Digital Capabilities, Green Innovation, and Firm Competitiveness : Evidence from European Firms Using PLS-SEM and Necessary Condition Analysis

Abstract

This study examines whether digital capabilities constitute a necessary condition for green innovation and firm competitiveness in the context of increasing sustainability and digital transformation pressures. Although prior research frequently links digitalization to improved environmental and business outcomes, limited evidence exists on whether firms must achieve a minimum level of digital capability to successfully generate green innovation and sustain competitive performance. To address this gap, the study investigates the relationships among digital capabilities, green innovation, and firm competitiveness using Partial Least Squares Structural Equation Modelling (PLS-SEM) and Necessary Condition Analysis (NCA). Using survey data from 740 firms across Hungary, Romania, Poland, Austria, and other Central and Eastern European (CEE) countries, the findings demonstrate that digital capabilities significantly enhance both green innovation and firm competitiveness. Green innovation further acts as a mediating mechanism through which digital capabilities translate into superior competitive outcomes. Importantly, the NCA results reveal that digital capabilities are not merely beneficial but represent a necessary condition for achieving high levels of green innovation and competitiveness within the studied sample of CEE firms, suggesting a threshold relationship that warrants further causal investigation. Firms with higher digital maturity consistently outperform less digitally developed firm. Firms with higher digital maturity consistently outperform less digitally developed firms in leveraging sustainability-oriented innovation strategies. The study contributes to the literature by advancing understanding of how digital transformation capabilities support sustainable competitiveness and by combining sufficiency and necessity analytical approaches to examine these relationships. The findings also provide practical implications for managers and policymakers by highlighting the strategic importance of investing in digital capabilities to simultaneously support environmental sustainability and long-term competitive performance. © 2026 by the authors.