Knowledge, Innovation, Sustainability and Circular Economy: Effects on Environmental and Financial Performance

Abstract

This study analyzes the relationship between knowledge management, innovation, sustainability practices and circular economy practices, as well as their impact on environmental and financial performance in Mexican manufacturing companies. A validated questionnaire was administered to 159 companies in the manufacturing industry, and partial least squares structural equation modeling was applied, including tests of convergent validity, discriminant validity, predictive power, and effect sizes. The results indicate that knowledge management significantly influences innovation and indirectly affects sustainability and circular economy prectices. Innovation, in turn, positively influences the adoption of sustainable and circular practices, which subsequently enhance environmental performance. Likewise, environmental performance has a direct and significant effect on financial performance. The model confirms that it is possible to integrate sustainability and competitiveness, demystifying the debate between profitability and environmental responsibility. These findings provide an empirical and theoretical framework applicable in emerging economies, with implications for the design of public policies and business strategies that promote the transition to a circular economy.