Twin transitions or a meeting of strangers? Unravelling the effects of AI and innovations on economic, social and environmental MSMEs sustainability

This research seeks to expand understanding of the twin transition -digital transformation and socio-economic and environmental sustainability-in firms by examining the impact of a specific digital technology family (artificial intelligence-based technological systems, AITS) and a comprehensive view of innovation encompassing their economic, social, and environmental dimensions. While increasing evidence highlights the influence of AITS on innovation and various economic and firm results, there is a notable gap of studies exploring the social, economic, and environmental sustainability pathways arising from the interplay between AITS usage and different types of innovation. This paper aims to address this gap. Additionally, the study investigates the moderating effects of the digital innovation strategy on the relationship between AITS and sustainability. Using a large, representative sample of 12,326 micro, small, and medium-sized enterprises (MSMEs) across 29 European Union countries in 2020, and employing structural equation modelling with partial least squares (PLS-SEM), the research identifies multiple social, economic, and environmental sustainability pathways. The results indicate that economic innovation serves as a key driver of sustainability across all dimensions, positively mediated by environmental and social innovation and the adoption of AITS. Nevertheless, is particularly relevant the finding of a substitution effect between the digital and socio-environmental transitions. For European MSMEs, the digital strategy exerts a negative moderating effect on the relationship between AITS and social and environmental sustainability. The study also uncovers other heterogeneous pathways based on firm size.