Abstract:
Firms struggle to transition to circular economy (CE) models, often citing external barriers. Yet some firms succeed, whereas others fail: Why? We argue that success depends on a specific governance capability—a meta‐capability that allows firms to (1) sense and strategically reframe CE imperatives, (2) seize opportunities by aligning diverse stakeholders, and (3) reconfigure institutional incentives. Building on dynamic capability (DC) theory, we conceptualize this governance meta‐capability as an external‐facing DC that enables firms to translate sustainability imperatives into robust business strategies. This capability acts as a translator between sustainability goals and business strategy, enabling firms to proactively construct, test, and scale circular business cases and models rather than wait for favorable external conditions. We thus shift the explanation for CE performance from external barriers to internal, DCs, showing how the business case for circularity is strategically built, not passively discovered, and offering a theory‐driven framework for understanding how firms can develop this governance meta‐capability.
