Constraints, Government Support, and Environmental Innovation for Sustainability in SMEs: A Configurational Analysis Across Industrial Sectors

Environmental innovation that reduces the use of energy, materials, and water and lowers emissions in firms’ own operations is central to sustainable development, yet small and medium-sized enterprises (SMEs) often lack the financial, technological, and human resources to pursue it, and governments seek to relieve these constraints through financial and non-financial support. How such support combines with the constraints SMEs face, however, remains unclear. This study examines how financial, capability, market and regulatory constraints combine with government financial and non-financial support in relation to environmental innovation. Applying fuzzy-set qualitative comparative analysis to innovation-active SMEs from the 2024 Korean Innovation Survey, it analyses the pooled sample and four Pavitt sectors. The results show that the main configuration combines the absence of financial constraint with capability and market constraints and involves no government support. In addition, the configurations differ across sectors: capability constraints recur in supplier-dominated and scale-intensive industries, market and regulatory constraints accompany environmental innovation among specialised suppliers, and no configuration emerges in science-based industries. Government support appears much more often in configurations for the absence of environmental innovation, and financial support appears together with financial constraint only in these configurations. The sector-level capability constraints recur across most robustness specifications, whereas the pooled configurations are sensitive to calibration choices. These findings suggest that sustainability policies supporting environmental innovation in SMEs should be designed around the combinations of constraints firms face and the innovation patterns of their sectors.