Driving Circular Economy Strategies for Sustainable Development: The Role of Board Capital and Innovation Capacity in Emerging Markets

Ishmael Wiredu, Naiping Zhu, Andrew Osei Agyemang and Hela Borgi

Business Strategy and the Environment, 2025, vol. 34, issue 5, 5544-5562

Abstract: The transition to a circular economy (CE) is necessary for achieving sustainable development, yet research on governance mechanisms that drive CE strategies remains limited. This study bridges this gap and significantly advances studies CE, board governance, innovation, and sustainability by assessing the critical function of board capital in driving CE strategies within manufacturing companies in emerging economies, specifically the Middle East and North Africa (MENA) area. Drawing on agency theory and resource‐based theory, the study develops models to assess the influence of board human and social capital on CE strategies, with innovation capacity as a key moderating factor. Using panel data from 268 manufacturing firms between 2010 and 2022 and employing dynamic generalized method of moments (GMM) technique, the outcome reveal that both board human and social capital significantly and positively influence CE strategies. Notably, innovation capacity not only enhances CE strategies directly but also amplifies the impact of board capital, underscoring the synergistic connection between governance and innovation in driving sustainability. The study highlights substantial heterogeneity in the effect of board capital on CE strategies across the MENA region. These findings remain robust after conducting several robustness and diagnostic tests. For firms, the study emphasizes the need to invest in building a diverse, skilled, and well‐connected board capable of leading circular strategies. For policymakers, it highlights the importance of creating frameworks that strengthen board governance and foster innovation ecosystems, enabling boards to promote the adoption of CE strategies.

Date: 2025
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