The circular economy is a sustainability model that balances material needs with impact on the planet. Circular economic systems focus on enhancing product design, product lifespan, and the planet’s natural resources.
Our current economic model is linear: take-make-waste. This creates heavy amounts of waste in favor of speed and affordability, but the cost is (unsurprisingly) more waste and pollution than ever before. The global economy is only 8.6% circular as of 2021, down from 9.1% in 2019. And while this seems grim, what it really represents is a huge market for sustainability-minded entrepreneurs to make an impact.
What is a circular economy?
The circular economy is a system designed to get the most out of each product produced and minimize or eliminate waste. If done correctly, it should come with the added benefit of making your business practices more efficient, more enjoyable, and less wasteful.
To do that, the circular economy focuses on three things:
- Designing no-waste products
- Using products as long as possible
- Preserving or enhancing renewable resources
Designing No-Waste Products
In a circular economy, one major focus is product creation with low- or no-waste outcomes. Our current systems were planned with an “acceptable” amount of waste in mind, prioritizing short-term profitability over long-term sustainability. But climate change has shown that waste should be considered a product design flaw.
Low- or no-waste product design can drastically reduce harmful byproducts. It’s even possible to turn waste into a new product entirely, such as the vodka one cheesemaker created from leftover whey.
Using Products as Long as Possible
In addition to no-waste design, circular business models invest in materials meant for longer use. This is done by creating products that can be reused, remanufactured, refurbished, repaired, and recycled.
A product’s life needs to be as long as possible to keep it out of a landfill, incinerator, etc. The call to reject straws, use refillable thermoses over disposable cups, and minimize packaging reflects this circular economy sentiment.
Enhancing Renewable Resources
Fossil fuels are the primary source of energy around the world, despite contributing to 3.61 million deaths in 2015 and becoming nearly 125% more expensive since 2000. Circular business models work to eliminate fossil fuel use and increase the use of cheaper, environmentally friendly renewable energy.
Circular models also aim to renew resources with methods like circular agriculture, which minimizes raw materials, reduces chemicals, and works with the seasons, rather than against them.
What are the economic benefits of a circular economy?
According to a McKinsey study on the EU economy, the benefits of a circular economy could amount to as much as $2.1 trillion USD—a 7% increase in GDP. This increase comes from two components:
- Savings on material costs
- New innovation and job opportunities
Savings on Material Costs
The circular economy redirects waste to form new materials. This lowers raw material and production resource requirements. According to the World Economic Forum, a circular economy could save the EU up to $630 billion USD every year.
New Innovation and Job Opportunities
Transitioning to a circular economy sounds like it would come with a whole new set of problems—and it would. How do you ensure recycled materials remain free of harmful contaminants? How will companies reclaim products that have outlived their usefulness? How will we democratize circular technologies to ensure everyone receives the benefits?
But with these new problems come new solutions—as well as new markets and jobs to carry out those solutions.
Why should your business follow a circular economic model?
Adopting circular strategies has huge benefits for businesses, both established and new. Mature companies could reduce their exposure to volatile virgin resource markets, while startups could seize opportunities to fill demand for new services that keep products in use longer. Whether your business is old or new, it can directly benefit from a circular economy in two big ways:
- Less reliance on raw materials
- New profit streams
Reduced Reliance on Raw Materials
Raw material extraction is a volatile market often influenced by country politics and natural disasters. In the EU, current recycling and waste recovery efforts only retain about 5% of all raw material value.
Circular business models reduce exposure to raw material volatility through reuse, remanufacturing, refurbishing, and recycling.
New Profit Streams
The adoption of circular business strategies won’t be easy, and companies will need to innovate through the challenge. New revenue is likely to come through new services that support the circular economy transition.
Several great circular business models already exist, like reverse logistics systems, products as a service, and repair services.
How should your business digitalize for a circular model?
The benefits of a circular economy are clear. The next step is to merge them with the digital age. A 2019 Deloitte report on digital sustainability identified seven existing technologies that will evolve in and have massive impact on the medium-term: digital access, fast internet, cloud, IoT, cognitive, digital reality, and blockchain. If you’re looking for a place to start your circular business model, these are it.
To strategically pair digital technologies with a circular business model, follow a three-pronged approach:
- Understand the tech
- Leverage data and people
- Get buy-in from all sides
Understand the Tech
It’s easy to get swept up in the hype of new digital solutions, but implementing new tech just because it’s new is likely to cost you money, waste your time, and delay circular benefits. Think practically about the circular technology solutions that come across your desk. What problems do you have that they might solve? Calculate the ROI in terms of cost and time for installation and training.
Look closely at the provider, as well. Companies offering a circular solution should demonstrate circular practices themselves. Use the “look around the corner” test to ensure the solution you choose can really do what it promises long term and support your company’s part in the circular economy.
Leverage Data and People
Data is the gateway to understanding the necessity and feasibility of any circular business solution. Luckily, compiling data nowadays is easy, whether you’re using a time-tested favorite like Excel or a rising giant like Tableau.
That said, big data hubris—the idea that data is, in itself, enough—is a real danger. Computers are great at collecting data, but we still need humans to interpret findings. Make sure you understand the strengths and limitations of your machine and human elements as you pursue the circular business goals you set for your organization.
One of the top priorities for any company initiative should be buy-in. For a circular economy shift, in particular, it’s important to inspire teams up and down the ladder. Top management sets the mission and vision for a company, so you won’t get far implementing a new business model without them onboard. But lower-level employees are on the front lines. If they find a new technology cumbersome, confusing, or unnecessary, they’ll lose motivation quickly. The circular benefits won’t matter.
Leaders hoping to get buy-in for a technology-enhanced, circular business future must augment their leadership approach.
The Circular Economy: The Future of Your Business
The circular economy model focuses on regeneration through the three Rs: reduce, reuse, recycle. For businesses, the goal of wasting as little as possible brings unprecedented opportunities for innovative technology and system planning. The best part? The talent and technology to support the transition already exist! You just need to be smart about how you use it.
Individuals and organizations everywhere are already taking great strides toward an economy that works with the environment instead of against it. If you want to be part of the future of business, now is the time to motivate your colleagues, implement new initiatives, and share your resources. This is how we collectively manifest this beneficial economic model around the world.