The Circular Economy: What it is, why it matters now, and how it can help your organisation

Imagine an economy where resources get used, but not used up. Where new business strategies keep products, components and materials in the system, both during their use and after. And where dangerous, dirty waste is kept to an absolute minimum.

You’ve just imagined the circular economy.

It’s called ‘circular’ in contrast to a more traditional ‘linear’ economy in which products are made, used and then discarded. Recently, the linear economy has been modified somewhat with recycling, which adds some re-use and removes some waste. But, as the illustration below shows, a truly circular economy goes much further. It creates a virtuous circle around use that includes making, returns, repairs and refurbish, re-use and recycling. 

The benefits of a circular economy include:

• Transforming today’s ‘throwaway economy’ by eliminating waste and pollution, and by recirculating resources
• Simultaneously tackling both climate change and biodiversity loss
• Separating economic growth from the consumption of natural resources
• Gains of new jobs, general prosperity and overall resilience – as well as dramatically lowered greenhouse-gas emissions, waste and pollution
• New business cases that are both sustainable and competitive

Why now?

The circular economy solves a modern problem in part by returning to an ancient tradition. Throughout much of recorded history, economies were largely circular. Most trade – including agriculture, manufacturing and    building – was conducted and consumed locally. Because resources and goods were both scarce and labour-intensive, people learned to use and re-use what they had. Waste was minimal.

Fast-forward to today’s linear economy. Now raw materials are extracted from resource-rich countries, transported to manufacturers and then processed into products. Once that’s done, the finished goods are shipped, often over long distances, to where they’re used. At the end of the products’ lives, they’re discarded and replaced by newer iterations.

In a linear economy, waste is the norm. For example, of all virgin materials that enter the global economy each year, it’s estimated that only about 9% by weight is cycled back into the economy. In other words, more than 90% by weight is discarded.

To be sure, the linear economy has delivered many advantages. Just look at the powerful phones in our pockets and sophisticated cars on our roadways. But it’s also proving to be unsustainable.

For example, consider the fate of copper. This common element is used in many electronic and electrical systems, including phones and computers, electric vehicles, wind and solar power, and energy infrastructure. By 2050, annual global demand for copper is forecast to exceed 53 million metric tons. If that’s correct, we’ll be consuming more copper in just one year than we did during all the years from 1900 to 2021.

We’re also seeing the results of our linear economy in the worsening of air and water pollution, the deadline combination of extreme rainfall and severe droughts, and the problem of inequitable labour conditions. Clearly, it’s time for a change. We will never be able to reach important climate and environmental goals without a competitive global circular economy.

Countering ‘born-circular’ competitors

While the circular economy is about saving the planet, it’s also about saving your business. By the 2030s, when the circular economy will be the only economy, we’ll see the rise of ‘born-circular’ companies. These organisations will bring circularity into all steps of product life and usage cycles.

Just as ‘born-digital' companies disrupted incumbents stuck in their bricks-and-mortar legacy, these ‘born-circular’ start-ups will challenge the market leadership of traditional businesses stuck in the linear economy. And just as bricks-and-mortar incumbents either became digital themselves or risked obsolescence, so will linear-economy incumbents be required to adopt circular-economy business models or risk falling by the wayside.

Digital technology will play an important role, too. In a circular economy, the ability to digitise the product ecosystem will be a key advantage.

Currently, most circular-economy initiatives are individual projects focused on physical materials and resources. However, to scale these solutions globally and across industries, organisations will need to build coherent digital foundations – think of them as digital backbones – to support circular-economy business models.

Those business models will be one of the keys to succeeding in a circular economy. That will be the focus of the next blog post in this series.