Digital Transformation and Eco‐Innovation: Evidence on the Twin Transition of European Companies

ABSTRACT This study examines how the adoption of digital technologies drives corporate eco‐innovation among companies listed in the European Union and the United Kingdom, where firms' twin transition, digital and green, is essential to achieving ambitious sustainability goals. Using performance‐based measures of eco‐innovation and regression analyses, we investigate the effects of both overall corporate digital transformation and the adoption of specific digital technologies. Our results show that corporate digitalization enhances eco‐innovation, with a more pronounced effect on eco‐product innovation. We also find that sustainability performance plays an important mediating role, channeling the effects of digitalization toward eco‐innovation. As digital transformation increasingly impacts all areas of corporate activity, including how firms identify and respond to sustainability challenges, its contribution to eco‐innovation extends beyond direct technological effects, as by improving sustainability performance, digitalization creates conditions that foster eco‐innovation. These findings highlight how digitalization can reinforce the green transition, promote eco‐innovation, and ultimately support sustainable growth.