Psychological Factors Influencing Environmental Knowledge and their Impact on Indonesian Circular Economy Adoption

This study aims to explore the psychological factors influencing the adoption of circular economy practices among Small and Medium Enterprises (SMEs) in Indonesia. Specifically, it examines the role of environmental knowledge, attitudes toward circular economy, motivation, social norms, perceived behavioral control, and risk perception. Using a quantitative approach with a cross-sectional design, the research involved 416 SME owners and managers from various industry sectors. Data were collected through questionnaires and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that attitudes toward the circular economy (β = 0.134, p = 0.001), motivation (β = 0.297, p = 0.001), social norms (β = 0.656, p = 0.000), and risk perception (β = 0.246, p = 0.007) significantly contribute to increasing environmental knowledge (EK). However, perceived behavioral control (β = -0.051, p = 0.769) does not significantly influence environmental knowledge. Furthermore, environmental knowledge does not significantly impact the adoption of circular economy practices (β = 0.650, p = 0.105). Mediation path analysis reveals that attitudes (β = 0.110, p = 0.041) and motivation (β = 0.193, p = 0.046) indirectly influence circular economy adoption through increased environmental knowledge. This study contributes to understanding the psychological drivers behind circular economy adoption in the Indonesian SME sector and offers valuable insights for policymakers and business owners to promote sustainable practices. This study addresses the research gap by highlighting the role of psychological factors in the adoption of the circular economy in Indonesia, which remains underrepresented in the literature. However, the reliance on self-reported data may introduce perception bias, requiring additional approaches for validation. The originality of this research lies in its focus on Indonesian SMEs, exploring how psychological factors can influence the uptake of circular economy practices in a developing country context, which has been underrepresented in existing literature. This study provides new perspectives on the adoption of circular economy principles in SMEs, offering practical recommendations to foster sustainable business practices.