The benefits of a circular economy

Similar to sustainability, the circular economy is currently a hot topic in today’s business world. The term may sound complicated, but the circular economy is really based on three simple principles: designing out waste and pollution, keeping products and materials in use and regenerating natural systems. Let us further explain to you how it works and how you could benefit from it.

PUBLISHED: 28 July 2022

WRITTEN BY: Gijs de Mol

What is the definition of a circular economy?

The essence of the circular economy is that we must regenerate our materials and prevent waste from being produced in the first place. In contrast, in our current economy we take materials from the Earth, make products from them and eventually throw them away as waste – this process is linear and depletes the Earth’s natural resources. According to the Ellen MacArthur Foundation, which can be seen as one of the leading foundations in the circular economy transition, we should instead switch to a new, circular paradigm. This means that instead of our current take, make, waste mindset, we should rethink the way we use and design products, expand the lifespan of products by various forms of reuse (e.g. repair, refurbishment and remanufacturing) and find a useful application of materials after products have served their purpose through recycling and energy recovery.

How can you benefit from the circular economy?

The application of the circular economy for companies can be normalised into five circular business models. Waste to Wealth, published by Palgrave Macmillan, presents research from Accenture Strategy, revealing that these models have the potential to unlock $4.5 trillion in new market value by 2030, which could grow to as much as $25 trillion by 2050. Let us elaborate on them these models one by one.

1. Circular supply chains

When a company needs materials and resources that are scarce or polluting, they can either pay more or look for alternatives. When implementing the circular supply chain model, companies seek to source fully renewable, recyclable and biodegradable materials that can be used in successive life cycles to reduce costs and increase predictability and control.

2. Recovery and recycling

The recovery and recycling model creates an urgency to repurpose parts and materials previously considered waste. This allows companies to take advantage of discarded products that would otherwise end up in landfills to recover and reuse valuable materials, energy and components. So you literally make money out of waste!

3. Product life extension

Instead of discarding products when they are broken, out of fashion or no longer needed, this model focuses on the extension of the lifespan. Many of these products still have considerable value if the right circular strategy is applied. Examples of these strategies are platforms for reuse, repair and upgrade services, refurbishment and remanufacturing. Choose the right solution for your product and you will be amazed by the benefits it can bring.

4. Sharing platforms

This business model focuses on the inefficiency of product use. If products are being rented, shared, swapped or lent through platforms, they can be used by multiple people This reduces the total number of produced products and therefore also reduces the used materials and resources. Moreover, due to the rapidly developing digital technology, this business model is becoming increasingly attractive. Think of car-sharing platform Sixt and home-sharing platform Airbnb, which have both conquered a massive market share in a short period of time.

5. Products as a Service

What if manufacturers and retailers included the ‘total cost of ownership’ in their asking price? Many would immediately focus on longevity, reliability and reusability. When consumers lease products or pay to use them through the Product as a Service model, the business model fundamentally changes – in a good way. Performance trumps volume, durability trumps disposability, and companies have the opportunity to build new relationships with consumers.

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