Eco‐Innovation and <scp>SME</scp> Competitiveness: A Systematic Review and Conceptual Framework

ABSTRACT This paper systematically reviews eco‐innovation practices in small and medium‐sized enterprises (SMEs) to identify their key challenges, enablers, and outcomes. Using the Scopus database, 207 peer‐reviewed journal articles published between 2002 and 2025 were analyzed following PRISMA guidelines; the review synthesizes recent evidence on how SMEs adopt and benefit from eco‐innovation under increasing sustainability and digitalization pressures. The results indicate that eco‐innovation enhances environmental and economic performance when supported by complementary firm‐level capabilities, including green intellectual capital, dynamic capabilities, and digital readiness. However, adoption remains uneven due to persistent barriers including financial constraints, managerial inexperience, and weak institutional support. The review also highlights the mediating roles of leadership, human resource management, and collaboration in translating sustainability intent into measurable performance. Theoretically, it advances a capability‐contingent and multi‐level understanding of eco‐innovation, emphasizing the importance of mechanism‐based theorizing. Empirically, it suggests that SMEs should integrate technological, human, and organizational initiatives while policymakers develop blended financing and capability‐building programs to foster adoption. Overall, this study contributes an updated synthesis that bridges fragmented findings, refines theoretical perspectives, and provides a strategic framework for advancing sustainable innovation among SMEs.