Fostering circular economy in small and medium‐sized enterprises: The role of social capital, adaptive capacity, entrepreneurial orientation and a pro‐sustainable environment

Abstract This study addresses the challenges faced by small‐ and medium‐sized enterprises (SMEs) in undertaking sustainability projects due to limited resources and explores the factors influencing SMEs' adoption of circular economy (CE) practices, an area under‐researched in literature. Analysing data from 205 SMEs in Spain's forest bioeconomy sector using fuzzy sets (fs/QCA), the study finds that internal and external social capital, coupled with adaptive capacity, are crucial influences, particularly when SMEs exhibit an entrepreneurial culture. Conversely, if SMEs do not have an entrepreneurial orientation or the environment is not pro‐sustainable, these three characteristics may lead to low CE adoption. Thus, the study emphasizes SMEs' imperative to cultivate social capital, enhance adaptive capacity, and embrace innovation and risk‐taking to leverage internal and external resources and meet environmental demands, thereby reducing costs and time in adopting CE practices. Additionally, it underscores policymakers' pivotal role in fostering a pro‐sustainable environment, being critical for SME engagement in CE practices.