This study aims to examine how sustainability initiatives are shaped under conditions of regulatory ambiguity and market turbulence, focusing on how executive paradoxical cognition influences the activation of dynamic capabilities and the translation of internal adaptation into externally recognized environmental, social and governance (ESG) legitimacy.
This study adopts a sequential mixed-methods design combining a sector-wide survey of banking institutions with in-depth qualitative interviews across diverse ownership forms. Structural relationships are examined using partial least squares structural equation modelling, while qualitative pattern matching is used to interpret the cognitive and organizational processes underlying the observed relationships.
The results of this study show that environmental uncertainty strengthens paradoxical cognition, which in turn supports the activation of dynamic capabilities related to sensing, seizing and reconfiguring. Capability development alone, however, does not translate directly into enhanced ESG legitimacy. When paradoxical cognition is more pronounced, internal adaptation becomes harder to stabilize as external legitimacy, as ongoing experimentation and reconfiguration increase interpretive complexity and stakeholder scrutiny. Qualitative evidence further indicates that while paradoxical thinking facilitates learning and innovation, it can complicate the articulation of coherent and externally legible ESG narratives.
This study advances Paradox Theory by foregrounding cognitive tension as a mechanism shaping sustainability-related legitimacy processes. It also extends Dynamic Capabilities Theory by showing how capability activation unfolds under institutional constraints rather than under conditions of regulatory coherence. In doing so, this study explains why executive adaptability may simultaneously enable organizational learning and constrain legitimacy formation under uncertainty.
