Sustainability‐Oriented Innovation and Circular Economy Transitions: Evidence From the UK Textile and Clothing Industry

ABSTRACT The transition to a circular economy (CE) in the textile and clothing (TC) industry is frequently attributed to sustainability‐oriented innovation (SOI), yet empirical understanding of the systemic conditions under which SOI enables CE remains underdeveloped. This study addresses the gap by offering a novel, context‐specific analysis of how consumer behaviour and institutional quality shape the effectiveness of SOI in a high‐consumption, developed economy context. Drawing on survey data from 280 UK‐based textile and clothing firms and employing rigorous partial least squares‐structural equation modelling (PLS‐SEM), this study provides robust evidence that SOI has a significant positive influence on circular economy transitions (CET). However, this effect is contingent: it is strengthened by consumer willingness to buy and weakened by institutional voids. Notably, regulatory compliance, often assumed to drive sustainability, does not significantly moderate the relationship between the SOI and CET. These findings challenge linear models of innovation diffusion and reinforce a more relational, system‐aware understanding of circular transitions. The study makes an original theoretical contribution by modelling SOI as a second‐order construct and CET as a multidimensional outcome. It offers actionable insights for firms and policymakers by exposing the limitations of compliance‐led strategies and calling for more integrated, behaviourally informed approaches to managing innovation for sustainability.