Influence of circular economy business practices on financial sustainability of social enterprises in Nairobi County, Kenya

Abstract

The worldwide initiative for sustainable development and reduced carbon emissions has compelled companies to adopt strategies that harmonize economic, social, and environmental objectives. Prominent social and ecological issues in Kenya highlight the significance of social entrepreneurs within the economy. Numerous social companies, however, face challenges regarding financial sustainability due to their dependence on donor funding and governmental support. For these companies to thrive, they need to enhance their technical capabilities which is essential for their financial viability and survival. This study sought to assess the impact of circular economy business practices on the financial sustainability of social companies. The study was anchored on the circular economy framework proposed by Ellen MacArthur Foundation framework for CE: resource efficiency, waste management, regenerative nature practices, and product life extension, and was grounded on resource-efficiency, legitimacy and circular economy theories. The research technique was based on positivist research philosophy and utilised a descriptive - correlational research design, employing structured questionnaires to gather data from social entrepreneurs. The target respondents were one-key knowledgeable informant from each social enterprise targeting sample size of 183. The response rate achieved was 142 respondents accounting for 78%. Data analysis was done using SPSS version 29. The study was expected to contribute to circular economy and social entrepreneurship literature by empirically linking circular economy business practices to financial sustainability of social enterprises in a developing economy context. The study findings revealed that circular economy practices have a positive and statistically significant effect on the financial sustainability of social enterprises in Kenya. The results showed that waste reduction emerged as the strongest predictor of financial sustainability, followed by resource efficiency, product life extension, and regenerative practices. Specifically, practices that directly influence operational efficiency, such as waste minimization, recycling, and efficient resource utilization, demonstrated stronger and more immediate effects on financial performance. In contrast, regenerative practices, while significant, exhibited relatively weaker effects, suggesting that their financial benefits are more indirect and long-term in nature. The regression results further indicated that the model explained a substantial proportion of variation in financial sustainability, highlighting the importance of integrating circular practices within enterprise operations. Practically, the findings informed social enterprise managers on how resource efficiency, waste management, regenerative practices and product life extension enhance financial resilience. Policymakers and ecosystem actors obtain insights from findings to design supportive frameworks that promote financially sustainable, impact-driven enterprises.

Keywords: Circular Economy, Financial Sustainability, Social Enterprise, resource efficiency, Waste Management, Regenerative nature practices, Product Life Extension.