A sustainable performance framework for building a circular economy system at the firm-level

• Transition to circular economy (CE) enhances firm-level sustainable performance. • Dynamic environment (DE) triggers innovation and CE adoption. • Dynamic capabilities (DC) enable sensing, seizing, and transforming for CE. • Environmental commitment (EC) embeds sustainability into corporate strategy. • Inter-organizational collaboration (IOC) accelerates systemic CE implementation. The transition to circular economy (CE) is increasingly recognized as a strategic pathway for achieving firm level sustainable performance. The mechanisms through which organizational and environmental enablers interact remain underexplored. We aimed to develop and validate a sustainable performance framework that captures interactions among key constructs driving CE implementation. A hybrid methodological design was employed, integrating a systematic literature review and bibliometric analysis with qualitative insights from in-depth interviews across seven industries in Indonesia. Searches were conducted on Scopus (2014–2024) and 65 publications were identified. Bibliometric analysis was conducted using VOS viewer and in-depth interviews were analyzed using thematic analysis approach. Findings reveal that dynamic environment (DE) characterized by regulatory shifts, technological turbulences, market pressures, acts as a catalyst for firms to innovate and adopt. Dynamic capabilities (DC) enable firms to sense opportunities, reconfigure resources, implement circular innovations and respond to market demands. Environmental commitment (EC) embeds sustainability within corporate strategy, while inter organizational collaboration (IOC) facilitates cross-sector partnerships, knowledge sharing, and collective circular initiatives. Together, the four constructs operate as a self-reinforcing system that enhances environmental, social and economic performance. Validation showed that although these relationships are widely generalizable, their expressions are sector specific. Export oriented firms tend to adopt CE for compliance, consumer facing industries act on reputational pressures, and pharmaceutical firms are driven by regulatory and ESG imperatives. Drawing on key theories, the study offers a theoretically grounded and informed framework that supports future research and provides actionable guidance for firms pursuing circular and sustainable transition strategies.