The Effect of Green Entrepreneurial Orientation on Sustainable Business Performance Mediated by Eco-Friendly Product Innovation

Abstract

Escalating global consumer awareness regarding climate emergencies compels Micro, Small, and Medium Enterprises (MSMEs) to harmonize their strategic posture with environmental sustainability tenets. Green Entrepreneurial Orientation (GEO)—encompassing green innovativeness, ecological proactiveness, and environmental risk-taking—serves as a pivotal strategic posture for generating enduring economic and ecological value. This study investigates the impact of GEO on sustainable business performance among MSMEs, evaluating the mediating role of eco-friendly product innovation. An explanatory quantitative survey was administered to 140 owners and managers of eco-oriented MSMEs (upcycled handicrafts, organic agribusiness, sustainable fashion, and natural herbal wellness) across North Sulawesi. Data were evaluated using Partial Least Squares Structural Equation Modeling (PLS-SEM) in SmartPLS 4.0. The empirical results reveal that Green Entrepreneurial Orientation significantly elevates eco-friendly product innovation (β = 0.572, p < 0.001) and sustainable business performance directly (β = 0.226, p = 0.001). In addition, eco-friendly product innovation exerts a substantial positive effect on sustainable performance (β = 0.514, p < 0.001) and functions as a significant partial mediator linking GEO to performance outcomes (β = 0.294, p < 0.001). The structural model explains 52.7% of the variance in eco-friendly product innovation (R² = 0.527) and 64.2% in sustainable business performance (R² = 0.642). These findings demonstrate that green strategic intentions must materialize into tangible product differentiation to unlock durable financial, social, and environmental competitive advantages.