilities are associated with environmental performance in China and whether ambidextrous innovation mediates this relationship. Addressing China's commitment towards green transition and carbon neutrality by 2060, this study examines whether firms' digital capabilities are associated with improved environmental performance. Using firm‐level data for 1826 enterprises from the 2024–2025 World Bank Enterprise Survey, we construct a digital capability index and estimate logit and causal mediation models. Environmental performance is measured through ISO 14000 certification, CO 2 emissions monitoring, and energy management practices. The results show a positive association between digital capability and environmental performance, with a significant total effect (0.114). Ambidextrous innovation partially mediates this relationship, with an indirect effect of (0.030), accounting for 26.5% of the total association. Sectoral analysis indicates stronger estimates for manufacturing firms (0.159) than for service firms (0.096). The findings highlight important implications for policymakers and managers seeking to align digital transformation, innovation, and environmental sustainability in emerging economies.