Advancing Sustainable Business Development Through AI Integration, Digital Twin, and Green Supply Chain: The Role of Circular Economy Implementation and Environmental Transparency

Abstract

The increasing role of sustainability and digitalization in the Chinese manufacturing industry signifies the necessity to learn how the new technologies can facilitate the positive results of environmentally responsible performance. This paper analyzes the associations between AI Integration Capability and Digital Twin Traceability and Sustainable Business Performance, considering Circular Economy Implementation and Environmental Transparency as mediators and Regulatory Pressure as a moderator. A structured questionnaire was used to gather data on manufacturing firms in major industrial zones in China, with 334 valid responses. The data were analyzed through partial least squares structural equation modeling (PLS‐SEM) using Smart‐PLS. The results show that the implementation of the circular economy is positively correlated with technological capabilities and green supply chain practices, which are in turn associated with increased environmental transparency and sustainable business performance. The findings also indicate that regulatory pressure reinforces the associations between AI‐, traceability‐, and sustainability‐related practices and the use of the circular economy, which emphasizes the role of external regulation in forming organizational responses to sustainability. The research is relevant to sustainability literature because it builds a theoretical framework that is largely based on the Dynamic Capabilities Theory, although some additional information is drawn on the Resource‐Based View and Institutional Theory to clarify the relationship between digitally enabled capabilities and sustainability performance. The results provide practical implications for managers and policymakers who aim to align digital innovation projects with the concepts of the circular economy and environmental transparency practices to achieve long‐term environmental and economic benefits. The paper also recognizes its limitations and provides future research directions on digitally enabled sustainability transitions.