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

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