["British Journal of Management, Volume 37, Issue 2, April 2026. ", "\nAbstract\nPrior circular economy (CE) literature has predominantly focused on technological knowledge in the development of firms’ CE capabilities. However, since CE represents a sustainable way of life that intricately links materials, technology and affected communities, technological knowledge alone is only partially useful. As a result, the role of community stakeholders in CE is important yet remains underexplored. This study examines how firms’ community engagement contributes to the development of CE capabilities. Drawing on the absorptive capacity framework from organizational learning literature, I argue that community engagement enhances firms’ absorptive capacity, which in turn increases firms’ CE capability development. This relationship is moderated by cultural collectivism. Using a global dataset spanning from 2002 to 2020 across 64 countries, I test the hypotheses using multilevel linear modelling, propensity score matching and a range of supplementary tests. The findings not only advance the understanding of community‐driven CE capabilities but also offer valuable insights for practitioners and policymakers aiming to understand the interdependent roles of different stakeholders in advancing circular practices towards Net Zero.\n"]