["Corporate Social Responsibility and Environmental Management, EarlyView. ", "\nABSTRACT\nSmall and medium‐sized enterprises (SMEs) are essential for a sustainable future. However, many SMEs currently lack the intrinsic motivation to adopt ESG practices. As a key informal institutional factor, the entrepreneur circle plays a critical role in shaping SMEs' decision‐making. Utilizing a sample of Chinese SMEs, this study explores the mechanism by which the entrepreneur circle drives the willingness of SMEs to engage in ESG practices. Both qualitative and quantitative methods are adopted (in‐depth interviews → three levels of coding → scale development → structural equation model test). According to the research results, the degree of ESG embeddedness in the entrepreneur circle not only directly improves the willingness of SMEs to engage in ESG practices but also indirectly stimulates it through ESG normative recognition, ESG affective commitment, ESG efficacy, and the expectation of ESG returns. This study constructs a comprehensive theoretical framework for the mechanism by which the entrepreneur circle drives the willingness of SMEs to engage in ESG practices (i.e., external stimulus → internalization → behavioral intention). This helps policy makers and business enterprises better understand how informal institutions promote ESG practices in SMEs. The applicability of the theoretical model in other countries with similar entrepreneur circle cultures deserves further exploration in the future.\n"]