The nexus between proactive eco‐innovation and firm financial performance: a circular economy perspective

Abstract

Eco‐innovation has gained considerable attention in the academic and corporate world due to its potential in mitigating a firm’s sustainability issues. Most previous studies focused on the reactive approaches of eco‐innovation using primary data. This study mitigates the existing research gap by highlighting proactive eco‐innovation and using a secondary panel dataset. The prime objective of this study is to investigate the relationship between proactive eco‐innovation and firms’ financial performance. Hence, the study will introduce the proactive eco‐innovation index with the help of secondary panel data. In addition to that, the paper will also explore how proactive eco-innovation relates to circular economy. The theory of Resource‐Based View (RBV) was used to ex-plain the relationship among the variables. This study was conducted on 31 Malaysian public listed energy companies from 2015 to 2019. A proactive eco‐innovation index was inferred by adapting three dimensions of eco‐innovation (product, process, and technology) which is applicable for the energy sector. By applying random‐effects GLS regression equation modeling, it was found that proactive eco‐innovation (product eco‐innovation, process eco‐innovation, and technology eco‐in-novation) has a direct effect on firm financial performance. Furthermore, product and process eco-innovation is directly related to a circular economy through a sustainable product development process. The findings suggest that policymakers in the firm should proactively adopt eco‐innovative practices. It will positively affect the circular economy as it will be cost‐effective and help to reduce potential industrial pollution in the environment.