The Industrial Revolution marked a big change in how economic activity works across the globe. Mass manufacturing and the rise of consumer culture replaced circular economies, in which the raw materials necessary to make goods were used over and over again.
Instead of a perpetual cycle of use and reuse, today’s linear model relies on an ever-increasing use of natural resources. According to the Circularity Gap Reporting Initiative, the annual extraction of resources needed to make the global economy run has ballooned from about 26.7 billion tons in 1970 to 92.1 billion tons in 2017. Put another way, humanity today uses the equivalent of 1.75 Earths to provide the resources used in economies around the world.
Distinguishing between circularity and sustainability
Although conversations about circularity may bring sustainability to mind, the two terms should not be used interchangeably. The U.S. Chamber of Commerce Foundation discusses the important differences between the two: Sustainability includes activities and processes that meet present needs without compromising future needs. Circularity, however, exists within the world of human invention, where raw materials are proactively converted into something usable for human consumption beyond the most basic human needs for survival.
Policy and corporate self-interest can propel the shift to circular economies
This jarring imbalance between the material demands of the global economy and the earth’s capacity to sustain the ecosystems humans rely on has sparked widespread interest in circular economies and companies.
Public policy pressure is also driving a transition towards a circular economy. In March 2020, for example, the European Commission released a circular economy action plan. The agenda laid out strategies and policies for eliminating waste and bolstering biodiversity while also achieving Europe’s 2050 net-zero carbon emissions target.
Many corporations have already made changes to transition to more circular operations, motivated by potential cost savings, ESG (environmental, social, and governance) goals, and the opportunity to improve their brands in the eyes of sustainability-minded consumers. For example, Puma works with the First Mile Coalition, a network of refuse collectors in Haiti, Honduras, and Taiwan that collect discarded plastic bottles that the company uses to make 30 different products.
In a similar initiative, IKEA purchases used furniture from customers for resale. Also, the outdoor clothing retailer Patagonia has been on a quest for circularity since the 1990s. Patagonia’s efforts to eliminate waste have included the launch of Worn Wear, Patagonia's hub for keeping gear in play, and a clothing line called ReCrafted, a collection for clothes made from other clothes that were beyond repair.
A challenging transition
Many companies are transparent about the challenges posed by circularity. Denim purveyor MUD Jeans, for example, states on their website, "In order to make the circular economy an attractive proposition in fashion, recycled cotton would have to be cheaper than newly produced cotton, and not the other way around. However, this is not the case or rather, not yet." While MUD Jeans has made tremendous progress in employing a circular production model, they acknowledge that circularity requires industry-wide change in order to spur more companies to follow suit.
And even as interest in a circular economy intensifies, progress has stalled. A report released in 2020 found that the world’s economy was 9.1 percent circular in 2018. Today, it is 8.6 percent circular.
An article in MIT Sloan Management Review, published in 2021, laid out common mistakes that companies transitioning to circular business models make. The story — written by Johan Frishammar and Vinit Parida, both of whom are professors of entrepreneurship and innovation at Luleå University of Technology — was based on five years of research into 15 large manufacturing companies pursuing circularity. The authors found that a lack of customer involvement, misaligned incentives for scaling recycling and reuse, and a lack of corporate planning all hamstrung circular economy initiatives.
Three approaches to improve circularity
Despite the very real challenges of transitioning to a circular business model, there are significant bottom-line reasons to persist. According to The Circular Economy Handbook by Peter Lacey, companies that make a radical move away from the traditional "make, take, and waste" model stand to seize $4.5 trillion in value by 2030.
A 2021 article in the Harvard Business Review by two business school professors whose research focuses on sustainability and one sustainability expert at Accenture provides a deep dive into effective strategies for creating a circular business model. Here are three:
- Retain product ownership: When a company sells a product, it immediately loses control over whether, or if, it ultimately can be recycled, repurposed, and resold. An alternative is to rent or lease products, especially if they are high-value. Xerox has long embraced this approach with its printers and photocopiers. This has made it much easier for the company to cycle existing materials into new products.
- Integrate recycling into product design: Nike Grind makes tracks, playgrounds, flooring, and many other products from recycled shoes. To do this successfully requires embracing designs that incorporate materials from recycled products.
- Expand partnerships: One common lesson that transcends industries is that no company can achieve a circular business model by itself. In Norway, an astounding 97 percent of all plastic bottles are recycled, a much higher rate than the rest of the world. This is only possible because of expansive partnerships that include other businesses, non-profits, communities, and governments that make it as easy to recycle used bottles as it is to buy them.
The future of circularity
Becoming a more circular business is not easy. But the reality is that companies — just like society as a whole — rely on a healthy planet. Corporations have a unique opportunity to drive the world towards a more circular and sustainable economy by rethinking their existing processes, products, and partnerships. The benefits to companies of circularity are brand differentiation, lower costs, and potentially higher revenue. The benefits to the planet are incalculable.