GREEN HR AND MSME SUSTAINABILITY: THE VITAL BRIDGE OF ENVIRONMENTAL PERFORMANCE

Abstract

This study examines the drivers of sustainability among Micro, Small, and Medium Enterprises (MSMEs) in Indonesia's Surabaya processing industry. Grounded in Stakeholder Theory and the Resource-Based View, the research evaluates the direct impacts of Green Innovation, Green Human Resources, and Green Dynamic Capabilities on MSME sustainability, as well as the mediating role of Environmental Performance. Primary data were collected through questionnaires from a purposive sample of 100 respondents operating across various processing sectors, including food and beverages, textiles, and woodcrafts. Structural Equation Modelling Partial Least Squares (SEM-PLS) via SmartPLS was utilised to analyse the quantitative data. The empirical findings indicate that Green Innovation has an insignificant negative relationship with MSME sustainability due to high adoption costs, while Green Human Resources yields an insignificant positive direct relationship. Conversely, Green Dynamic Capabilities exhibit a significant positive direct effect, making them a critical driver in fast-evolving markets. Mediation analysis reveals distinct pathways: Environmental Performance does not mediate the relationship between Green Innovation and Green Human Resources; however, it fully mediates the impact of Green Human Resources and partially mediates the role of Green Dynamic Capabilities on corporate sustainability. This study provides valuable insights, revealing that environmental management and technical adjustments do not automatically ensure short-term business survival unless backed by unique, adaptive internal capabilities. It emphasises that for manufacturing MSMEs, fostering green dynamic capabilities and translating human awareness into measurable environmental performance are more effective long-term strategies than expensive innovations alone.