Currently in the EU production and consumption heavily depends on raw materials, with only a small percent being reused or recycled. This is a traditional linear economy model that generates excessive waste, constantly demands raw fibers, minerals, energy, water, and fosters unsustainable consumption habits. The solution lies in transitioning to a circular economy, where products and materials are used longer and repurposed into new items after their initial use.
Circular economy has the power to turn waste into value. According to a McKinsey study, a shift to a circular economy could represent a revenue opportunity of more than $1 trillion in Europe alone in 2050. Another McKinsey analysis estimates that shifting to circular business models may help European consumer goods companies access a value pool worth up to €500 billion by 2030.
Shifting from Linear to Circular Models
Unlike the “throwaway” approach of the linear economy, “closed loop” model of production and consumption is more sustainable and responsible. It also helps focus on economic growth while combating pressure on the planet and its resources. Companies are recognizing the advantages of the circular economy, aside from helping the environment, which enhances their competitiveness and sustainability.
Reducing production costs. For businesses, one of the primary benefits of the circular economy is the focus on “smart” economies. By optimizing resource usage, companies can lower production costs and become competitive in their market. According to the European Environment Agency, in 2004 only 8.3% of materials came from recycled waste, growing to 11.7% in 2021. Using recycled or reused fossil fuels, biomasses, metals and nonmetallic materials can contribute to lower production and delivery costs.
Less dependency from raw materials leads to higher resilience. In today’s politically turbulent times lower dependency from critical raw materials supply may be a key to success. Smart waste management, transition to a circular economy, smart and sustainable supply chains all contribute to this goal. To achieve a truly “closed loop” economy and therefore sustainable Europe we must lower our need for raw materials in everything that we consume and produce every day.
More business opportunities. Another benefit of the circular economy is the opportunity to tap into new markets that previously showed little interest in certain products and services. By adopting a circular economy strategy, companies can explore new business models such as renting products, selling spare parts, and reusing raw materials. These approaches not only meet market demands but also drive innovation and creativity within the company.
Lower investment risks. Adopting circular economy strategies can significantly reduce investment risks and improve returns. Research from Bocconi University, which studied over 200 listed European companies across 14 industries, found that companies with more circular practices have a lower risk of defaulting on debt and higher risk-adjusted stock returns. By diversifying business models, these companies can grow economically without overusing resources or harming the environment. Additionally, they are better prepared for stricter regulations and changing customer preferences, making them more resilient overall.
Circular Opportunities in Fashion, Electronics, and More
Switching to a “closed loop” economy will not be equally easy for players from different industries. Consumer goods companies stand to benefit the most from shifting toward circular business models.
Fashion and luxury. By 2030 the industry expects a significant growth in recycled and sustainably produced products, with a focus on sustainable fibers.
Electronics. Europe’s market for circular electronics could reach €90 billion, driven by refurbished smartphones, laptops, tablets, and small home appliances.
Home and living. The circular home and living market, potentially worth €45 billion by 2030, will focus on sustainably produced furniture and home goods made from certified and innovative materials.
Sports. Circular sporting goods, including recycled and sustainably produced apparel, footwear, and equipment, will drive market growth.
Fast-moving consumer goods (FMCGs). Success in this market will increase with the ability to package goods in 100% recycled or biodegradable materials.
Steps for Companies to Transition to a Circular Business Model
The move towards a circular economy has strong political and customer support. For instance, the EU is pushing for a circular economy to make Europe cleaner and more competitive. Customers are also on board. Gartner predicts that by 2029, supply chains will need to fully eliminate waste because it will no longer be acceptable to customers and governments. By 2030, if your business model isn’t circular, you won’t be able to compete. So how and where can companies start their transition to circularity?
Conduct a sustainability audit and evaluate product lifecycle. Firstly, companies need to analyze the entire lifecycle of products, from design, sourcing materials and supply chains and to disposal. Identifying where the most waste is generated and resources are underutilized is a first big step towards sustainability.
Define circular economy goals and develop a roadmap. Set specific, measurable targets for reducing waste, increasing recycling, and improving resource efficiency. Create a detailed plan outlining the steps needed to achieve these goals, including timelines and milestones.
Redesign processes and optimize resource usage. Redesign products to be more durable, reusable, and easier to recycle. Use renewable, recycled, and biodegradable materials in product manufacturing. For example, S.Lab produces biodegradable plant-based packaging from agricultural waste, sourced locally, which helps eliminate CO2 emissions and waste management fundings.
Invest in technology and Infrastructure. Utilize digital tools and platforms to track and manage resources, optimize logistics, and facilitate recycling. Invest in infrastructure that supports recycling, composting, and other circular activities.
Applying circular economy principles to current business models and products is increasingly seen as a smart investment in resilience and future growth. However, making this shift can seem difficult. It involves rethinking how we use materials and products, leading to practical changes like new ways of working with supply chains (such as using reverse logistics for reusable containers), adopting disruptive technologies (like digital resale platforms), and exploring alternative business models (such as pay-per-use products). These changes can be complex in the short term.
On a positive note, financial institutions are starting to recognize these opportunities, providing more support for both established companies and startups making these transformations.
With growing support from financial and governmental institutions, businesses can achieve long-term resilience and growth.
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