Greener Pathways, Strategy, and Economic Performance: A Cross‐National Study on European Service SMEs

Abstract

ABSTRACT Research into how environmental management practices impact firm performance has largely overlooked the service sector's small and medium‐sized enterprises (SMEs). Drawing on industry, resource, and institution‐based strategy perspectives, this study investigates how adopting resource efficiency (RE) practices within the framework of a circular economy ( CE ) supports European service SMEs in achieving carbon neutrality (CN) and reducing production costs (PCs). The study also examines difficulties in adapting to environmental regulations among adopters, their associated impact on performance, and the importance of having a CN strategy. A combined permutation test conducted on 681 European service SMEs from 35 countries revealed––after controlling for sectoral differences––that SMEs without RE practices within the CE framework faced higher PCs, a critical factor for firm performance. Additionally, transportation and storage SMEs with a CN strategy demonstrated greater adoption of RE practices. Implications for theory, practice, and future research are discussed.

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