The Digital‐Sustainability Disconnect: A Test of Strategic Alignment in the Circular Economy Transition

ABSTRACT

This study challenges the common assumption that digital and sustainability transformations are naturally synergistic. Integrating signaling theory and the dynamic capability view, we argue that for many firms, particularly traditional SMEs, these initiatives are pursued on separate, unaligned strategic tracks, creating a “signaling‐substance gap” that slows the transition to a circular economy. To investigate this, we develop a framework of strategic alignment, testing the coherence between a firm's internal substance (digital capability stocks and sustainable practices) and its external communication strategy (digital signaling flows). Using a unique dataset merging survey and web‐coded data from 321 wineries, we employ latent class analysis to identify distinct digital signaling profiles. The findings reveal a stark digital divide and a nonlinear “strategic threshold” effect: a firm's probability of adopting an advanced signaling strategy only increases significantly after reaching a critical level of internal digital adoption depth. Crucially, our results identify a strategic disconnect: Firms with more advanced digital signaling strategies do not exhibit significantly different self‐reported sustainable practices, despite communicating sustainability much more intensively. This reveals a critical gap where digital maturity facilitates sophisticated external signaling but does not mirror superior underlying sustainable action. We discuss the implications of this decoupling for the “twin transition” and provide a capability‐based explanation for the slow progress toward circularity in traditional sectors.