Sustainability Business Model Innovation (SBMI) is vital for integrating environmental, social, and economic values into business practices. Stakeholder engagement is central to this process, enabling firms to co-create sustainable solutions, address systemic challenges, and secure social legitimacy. However, it also generates significant complexities which can undermine progress. To overcome these obstacles, firms enhance their ability to adapt and reconfigure resources in response to environmental shifts—their dynamic capabilities. This study explores how firms leverage stakeholder engagement to build dynamic capabilities for SBMI. Through a comparative case study approach, we analyzed the sustainability transitions of two major Swedish architectural firms, Alpha and Beta, which displayed distinctive approaches to stakeholder engagement, leading to varied SBMI outcomes. In our analysis we identify three hierarchical levels of dynamic capabilities development: (1) zero-order operational capabilities, encompassing interdisciplinary knowledge integration and sustainability value-adding; (2) first-order engagement capabilities, such as internal and external integrative learning; and (3) second-order engagement capabilities, including sustainability value framing and systematized learning. It thus extends the hierarchical capability framework for sustainability innovation, revealing patterns of collaboration and competition among stakeholders. Our study sheds light on sustainability-oriented activities within the traditionally resistant architecture and construction sector. By contrasting distinct strategies, this research offers practical guidance for practitioners who leverage stakeholder engagement and dynamic capabilities to drive SBMI, highlighting pathways for firms to navigate complexities and accelerate sustainability transitions.
