Entrepreneurial Orientation and Environmental Performance in Water and Wastewater Companies: The Mediating Role of Circular Economy Practices for Sustainable Development

ABSTRACT Municipal wastewater treatment plants (WWTPs) are key actors in advancing circular economy (CE) principles and sustainable development, yet their entrepreneurial dimension remains underexplored due to their statutory roles and non‐competitive environment. This study addresses this gap by examining the relationships between entrepreneurial orientation (EO), organizational capabilities for circular economy (OCC), circular economy practices (CEPs), and environmental performance (EP) in WWTPs. We develop and test a two‐stage model in which EO influences OCC and CEPs, which in turn shape environmental outcomes. The analysis is based on survey data from 320 WWTPs and employs partial least squares structural equation modelling (PLS‐SEM). The results indicate that EO significantly enhances both OCC and CEPs. Moreover, OCC partially mediates the relationship between EO and CEPs, highlighting the enabling role of organizational capabilities in implementing CE practices. CEPs emerge as the strongest direct predictor of EP, while the effects of EO and OCC are largely indirect. Multi‐group analysis shows that organizational size moderates these relationships. In smaller WWTPs, EP is shaped by both direct and indirect effects of EO and OCC, whereas in larger organizations, CEP fully mediates these links. This suggests a shift from flexible, capability‐driven mechanisms to more structured, practice‐based processes as organizational size increases. The study contributes to the literature by providing new insights into the entrepreneurial aspects of CE in public utilities and their role in sustainable development. It also offers practical implications for improving environmental performance through capability development and strategic CE implementation.