Achieving Sustainability Performance Through Circular Economy Practices Under the Influence of Open Innovation and Environmental Dynamism

ABSTRACT Circular economy ( CE ) practices can help firms improve environmental, economic, and social performance. While collaboration is essential to CE implementation, the role of open innovation (OI)—a more intensive form of collaboration—remains underexplored. This study investigates how OI and environmental dynamism shape the impact of CE practices on sustainability across all three dimensions. We developed and tested a conceptual model using survey data from 310 European manufacturing firms. We analyzed the data with partial least squares structural equation modeling. Results show that CE practices increase both inbound OI activity and sustainability performance. OI also mediates the relationship between CE and sustainability, enhancing its effects. CE directly improves environmental and economic performance, but not social performance. Environmental dynamism positively moderates the CE –OI link. This reinforces the need for external collaboration in dynamic environments. These findings underscore the strategic value of integrating CE and OI to achieve comprehensive sustainability. For managers, the message is clear: Pairing CE with OI can improve outcomes for the environment, society, and the bottom line.