What is the circular economy and how can it benefit your business?

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by KnowESG
Graphic of three green common circular recycling logos

The current linear economy of producing, using, and discarding has strained the Earth's resources, challenging its carrying capacity. However, there are newer alternative economic models emerging that can greatly impact the transition to global sustainability. The circular economy, which prioritises reducing consumption, reusing components, and recycling materials, is expected to replace the linear model in the 21st century. It's important to understand the benefits of a circular economy for the environment, society, and your company in order to stay competitive.

A circular economy is appealing because it enhances the security and stability of supply chains while fewer new resources during production. The overarching aim is to decouple growth from resource use. The mindset of recycling, repairing, and refurbishing in a circular economy will offer new and environmentally friendly methods to obtain materials. If your company collects used products from customers, the transportation costs for materials will decrease. Additionally, having a diversified sourcing strategy reduces the risk of supply chain disruptions due to natural or geopolitical factors.

What is the circular economy?

The circular economy is a type of economy that aims to reduce waste and preserve natural resources by following the principles of reusing and recycling. Unlike the traditional linear economy that has a take-make-consume-dispose model, the circular economy focuses on keeping resources in use for as long as possible to extract maximum value from them before recovering and regenerating them.

The concept of a circular economy can be incorporated into various industries and business models. This includes product design, manufacturing, distribution, consumption, and end-of-life management. Its objective is to eliminate waste and pollution, maintain the usage of products and materials, and renew natural systems. This is “design for recycling” (DFR). Perhaps the simplest example is how to design plastic packaging products that completely avoid landfill by being fully recyclable. Here’s a great run through of how that looks.

Perhaps the most well-known example of a major company implementing circular thinking was back in the 1990s when Interface, the US-based commercial flooring giant decided to keep waste flooring tiles out of landfill by ultimately developing modular carpet tiles with recyclable materials. The result was that, compared to competitors, Interface now emits 75% less carbon in new product manufacturing.

Moving from a purely extractive economy to a sustainable global model, and then to a system where restoration and regeneration are the key features, all needs to start with a reworking of value, and its inherent existence in resource use. Circularity is the most widespread approach, constituting 8.6% of the global economy in 2021. The aim is to double this to 17% by 2030, and then see compounding circular growth as efficiencies take hold.

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How can the circular economy benefit your business?

Simply put, all businesses must incorporate sustainability into their operations, and circularity permits a comprehensive revisualisation of business operations to determine where changes for the better can be made. This is also important because consumers and employees understand that climate change is a global issue that requires action from every government, organisation, company, and individual. It is no longer acceptable for companies to ignore their social and environmental responsibilities.

Cost savings

By incorporating circular economy principles, your business can minimise waste, enhance efficiency, and prolong the life of products and materials, which can ultimately save money. For instance, adopting a circular production method can help to decrease material waste and decrease the expenses of disposal, leading to substantial cost savings in the long run. 

Or, by fully digitising operations, a paperless environment will eliminate the need for on-site data storage and reduce the number of staff members required to be physically present. This will result in a smaller local carbon footprint, less space used, and the cost reductions from reduced resource use. Additionally, since most employees can work from home, there will be less commuting, leading to higher productivity.

Moreover, incorporating reusable, repairable, and recyclable features into product design can aid in cost reduction. For instance, products with replaceable or repairable modular components can be designed, or recycled materials can be put to use in product development, which can diminish the demand for costly virgin materials.

New revenue streams

Your business can generate additional revenue by adopting circular economy principles such as offering repair and refurbishment services for your products. Extending the life of products and components creates a new market for your services and helps generate more revenue.

To increase earnings, you could consider implementing a sharing economy approach. Businesses that follow this model allow customers to share or rent items instead of purchasing them outright. This option can be especially appealing to customers seeking cost-effective and environmentally friendly alternatives to ownership.

Improved brand reputation and Consumer awareness

By incorporating circular economy principles, you can enhance your brand reputation and appeal to eco-friendly consumers. Today's consumers are more cognizant of the environmental effects of their purchases and tend to favour products that are sustainably produced and have a minimal environmental impact. Or, as the World Economic Forum puts it, “nature means business”. 

It is important for business owners to safeguard their brands in today's digital age where violations of sustainability norms can quickly become known worldwide. Furthermore, younger generations are pushing older generations to take action regarding the current environmental crisis. Therefore, brands that do not participate in the circular economy in some way are likely to face increasing criticism.

Access to new markets

Incorporating circular economy principles in your business can open doors for accessing new markets. With an increasing number of countries and regions embracing circular economy practices, businesses that have already adopted these principles will have an advantage in tapping into those markets.

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Regulatory compliance

For any business, complying with regulations is crucial when adopting circular economy practices. Governments worldwide are implementing regulations to address concerns about waste generation and resource depletion, promoting sustainability.

Many countries are implementing extended producer responsibility (EPR) laws. These laws require businesses to take responsibility for their products throughout their entire lifecycle, including the collection, recycling, and disposal at the end of their useful life. The EU has been notable in introducing legislation to harmonise port wired charging for devices, an action based on waste reduction through circular thinking.

Moreover, various nations are implementing prohibitions or limitations on particular categories of waste, such as plastic bags or one-time-use plastics. Companies that neglect to adhere to these guidelines might be imposed with fines or other consequences, which can negatively impact their image and financial situation.

How Could Your Business Join The Circular Economy?

If you manufacture products, you need to make sure that the packaging is environmentally friendly. If you own a restaurant, you need to ensure that your take-out containers can be recycled. If you sell clothing and shoes in your store, you should research each brand and be aware of their sustainability policies.

In short, you ‘join’ by analysing what your business does and identifying opportunities for improvement and resource reduction. 

They exist. Look for them.

Practically speaking, there are many resources out there to help you. For example, offers valuable insights for companies to transition into a sustainable and circular economy, and suggests redefining your company and establishing a sustainable identity, as well as ensuring that all aspects of your business align with the sustainable approach.

Takeaway (and recycle)

To sum up, the circular economy is a sustainable economic model that promotes resource efficiency and reduces waste. Businesses can gain advantages such as cost savings, increased revenue, and better reputation by following circular economy principles. As the world's focus on sustainability and resource efficiency increases, it is critical for businesses of all types and sizes to prioritise the circular economy.

Find more writing on ESG and circular thinking via our Featured Articles.

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