Last updated: What is circular economy: Definition, benefits, opportunities

What is circular economy: Definition, benefits, opportunities


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We’re all familiar with the linear economy: Natural resources are turned into product, which are sold, consumed, and then thrown away. But the linear economy is clearly less viable in today’s world, where waste and other byproducts of production and consumption pose an existential threat.

Today’s enterprises focus more on sustainability in the broad sense, and one way to pursue sustainability is by embracing the circular economy. Instead of the take, make, and waste dynamic of the linear economy, the circular economy encourages recycling, reuse, and repurposing in an effort to minimize waste through the entire value chain.

In a circular economy, all stakeholders benefit: companies and consumers as well as society as a whole through the obvious benefit of greater sustainability.

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What is circular economy?

The circular economy is an economic model that aims to reduce and ultimately eliminate waste by focusing on recycling and reuse.

Products and services are designed to minimize their impact on the planet through sustainable use of natural resources. Everything is produced with the goal of staying in circulation for as long as possible.

Products are recycled, reused, repaired, or refurbished to extend their lives and keep them out of landfills. It’s the opposite of the planned obsolescence that’s so ingrained in the old linear economy model.

A World Bank report found that while the circular economy is still in early stages, it has the potential to reduce Europe’s total material use by up to 11% and “effectively decouple growth from the use of raw material resources within a decade.”

According to Gartner, 80% of hardware vendors’ product portfolios will be linked to circular initiatives by 2030, up from 20% in 2023.

Benefits of circular commerce + stats

An economy based on recycle, reuse and repair principals offers multiple benefits for the environment, businesses, customers, and communities. Here are a few:

  1. Reduce waste and greenhouse gas emissions for a healthier planet. One report estimated that circular economy strategies could cut global greenhouse gas emissions by 39%.
  2. Preserve and protect natural resources. According to estimates, a more circular economy could reduce global material extraction and use by one-third.
  3. Drive economic growth and profitability. A Gartner survey found that 74% of supply chain leaders expect circular economy principals to increase profits between 2022 and 2025.
  4. Boost innovation through redesign of products, materials, and processes.
  5. Reduce dependence on natural resources, saving money and mitigating risk of supply chain volatility
  6. Reach corporate sustainability goals and meet industry requirements.
  7. Increased brand loyalty as more consumers make green purchases. GfK estimates that by 2025 more than 40% of consumers will adjust their buying behavior for the circular economy.

Examples of circularity in practice

The term circular economy may not yet have the widespread currency as sustainability, but examples are all around us.

For one, more and more companies support recommerce, a newer term for the age-old practice of buying and selling used products. Online platforms have amplified and magnified this business model for every imaginable good (think Poshmark for clothes, and Amazon and eBay for virtually every category).

Another example of the circular economy is the growing trend of product as a service. Aircraft engines, for instance, are often sold as a service: Instead of buying a jet engine outright, an airline can rent one on a per-hour basis.

With this model, manufacturers take on the responsibility for product maintenance and recycling, and sometimes even outcomes; users of the service save in terms of capital expense and ongoing maintenance.

Product as a service is becoming more common with the renewed interest in the circular economy, but it also has old roots. For decades, printers and copiers have been leased and contracted on a usage model instead of being purchased outright.

4 ways businesses can transition into a circular economy

The transition from a linear economy to a circular economy is accelerating. It’s time to rethink old business models.

Here are some opportunities to make your enterprise more sustainable, create new revenue streams, and deliver more value to your customers:

  1. Offer leasing: Consider building a platform that enables users to rent or lease products instead of buying them outright.
  2. Embrace recommerce: Create an aftermarket platform where people can buy, sell, and trade products. This is a powerful way to deliver value to customers and improve sustainability. A good example is Poshmark for clothes.
  3. Make recycling a seamless component of the customer experience: Design a value chain that makes recycling of products and components as straightforward as buying or using them. Apple makes this easy with any of their products, and will even accept non-Apple products.
  4. Facilitate efficient returns: Customer returns are inevitable and costly. Improve sustainability and participate in the circular economy with a platform that makes returns as efficient as possible (which may involve working hard to avoid the necessity of returns).

Finally, when you do embrace the circular economy with these kinds of initiatives, make sure your customers understand the what and the why of your strategies. Showcase the fact that you’re eco-friendly, committed to sustainability, and willing to try new things or change strategies.

Promote your initiatives for reuse, recycling, and upcycling. Encourage your suppliers and competitors join you on the journey.

You could, for example, create your own “Green Report Card” and display it prominently on your digital channels.

The role of digital platforms

Contemporary enterprises engaged in the circular economy rely heavily on digital platforms. This is obvious for online marketplaces in which trading and marketplace platforms do the heavy lifting of onboarding, listing, discovery, transactions, and fulfillment logistics.

Digital platforms also enable physical stores to manage similar functionalities with more efficiency. And in B2B marketplaces, digital platforms enable companies to trade or sell unused resources, such as raw materials or equipment, fostering greater efficiency in terms of production and distribution.

One of the key benefits of a circular economic approach is efficiency. But trade-in programs, automated and seamless recycling, and an intelligent customer experience can create a more sustainable consumption model and deepen customer engagement.

Sustainability and the circular economy represent one of the best examples of a “win-win” strategy. Creating or adopting new business models that reflect this evolving approach can reduce your overall environmental impact, improve business performance, and deepen customer engagement and trust.

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