In the face of mounting environmental challenges, the concept of a circular economy has emerged as a beacon of hope for a sustainable and prosperous future. But what is a circular economy, and what does it mean for sustainable business?
What is a circular economy?
The circular economy is a model of production and consumption focused on reducing waste and pollution by introducing reusability into the core of a product’s lifecycle.
Linear vs. circular economy
For the most part, society follows a linear economy (also known as a ‘take → make → waste’ economy). We create products with raw materials, use them, and then dispose of them prematurely, losing access to the raw materials used to initially create them.
On the other hand, the circular economy promotes building products using recycled materials and keeping them in working condition for as long as possible. When these products are no longer useful, they are recycled and their components are used again. In a circular economy, the need for mining raw materials and creating waste is greatly reduced.
Linear economies worsen climate change, lead to limited resources, and harm biodiversity.
Example of a circular economy
In 2021, Denmark achieved a remarkable 93% return rate for recycling disposable packaging. They recycled 1.9 billion cans and bottles.
This success was attributed to the Danish deposit and return system, known as Dansk Retursystem, a circular system where people can easily return their used beverage containers at supermarkets and kiosks across Denmark and receive a cash deposit in return.
The scheme brings several benefits:
- Using recycled materials reduces energy consumption by 95% compared to using new materials
- Recycling cans helps reduce the extraction of bauxite used in aluminium production
- The cost of using recycled material is far lower than acquiring new materials
What goes into creating a circular economy?
If the goal of a circular economy is to extend the lifecycle of products and materials, that means keeping them in circulation for as long as possible. It’s essential to change how we think about the production and consumption of everyday commodities.
Extending a product’s life cycle
The process of recycling products, from start to finish, still requires energy and creates carbon emissions, albeit significantly lower than the cost of sourcing materials from scratch. Taking this into account, the most impactful change for climate protection is prolonging the lifespan of products before disposing of them.
Some ways of achieving this includes:
- Creating more resilient products that last longer (e.g., scrapping planned obsolescence)
- Designing and supporting ‘right to repair’ products
- Sharing casual use products (e.g., vehicles or power tools)
- Donating instead of discarding
- Refurbishing products back into circulation (e.g., re-using bottles and jars)
- Removing single use products
Extending materials life cycle
Products will inevitably reach the end of their working life. From here, it’s about prolonging the usability of the materials that were used to initially create it.
This means breaking a product down into its core components and compounds, and reintegrating them back into the supply chain.
Making business sense of a circular economy
It’s true that stopping climate change is clearly good for everybody – but we get it, businesses are all about streamlining costs and increasing profit margins. If a system encourages users to buy fewer products, how can it make business sense?
Well, there are benefits when converting to a circular economy; let’s look at them now:
- Enhanced supply chain resilience – Globalisation has many advantages, but it also exposes supply chains to unpredictable challenges. Take the COVID-19 pandemic in 2020, for instance. Lockdowns disrupted production across sectors, leading to a persistent shortage of semiconductors that continues to cause delays even after two years. By using recycled materials, companies can be more confident about the security of their supply chains.
- Cost reduction – By reintegrating materials or entire components back into the manufacturing process, companies can reduce (or entirely remove) their dependence on external suppliers. For example, Rolls-Royce has implemented its “Revert” programme that allows the company to reintegrate 95% of its old parts into its modern engines. Saving on the costs for exotic materials that are critical to enabling them to perform in a safe and efficient manner.
- More appealing to investors – Financial institutions are increasingly adopting ethical policies into investment choices, utilising ESG ratings to help determine the overall sustainability of business practices. Organisations incorporating a circular economy model (among other criteria) are likely to be seen as a more favourable investment opportunity and reap the benefits of that status.
- Positive brand awareness – Global events leave lasting impressions. Take Gen Z (those born since 1997), who are constantly reminded about their future fates due to climate change. As a result, they’re making more shopping decisions based on sustainable concepts. By investing in sustainable practices and products, businesses set themselves up to enjoy a strong and growing customer base long into the future. Additionally, by creating reliable products, you create a respectable brand that will keep customers coming back for more, and recommending your products onward.
