Circular Economy and Green Innovation as Drivers of Social Sustainability in Balinese MSMEs

Abstract

Micro, Small, and Medium Enterprises (MSMEs) play a pivotal role in sustaining Bali’s economy, particularly within the tourism and creative industries. However, global challenges, such as climate change and evolving consumer preferences, necessitate new models of business sustainability. This study examines how Balinese MSMEs transform through adopting circular economy (CE) practices and green innovation (GI) strategies, and the resulting impacts on social sustainability (SS). A quantitative approach involving purposive sampling of 90 MSMEs in Bali, both owners and employees, was conducted between January and August 2025, using structured questionnaires. Data reliability and validity were tested using Cronbach’s Alpha and AVE, while hypotheses were examined through SEM-PLS bootstrapping with 5000 subsamples. The findings indicate that both CE and GI exert significant positive effects on MSME social sustainability. Despite a strong commitment to product quality and community benefits, capacity-building activities for local communities remain limited. Theoretically, this research extends CE and GI frameworks to social sustainability in MSMEs. Policy implications are provided for supporting MSME capacity-building and alignment with Sustainable Development Goals (SDGs), notably SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation, and Infrastructure), and SDG 12 (Responsible Consumption and Production).