Closing Loops, Opening Net‐Zero Futures: Exploring the Antecedents and Consequences of Circular Economy Readiness

ABSTRACT This study investigates the dynamics between green innovation, circular economy readiness, and the net zero‐based green performance with the moderating effects of data‐driven lean and green practices and financial resilience. Based on dynamic capability theory, we advance the assertion that green innovation increases readiness for circular economy, and it has a positive effect on net zero‐based green performance. Moreover, we assume that data‐driven lean and green practices are the vital enabler, supporting the association between green innovation and circular economy readiness. Data from a three‐wave field survey of 341 manufacturing SMEs from China showed that green innovation substantially and significantly affects circular economy readiness, which also has a significant effect on net zero‐based green performance. The effects also show that circular economy readiness is the mediator of the link between green innovation and net zero‐based green performance. Moreover, the influence of green innovation on circular economy readiness is greatly magnified by the adoption of data‐driven lean and green practices. Similarly, the influence of circular economy readiness on net zero‐based green performance, is greatly magnified by the financial resilience. These outcomes highlight the importance of financial resilience and data‐driven strategy integration with sustainable practices to improve net‐zero outcomes, which can act as a guide for policymakers and industry leaders who want to promote environmental sustainability.