From social to structural capital: digital transformation as a codification mechanism for ESG reporting in SMEs

PURPOSE: This study extends foundational work on knowledge codification and Intellectual Capital by examining how small and medium-sized enterprises (SMEs) transform Social Capital into Structural Capital, thereby bridging the “Relational-Performance Gap,” the disconnect between relational strengths and auditable environmental, social and governance (ESG) reporting. The research conceptualizes Digital Transformation as a codification mechanism that converts Leaderful Practice, the observable manifestation of Relational Capital, into durable Structural Capital supporting ESG reporting. DESIGN/METHODOLOGY/APPROACH: An explanatory sequential mixed-methods design (QUAN → qual) was employed. Quantitative data from 97 listed SMEs in Italy (n = 43) and Pakistan (n = 54) tested associations among capital types using multiple regression, with full reporting of coefficients, standard errors and model fit statistics. Subsequent qualitative case studies of eight matched firms (four per country) provided process evidence of codification mechanisms across institutional contexts, analyzed through systematic thematic coding. FINDINGS: Quantitative analysis reveals that Digital Transformation is strongly associated with ESG reporting in both Countries, whereas the direct association between Leaderful Practice and reporting is significant only in the Italian sample. Qualitative evidence explains this pattern through two distinct archetypes: Italian SMEs exemplify a Structured Codification model, using formal digital platforms to systematically institutionalize collaborative norms; Pakistani SMEs demonstrate an Agile Conversion model, repurposing accessible digital tools to validate and amplify existing relational workflows. These findings illustrate equifinality in Intellectual Capital development: equivalent reporting outcomes achieved through culturally distinct conversion pathways. ORIGINALITY/VALUE: This study contributes a process-oriented conversion theory of Intellectual Capital, demonstrating how Digital Transformation acts as a codification engine that materializes ephemeral Relational Capital into auditable Structural Capital. It integrates Leaderful Practice into the Intellectual Capital discourse, offering a framework for leveraging digital tools to formalize relational assets for sustainability, while maintaining organizational agility. The cross-cultural lens provides insights into how institutional context shapes Intellectual Capital development pathways, with implications for both theory and practice.