What Is the Circular Economy?

 "The World Economic Forum’s circular economy definition is “an industrial system that is restorative or regenerative by intention and design.” As opposed to the traditional linear model that transforms raw materials into products that are used once and discarded, the circular model closes the loop by bringing products back into the cycle after use so they can be reused, recycled, or repurposed." 

In a linear economy, materials flow in a straight line from resource extraction, to manufacturing, and then to landfill. Value is created by producing and selling as many products as possible. This model is characterized by wasted resources and excessive pollution, causing ecosystem degradation, wealth concentrations, and social inequities.  

A circular economy model, on the other hand, aims to redefine growth to benefit people and the planet. It entails gradually decoupling economic activity from the consumption of finite resources and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular business model builds economic, natural, and social capital.  

Examples of the circular economy

In 2016, the Dutch government announced its intention to become a 100% circular economy by 2050. The program focuses on smart design to reduce the need for raw materials, conscious use of products to extend lifecycle, and the use of waste as a raw material. For example, to reduce the country’s dependence on imported raw materials for the electronics industry, end-of-life smartphones are being recycled so the metals can be reused in new phones. The country is investing in projects such as creating better infrastructure for collecting household waste, reusing demolition waste from old buildings, and developing alternative materials such as composted grass to use in buildings. As a result, by as early as 2023, the circular economy in the Netherlands will account for a market value of 7.3 billion Euros and 54,000 jobs. 

Collaborative business plays a key role in this model. Veolia, the global leader in water, waste, and energy management solutions, partnered with Philips, the Dutch consumer appliance and electronics giant, to develop a new kind of vacuum cleaner made from plastic waste. Veolia is involved in the manufacturing process right from the design stage. Its role is to help Philips integrate as much recycled plastic as possible into its new models of vacuum cleaners and coffee machines, and to supply Philips with quality materials. This partnership is helping Philips to reach its goals to generate 25% of sales from circular products, services, and solutions by 2025. 

Technology drives the circular economy

Circular business models reuse everything, but they rely heavily on emerging technologies to enable the path to sustainable profitability.  

Companies undergoing digital transformation must rethink every aspect of their business: future vision, strategy, value chain, operations, pricing models, sales channels, and customer engagement. This presents a unique opportunity to use data and digital technology more efficiently for circular innovation.

As Deloitte notes in its “Recipe for Circular Economy Transformation” report, key elements for circular transformation include the Internet of Things (IoT) platforms, artificial intelligence (AI), machine learning, and predictive analytics. These elements help companies better understand their use of resources and waste, material flows and areas of inefficiency, and how to deliver customer value. These technologies help companies find circular potential hotspots and align business strategy with profit models and pricing strategies.  

Blockchain, augmented reality, optimization, and smart mobility help companies rethink operations to optimize resources, break down silos, and connect data, devices, and partners. Big Data, apps, and e-commerce platforms enable personalization and create better customer experiences. And cloud services, social platforms, data visualization, and virtual reality (VR) enable engagement and continuous feedback loops for better design throughout the cycle.