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This study contributes to the literature on eco-innovation (EI) and the circular economy (CE) by providing insights into the factors of external knowledge absorption that facilitate the adoption of a subset of EIss called proactive-EIs. Proactive-EIs involve collaborations among multiple stakeholders, the use of technical knowledge and a greater level of investment than other innovations. In this study, the environmental actions taken by small and medium-sized enterprises (SMEs) in resource-intensive sectors in the European Union (EU) were observed, and elements related to the national context were compared.

The national innovation system (NIS) perspective was adopted using a multilevel framework to assess the determinants of proactive-EIs among SMEs in the EU. The framework involves three levels: micro- (environmental awareness), meso- (external collaboration and intra-industry agglomeration) and macro- (economic complexity, trade openness and government research and development [R&D]). The survey data of 6,188 SMEs in resource-intensive sectors were analysed using a binary logistic regression.

The results showed that public awareness, economic complexity and public sector R&D positively influenced SMEs' adoption of proactive-EIs, whereas external collaboration and sectoral agglomeration negatively influenced adoption.

Among the existing empirical studies on EI, areas related to external knowledge-based innovations and systematic assessments of heterogeneity among EU member states remain underexplored. This study contributed to the literature by assessing the conditions surrounding external knowledge absorption. The findings contribute to the green entrepreneurship literature in the context of developed economies and offer insights for managers and policymakers seeking to promote EIs.