Opening the black box of AI-enabled green innovation: a PLS-SEM and fsQCA study of manufacturing firms

Purpose There is limited understanding of how artificial intelligence (AI) can contribute to the different types of green innovation in manufacturing firms. Thus, this research aims to explain the effect of AI capabilities on two types of green innovation, circular business model innovation and green technology innovation, while considering the role of green leadership, and to explain the impact of those two types of green innovation on sustainability-oriented corporate performance. Design/methodology/approach The study utilizes a quantitative approach using PLS-SEM and fsQCA, involving 101 manufacturing firms in Indonesian industrial estates. Findings The findings show that AI capabilities directly develop circular business model innovation. Conversely, AI capabilities do not have a direct effect on the development of green technology innovation; instead, AI capabilities affect the development of green technology innovation through the mediation of green leadership. Green leadership itself has a direct effect on both types of green innovation. In addition, the most important AI capabilities component for producing high values of green innovation is prescriptive capabilities. Meanwhile, green leadership is quasi-necessary for green technology innovation. Furthermore, both types of green innovation also have a positive effect on sustainability-oriented corporate performance. Originality/value This study contributes to the natural resource-based view (NRBV) and dynamic capabilities frameworks by demonstrating how AI capabilities can be combined with green leadership to drive green innovation and sustainability. Thus, this study provides an integrative framework for facilitating sustainability transitions in the manufacturing industries.