Driving Circularity Upstream: The Mediating Role of Circular Supply Chain Management in Environmental Performance

Abstract

The transition toward a circular economy has gained growing prominence as a means to reduce supply chain waste and enhance environmental performance, yet its success ultimately depends on effective collaboration among supply chain partners. This study aims to explore the factors that influence the adoption of circular practices in the upstream supply chain, focusing on how firms promote circularity across their supply networks. We offer a distinctive contribution by jointly examining how internal commitment to circular economy principles and the strategic role of the purchasing function drive environmental performance, while uniquely uncovering the mediating role of circular supply relationship management (CSRM) in translating internal practices into tangible environmental improvements. To test these relationships, survey data from 338 industrial firms were analyzed using structural equation modeling. The findings reveal that both firm‐level circular practices and strategic purchasing contribute to the development of CSRM. Furthermore, both CSRM and internal circular practices contribute positively to environmental performance, and CSRM additionally mediates the effect of firm circular practices on environmental outcomes. From a theoretical standpoint, this study advances the literature by identifying new linkages that highlight the role of strategic purchasing and internal circularity in shaping supplier relationships. From a managerial perspective, the findings underscore how these capabilities help extend circular practices upstream within the supply chain, while also contributing to improved environmental performance.