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Circular Economy EXPLAINED

The circular economy has been gaining traction in recent years as a more sustainable alternative to the traditional linear economy. This new economic model has already begun to make inroads in a number of industries, from fashion to food. But there is still a long way to go before it becomes the norm.

What is a circular economy?

In a circular economy, waste is minimized and resources are kept in use for as long as possible. This closed-loop system is designed to be more environmentally and socially responsible than the traditional linear economy, which relies on a linear model of take-make-dispose.

The graphic below illustrates the differences between the circular economy and the linear economy:

Circular Economy VS Linear Economy
Circular Economy VS Linear Economy

As you can see, the production of some waste is inevitable also in a circular economy. However, the amount of waste would be much less in a circular model compared to the linear one.

The linear economic model is not sustainable in the long term, as it relies on a constant supply of new resources and creates mountains of waste.

The circular economy is instead restorative and regenerative by design and aims to gradually eliminate or reduce the use of toxic chemicals, energy from fossil fuels, and materials from virgin sources.

The idea of a circular economy has been around for decades, but it has gained more traction only in recent years as the focus shifted more and more towards sustainable development.

The implementation of a circular economy is one of the key ways we can satisfy the triple bottom line of sustainability (environmental, social, and economic), with benefits on all the 3 areas of sustainable development.

How can businesses benefit from a circular economy?

The circular economy is an emerging concept in business and sustainability that challenges the traditional linear economic model.

In the linear economy, businesses operate under a model, where they extract resources, manufacture products, and then dispose of them as waste. This model is not sustainable in the long term, as it depletes the world’s natural resources and creates pollution.

In contrast, the circular economy model is based on the 6 R’s of sustainability, which includes the principles of reuse, repair, and recycling. In a circular economy, businesses aim to keep products and materials in use for as long as possible, and then recycle them when they can no longer be used. This model reduces waste, conserves resources, and minimizes pollution.

There are many ways that businesses can benefit from a circular economy.

For example, by designing products that can be easily repaired or recycled, businesses can reduce the need for new resources and save money.

In addition, by selling products as service-based subscriptions (such as a monthly car-sharing service), businesses can keep products in use for longer, which reduces waste and maximizes the value of the product.

What are the challenges of implementing a circular economy?

There are many challenges to implementing a circular economy, but perhaps the most difficult is changing our mindset and the way we think about resources.

For centuries, we have operated under a linear model of production, where we extract raw materials, use them to create products, and then dispose of them when we are finished. This linear model is no longer sustainable, as the world’s population continues to grow and consume more resources.

The circular model requires a major shift in the way we produce and consume products, and it can be difficult to change long-standing habits.

Another challenge of implementing a circular economy is the lack of infrastructure to support it.

In a linear economy, products are designed for disposal, so the infrastructure is in place to dispose of them.

In a circular economy, products are designed to be reused or recycled, so the infrastructure needs to be in place to support that. This can be a significant challenge, particularly in developing countries.

What are the main components of a circular economy?

There are three key components to a circular economy:

  1. Reducing waste and pollution
  2. Improving resource efficiency
  3. Creating economic value from waste and by-products

A circular economy is based on the principle of waste prevention, rather than waste management. By design, it reduces or eliminates the negative impacts of production and consumption, such as pollution and resource depletion.

In a circular economy, waste is seen as a valuable resource that can be used to create new products and generate new economic activity. This is in contrast to the traditional linear economy, where waste is seen as a disposal problem.

Circular economy thinking can be applied to any economic system, from manufacturing to agriculture to services. It is a holistic approach that considers the entire life cycle of a product or service, from raw materials to waste.

The goal of a circular economy is to eliminate waste and pollution, while still providing the same level of economic activity and consumer goods and services. This can be achieved through a variety of means, such as product design, material substitution, and waste reduction.

Circular Economy example

There are many examples of Circular Economy, but one of the most notable is the way in which some companies are rethinking the way they use resources.

For example, instead of using virgin resources, some companies are using recycled materials to create new products. This reduces waste and helps to conserve resources.

