Pathways to Sustainable Competitive Advantage: Integrating Firm‐Level Sustainability Targets, Eco‐Innovation, and Sustainable Governance for Circular Business Transformation

ABSTRACT As global industries confront escalating environmental pressures, translating corporate sustainability ambitions into measurable circular outcomes has become increasingly essential. This study investigates how firm‐level sustainability targets (FST) drive the adoption of circular business strategies (CBS) among manufacturing firms in BRICS countries, where rapid industrialization intersects with institutional diversity and sustainability constraints. Grounded in the resource‐based view and strategic fit theory, the study proposes an integrated framework in which eco‐innovation mediates, and sustainable governance moderates, the FST–CBS relationship. Using a panel dataset of 789 listed manufacturing firms from 2010 to 2023, the study applies a dynamic panel generalized method of moments (GMM) estimation with additional instrumental variables to address potential endogeneity and enhance the robustness of the results. The findings reveal that FST significantly enhances circular adoption but follows a nonlinear pattern, indicating an optimal threshold beyond which excessive targets may strain resources and reduce strategic effectiveness. Eco‐innovation emerges as a key mechanism translating sustainability intent into operational circular practices, while strong governance further amplifies this effect. Heterogeneity analyses across industries, countries, and ownership structures reveal that the sustainability–circularity nexus is shaped by contextual and institutional factors. The study contributes novel empirical evidence on how strategic sustainability alignment and governance capabilities jointly determine the effectiveness of circular transformation. It offers actionable insights, urging firms to balance ambition with capacity and policymakers to strengthen ESG disclosure, incentivize innovation, and embed governance reforms that foster credible and scalable circular transitions within and beyond the BRICS economies.