Harnessing AI Capacities for Sustainable Business Models: Empowering Firms across Economic, Social, and Environmental Dimensions

The rapid advance of artificial intelligence (AI) is transforming industries by enabling cost reduction, personalized solutions, and improved customer service. AI also supports sustainability by facilitating data-driven decisions, operational efficiency, and better management of environmental and social externalities. However, a gap persists between technological potential and the effective adoption of sustainable and responsible business practices. This article explores how AI capacities contribute to sustainable business model (SBM) innovation, focusing on the Italian cosmetics sector. Based on a qualitative analysis of interviews with chief executive officers and senior managers from 11 companies, the article highlights how dynamic capabilities (DCs) powered by AI capacities enable organizations to sustainably enhance value creation, delivery, and capture. The findings identify best practices that leverage AI for sustainability, including product personalization, process automation, and predictive analytics. The article provides actionable insights into how AI-based systems can drive both innovation and sustainability. Building on these insights, the article proposes a theoretical framework that conceptualizes the link between lower order AI capacities, high-order DCs, and SBM innovation. Within this framework, best practices emerge as the operational outcome of AI-enabled DCs: they not only innovate processes and practices but also act as catalysts that transform and reconfigure the business model itself toward sustainability. By contextualizing these insights within a sector-specific framework, the article contributes to the growing body of knowledge on AI's role in supporting sustainable business transformation. Managerial Relevance Statement-Managerial relevance statement: This study provides engineering managers, innovation consultants, and technical professionals with actionable insights into how AI can support SBM innovation. By analysing practices in the cosmetics sector, the research shows how AI capacitiesperceptive, predictive, and prescriptiveenhance firms DCs (sensing, seizing, transforming), enabling them to adapt, innovate, and respond to sustainability challenges. The findings highlight how AI contributes to the emergence of best practicessuch as product personalisation, packaging optimisation, and process automationwhich act as both outcomes of strategic adaptation and enablers of further innovation. These practices are not static solutions but dynamic routines that reflect the organisations ability to integrate AI into its broader transformation journey. The conceptual framework proposed in this study illustrates how AI, when embedded in organisational capabilities, supports the reconfiguration of value creation, delivery, and capture. The development framework offers engineering professionals a structured lens to guide the integration of AI into sustainable innovation strategies, helping them navigate complexity and lead change across technical and organisational domains and achieve the Sustainable Development Goals SDG. This paper also contributes to the following SDGs: SDG 9, SDG 12, SDG 13.