In addition, some companies are redesigning products so that they can be reused or recycled instead of being thrown away. This helps to close the loop and keep resources in use for longer.

Now, let’s have a look at a circular economy case study!

Philips

Philips has been on a sustainability journey since the early 1990s. In 2012, Philips set a goal of 55% of total sales to be ‘green’ by 2025, and has redirected one third of its annual R&D budget towards green innovation.

As part of the company’s environmental responsibility, several years ago, Philips launched a circular economy pilot project in the Netherlands to test the feasibility of this approach. The pilot involved a number of product categories, like electric shavers, LED lamps, domestic appliances, and healthcare equipment.

The results of the pilot were positive, and Philips has since started to integrate the circular economy model for its products.

The circular economy is an important part of Philips’ sustainability strategy, and the company is committed to continuously improving its products and processes to reduce waste and environmental impact.

Philips recently made ambitious ESG (Environmental, Social, and Governance) commitments to embedding circular thinking in every step, from sustainable product design to customer service. The company’s stated goal is to generate 25% of its revenue from circular products, services, and solutions by 2025.

As of 2020, Philips already achieved important targets, in fact, the principles of the circular economy are already implemented for about 15% of their products.

The pursuit of the circular economy is crucial to the sustainability strategy of Philips and it involves aspects such as:

  • Sustainable circular design of products and services
  • Circular business operations, with zero waste targets also for offices and facilities. 
  • Circular business models to help use the products as long as possible, including things such as refurbishments and repairs.

How can we move towards a circular economy?

There are a number of ways in which we can move towards a circular economy, for example:

  • Redesigning products and business models: this could involve redesigning products to be longer lasting, easier to repair and upgrade, or designing them for disassembly so that components can be reused or recycled. It could also involve new business models such as product-as-a-service, where customers pay for access to a product rather than ownership.
  • Increasing resource efficiency: this means using resources more efficiently throughout the entire life cycle of a product, from extraction and production. That’s why it is so important to leverage the latest digital transformation technologies and industry 4.0! The benefits of digital transformation and the advantages of industry 4.0 include large improvements in efficiency, which is crucial also for our journey toward a circular economy.

The benefits of a circular economy

The benefits of a circular economy are many and varied, but can be summarised as follows:

  1. Reduces waste and greenhouse gas emissions
  2. Conserves resources
  3. Creates jobs and boosts economic growth
  4. Generates new business opportunities
  5. Improves resource efficiency and productivity
  6. Enhances economic, social, and environmental sustainability

The pitfalls of a circular economy

There are a few potential pitfalls associated with the circular economy.

One of the main issues is that it can be difficult to implement on a large scale. This is because it requires a lot of coordination between different businesses and industries to work effectively.

Another potential problem is that it may not be possible to achieve a truly circular economy if there is a limited supply of certain resources. This could lead to businesses and industries hoarding resources, which would ultimately defeat the purpose of the circular economy.

Finally, it is important to note that a circular economy is not a panacea for all of the world’s environmental issues. It is a tool that can be used to help address some of the issues associated with traditional linear economies, but it is not a cure-all.

Conclusion

The circular economy is a hot topic these days, and for good reason. It’s a more sustainable way of doing business, and it has the potential to provide huge benefits for both businesses and the environment.

However, there’s still a lot to learn about the circular economy, and it’s important to make sure that we’re doing it right. With that in mind, here are three things to keep in mind as we move forward with the circular economy.

First, remember that the circular economy is about more than just recycling. It’s about reusing and repairing products and keeping them in use for as long as possible. This means that businesses need to design products that are easy to repair and reuse.

Second, the circular economy is about closing the loop. This means that businesses need to find ways to keep materials in use, rather than sending them to landfill. This could involve using recycled materials in new products, or finding new ways to use waste products.

Finally, the circular economy is about creating value. This means that businesses need to find ways to add value to products and materials, rather than simply extracting value from them. This could involve using waste materials to create new products, or finding new ways to use products and materials.

In conclusion, the transition to a circular economy is a crucial step to achieving sustainable development and businesses should aim at implementing it as soon as possible!