Driving Sustainable MSME Performance through Green Innovation and Environmental Practices In West Sumatera
Abstract
The increasing environmental pressure associated with the rapid growth of micro, small, and medium enterprises (MSMEs) has intensified the need for business models that integrate economic performance with environmental responsibility. Despite the growing interest in sustainable entrepreneurship, empirical studies examining how sustainable environmental practices and green innovation jointly influence MSME sustainability through financial mechanisms remain limited, particularly in tourism-driven regional economies. This study aims to examine the influence of sustainable environmental practices and green innovation on sustainable MSME performance, with financial performance acting as a mediating variable. The research was conducted among environmentally oriented MSMEs in West Sumatera, Indonesia, specifically in Agam Regency, Bukittinggi City, Pasaman Regency, and Padang Panjang City. Using a quantitative approach, data were collected from 301 MSMEs and analyzed using Structural Equation Modeling with Partial Least Squares (PLS-SEM). The findings reveal that sustainable environmental practices and green innovation significantly improve financial performance, which subsequently enhances sustainable MSME performance. Green innovation also demonstrates a direct positive influence on sustainable business performance, highlighting the importance of innovation in strengthening long-term competitiveness and environmental responsibility. However, the direct influence of environmental practices on sustainable business performance appears relatively weaker, indicating that financial capacity and innovation capability play critical roles in translating sustainability practices into tangible business outcomes. The novelty of this study lies in integrating sustainability practices, innovation capability, and financial performance within a unified analytical framework applied to MSMEs operating in tourism-oriented regional economies. The findings contribute to the literature on sustainable entrepreneurship and provide practical implications for policymakers, financial institutions, and MSME development agencies to promote green innovation, sustainability training, and green financing initiatives in supporting environmentally responsible MSME development.
Keywords: Sustainable environmental practices; Green innovation; Financial performance; Sustainable MSME performance; Green MSMEs; Emerging economies.
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