Digitally circular unlocking sustainability performance through sequential transformation and green innovation in the fashion and textile industry

Abstract This study examines how Circular Economy (CE) practices influence Sustainability Performance (SP) in the textile and apparel industry, through a sequential transformation process involving Digital Transformation (DT) and Green Innovation (GI). Specifically, the study aims to explain how internal capability-building mechanisms translate CE practices into measurable sustainability outcomes in an emerging-economy context. By grounding the analysis in the Resource-Based View (RBV), Dynamic Capabilities Theory (DCT), and Stakeholder Theory (ST), this study provides a robust theoretical framework that links firm-level capabilities to sustainable outcomes in an underexplored export-oriented, resource-constrained context. This study employed a full-population survey of all 550 registered textile and apparel firms operating within Jordan’s Qualified Industrial Zones (QIZs)—a key hub for the country’s export-oriented fashion sector, which faces intense international compliance pressures and institutional constraints. A total of 373 valid responses were collected. To mitigate single-informant bias and enhance data accuracy, the survey employed a functionally disaggregated design, in which different senior managers—such as CEOs, IT directors, and sustainability officers—responded to sections tailored to circular economy practices, digital transformation, green innovation, and sustainability performance. Data analysis was conducted using Partial Least Squares Structural Equation Modeling (PLS-SEM), supplemented with bootstrapped mediation testing to examine both direct and sequential relationships among variables. The results validate a sequential mediation model: CE practices enhance SP indirectly through DT and GI. CE influences the adoption of digital capabilities, which, in turn, enable innovation in sustainable practices. These findings extend the sustainability literature by demonstrating a capability-based sequential pathway through which circular strategies are operationalized to yield performance gains in emerging-economy manufacturing sectors. This layered pathway supports the strategic role of dynamic capabilities and aligns with current discourses on circularity and sustainability.