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Global concern over environmental pollution has sparked the adoption of green business practices, which are essential for the sustainability of SMEs through green economy initiatives and renewable resources. This study aims to analyze the integration of circular and digital economy policies along with social protection policies in supporting green business innovation among culinary SMEs. By emphasizing the significance of government roles and innovation capabilities, the paper proposes that policies promoting environmentally friendly practices and social security can enhance sustainable performance in alignment with SDG principles. The study employs a quantitative approach, surveying 200 culinary SMEs in Surabaya City in Indonesia, a city known for its vibrant SME sector and commitment to sustainable practices. The data analysis, conducted using PLS-SEM through SmartPLS 4, reveals that circular economy policies (t-test = 6.503; p-value = 0.000) and social security (t-test = 3.848; p-value = 0.000) significantly enhance green business innovation, while digital economy policies are not significant (t-test = 0.725; p-value = 0.468). Furthermore, green business innovation positively impacts sustainable performance (t-test = 24.418; p-value = 0.000). However, internal innovation capabilities do not moderate the relationship between integrative policies and green business innovation. The findings indicate that government policies significantly influence green business innovation in MSMEs, particularly through circular economy regulations. Regulatory support and incentives are crucial for driving environmental sustainability and enhancing competitiveness. Strengthening digital economy policies through improved technology access and digital literacy will further support green innovation, while investments in internal innovation and human resources are vital for sustainable growth. AcknowledgmentThis study is funded by the Riset Kolaborasi Indonesia (Grant No. B/43869/UN38.III.1/LK.04.00/2024) by LPPM Universitas Negeri Surabaya.
Megawati et al. (Tue,) studied this question.