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<p>Small and Medium Enterprises (SMEs) play a critical role in supporting economic development while facing increasing pressure to adopt sustainable business practices. However, many SMEs in emerging economies continue to experience difficulties in integrating sustainability principles into their operational and financial decision-making processes. This study examines the relationships between local wisdom, financial behavior, circular economy adoption, green sustainable finance, and sustainable performance among Indonesian SMEs. Using an extended sustainability framework, this study investigates how culturally embedded values and financial decision-making capabilities influence sustainability-oriented business practices. Data were collected from 627 SME owners and managers across several regions of Indonesia. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4. The findings demonstrate that local wisdom significantly contributes to sustainable performance, circular economy adoption, green sustainable finance, and financial behavior. Circular economy practices significantly enhance SME sustainable performance, confirming their role as an important mechanism for achieving sustainability outcomes. Green sustainable finance contributes positively to circular economy adoption; however, its direct relationship with sustainable performance is negative, suggesting that access to green financing alone does not guarantee improved sustainability outcomes without adequate organizational capabilities and implementation readiness. This study contributes to the sustainability literature by integrating cultural, financial, and environmental dimensions into a unified SME sustainability framework. The findings highlight the importance of aligning sustainability strategies with local cultural values, financial capabilities, and organizational readiness to achieve meaningful sustainable transformation.</p>

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The Circular Economy and Green Sustainable Finance as Drivers of SME Sustainable Performance: The Role of Local Wisdom and Financial Behavior

  • 期刊论文

  • 发表日期：

    2026年7月8日

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  • Edwin Agus Buniarto,
  • Dian Ferriswara,
  • Lina Saptaria,
  • Ilyas Masudin

摘要

Small and Medium Enterprises (SMEs) play a critical role in supporting economic development while facing increasing pressure to adopt sustainable business practices. However, many SMEs in emerging economies continue to experience difficulties in integrating sustainability principles into their operational and financial decision-making processes. This study examines the relationships between local wisdom, financial behavior, circular economy adoption, green sustainable finance, and sustainable performance among Indonesian SMEs. Using an extended sustainability framework, this study investigates how culturally embedded values and financial decision-making capabilities influence sustainability-oriented business practices. Data were collected from 627 SME owners and managers across several regions of Indonesia. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4. The findings demonstrate that local wisdom significantly contributes to sustainable performance, circular economy adoption, green sustainable finance, and financial behavior. Circular economy practices significantly enhance SME sustainable performance, confirming their role as an important mechanism for achieving sustainability outcomes. Green sustainable finance contributes positively to circular economy adoption; however, its direct relationship with sustainable performance is negative, suggesting that access to green financing alone does not guarantee improved sustainability outcomes without adequate organizational capabilities and implementation readiness. This study contributes to the sustainability literature by integrating cultural, financial, and environmental dimensions into a unified SME sustainability framework. The findings highlight the importance of aligning sustainability strategies with local cultural values, financial capabilities, and organizational readiness to achieve meaningful sustainable transformation.