Eco�innovation has gained considerable attention in the academic and corporate world due to its potential in mitigating a firm�s sustainability issues. Most previous studies focused on the reactive approaches of eco�innovation using primary data. This study mitigates the existing research gap by highlighting proactive eco�innovation and using a secondary panel dataset. The prime objective of this study is to investigate the relationship between proactive eco�innovation and firms� financial performance. Hence, the study will introduce the proactive eco�innovation index with the help of secondary panel data. In addition to that, the paper will also explore how proactive eco-innovation relates to circular economy. The theory of Resource�Based View (RBV) was used to ex-plain the relationship among the variables. This study was conducted on 31 Malaysian public listed energy companies from 2015 to 2019. A proactive eco�innovation index was inferred by adapting three dimensions of eco�innovation (product, process, and technology) which is applicable for the energy sector. By applying random�effects GLS regression equation modeling, it was found that proactive eco�innovation (product eco�innovation, process eco�innovation, and technology eco�in-novation) has a direct effect on firm financial performance. Furthermore, product and process eco-innovation is directly related to a circular economy through a sustainable product development process. The findings suggest that policymakers in the firm should proactively adopt eco�innovative practices. It will positively affect the circular economy as it will be cost�effective and help to reduce potential industrial pollution in the environment. © 2021 by the authors. Licensee MDPI, Basel, Switzerland.