Understanding the Role of Social Enterprises in the Circular Economy

Learn about some of the challenges social enterprises face in the circular economy and how they can address these obstacles and scale their impact.

The transition to a circular economy has the potential to create seven to eight million jobs and improve livelihoods while protecting natural resources and combating climate change. Yet businesses face real challenges when transitioning to a more circular strategy. 

In a new report, TechnoServe worked with the Global Alliance for Social Entrepreneurship and IKEA Social Entrepreneurship to identify social enterprises active in the circular economy, analyze their common challenges, and propose solutions to deliver better environmental and social impact. 

Read the report: Inclusive Loops: The Crucial Role of Social Enterprises in the Circular Economy


What is a Circular Economy? 

In a traditional linear economy, consumers buy a product, use it, and then throw it away. This take-make-use-dispose model harms people and the environment. The circular economy is an economic system that aims to preserve and restore natural resources based on the need to narrow, slow, close, and regenerate their material and energy flows. 

Material and Energy Flows in the Circular Economy 

Material and energy flows in the circular economy.

The Role of Social Enterprises in the Circular Economy

Transitioning to a circular model will become more critical as the world faces increasingly interconnected social and environmental challenges. The intersection of social enterprises and the circular economy is an area of opportunity that has not been well-studied thus far. The report seeks to establish the foundation for the space, laying out a framework to help entrepreneurs and other stakeholders better understand the strategies social enterprises can adopt to deliver social benefits. The three main pathways through which social enterprises create positive social impact are: 

Social enterprises in the circular economy have adopted circular business models targeting one or more circular loops (Regenerate/Narrow, Slow, Close) and employing one of the three primary impact models below.

  1. Provider: Social enterprises that sell a product or service to the intended target group
  2. Employer: Social enterprises that directly employ or train a target group 
  3. Buyer: Social enterprises that support members of the target group who supply them with materials, products, or services 

Some circular models are more prevalent than others, and the type of social impact is more strongly linked to specific circular models. Our inclusive loop framework maps the prevalence of circular models and impact pathways and highlights specific examples of social enterprises in each.

The inclusive loop framework

The inclusive loop framework

An Expert Perspective with Maxime Francois-Ferriere

Maxime Francois-Ferriere was a lead author on the report and is a senior manager on TechnoServe’s Strategic Initiatives team. He is an experienced strategist, having worked as a Principal for Kearney, a leading international management consulting firm. Maxime has led numerous strategic studies across the African continent with various corporate partners, private foundations, NGOs, and government donors focused on inclusive sector development. His expertise primarily lies at the intersection of job creation and regenerative business models.

Headshot of Maxime Francois-Ferriere

TechnoServe: What are the main benefits social enterprises can provide in the circular economy?
Maxime: There are three main benefits that social enterprises provide. The first is social benefits. Many social enterprises operating in the circular economy use an Employer or Provider model to create social benefits for a target group. For example, a recycling company that employs low-income or marginalized groups directly to source materials. Another example would be a company that manufactures materials at a low cost to provide affordable products to low-income consumers.

The second benefit relates to reducing social risks. Provider and Employer models also drive indirect social benefits and help mitigate the negative externalities of circular models, especially pertaining to equitable economic outcomes, the health of community members, and overall environmental impact. For example, ensuring that people working with waste have decent work conditions with safety and social protections and a living wage.

The final benefit relates to increasing the scale of the circular economy. Social enterprises are important in connecting different parts of the world and value chains. For example, an enterprise that helps move a product that was discarded in one part of the world to another part of the world where it would be used. 

TechnoServe: What are the critical challenges that social enterprises face in circular economies?
Maxime: Many of the challenges these businesses face are not unique to the circular economy. For example, access to finance is a big obstacle for almost all small businesses. Access to knowledge and skills is also a significant challenge. 

Social enterprises often have a distinct value proposition compared to similar enterprises producing in linear value chains. It can be challenging for social enterprises to compete since negative externalities like greenhouse gas emissions are not always priced into the cost of production in linear value chains. Social enterprises need to create market awareness about the benefits and value of their products. Social enterprises face more challenges related to the ecosystem and the enabling environment, particularly from the policy and regulatory standpoint. 

TechnoServe: How can social enterprises use circular business models to grow their businesses and scale their impact?
Maxime: Collaboration is key to growing these businesses and scaling their impact. There are three main actions social enterprises can take. The first is developing the capacity and skills needed to thrive in the circular economy. For example, fostering the skills needed to identify and capture opportunities, strengthen value propositions, and improve their ability to measure and communicate environmental or social impact. 

The second is making connections with other market actors. For example, connecting with other companies and networks to better reach target markets. 

The third is to engage in a supportive environment, which involves collaborating with other ecosystem actors to build out the circular economy infrastructure. Social enterprises need support from the broader ecosystem in order to grow their businesses and scale their impact.

TechnoServe: What is TechnoServe doing to support these social enterprises?
Maxime: TechnoServe has several entrepreneurship programs, predominantly in India and Latin America, that are circular economy accelerators. 

Greenr Sustainability Accelerator in India is a one-of-a-kind sustainability-focused accelerator intended to cultivate a thriving green business ecosystem that helps mitigate environmental degradation and uplift communities. Through the program, TechnoServe aims to scale up exceptional environmentally-focused startups by linking them to knowledge, capital, and markets.

Much of our work relates to capacity building for businesses – equipping them with the skills they need to operate in the circular economy. Access to finance is also an important consideration, as there’s a greater need for blended finance mechanisms for companies operating in this space. Finally, we help these social enterprises engage with the broader ecosystem by assisting them in accessing relevant local, national, or international decision-making forums.

TechnoServe: What are the future prospects for social enterprises in the circular economy?
Maxime: We are beginning to see more social enterprises operating in the circular economy across all geographies. There’s also a growing call for collaboration and partnerships, particularly targeting larger corporations, but also private foundations and NGOs. We hope this report can be a stepping stone to drive that collaboration forward. More practically speaking, many of the concepts articulated in this report can help social entrepreneurs return to their strategy, rethink how they operate, and measure impact to ensure it is comprehensive.