Circular Economy: what is it and how to apply it in companies?

The circular economy proposes an approach that seeks to redefine the way we produce, consume and manage resources. It seeks to break with the traditional linear model of "extract, produce, use and throw away" and companies play a fundamental role in this transformation.

Adopting circular practices not only optimises the use of resources, but also reduces waste and environmental impact, as well as generating new business opportunities, fostering innovation and strengthening business resilience in the face of change and regulatory pressures.

In this article we will explore the importance of the circular economy in the business context and its key role in mitigating environmental challenges.

What is the Circular Economy? Fundamental principles

The definition of the Ellen MacArthur Foundation, one of the most representative entities and drivers of the change to a circular economy, is as follows:

"The circular economy is a system in which materials never become waste and nature is regenerated. In a circular economy, products and materials are kept in circulation through processes such as maintenance, reuse, repurposing, remanufacturing, recycling and composting. The circular economy addresses climate change and other global challenges, such as biodiversity loss, waste and pollution, by decoupling economic activity from the consumption of finite resources."

The circular economy is based on three fundamental, design-driven principles:

1. Eliminate waste and pollution: Rather than following a linear model with throwaway products, the circular economy seeks to eliminate waste generation and pollution from the beginning of the process.
2. Circulate products and materials (to their maximum value): In the circular economy, the continuous circulation of products and materials is promoted, keeping them in use as long as possible and maximising their value before their eventual recycling or reuse.
3. Regenerate nature: This principle focuses on restoring and preserving natural systems, ensuring that economic processes do not deplete natural resources or damage the environment.

The principles of the circular economy are supported by a transition to the use of renewable energy and sustainable materials, making it a resilient system that benefits businesses, people and the environment alike.

Difference between Circular and Linear Economy

The linear and circular economies differ fundamentally in their approach, in the vision of value creation, in the sustainability perspective and in the business model adopted.

First, the linear economy follows the "extract, produce, use and throw away" approach, while the circular economy adopts the "Reduce, Reuse, Recycle and Recover" approach, minimising waste in the equation.

In terms of vision, the linear economy primarily seeks short-term profitability, focusing on mass production and sales. On its side, the circular economy has a long-term vision that considers sustainability throughout the life cycle of a product, promoting product upgrades, repairs and refurbishment to achieve longer life cycles.

Regarding sustainability, linear economics works towards reducing the environmental impact generated. However, this model only slows down the linear flow of resources from production to waste by reprocessing materials into lower value products (downcycling). In contrast, the circular economy seeks to minimise environmental damage and convert materials into something of greater value than the original (upcycling).

As for the business model, the linear economy focuses on products that are produced, used and then discarded as waste, while in the circular economy, its focus is on providing a single service that can be used by many people rather than replicating the same product for multiple individuals.

Diagram of the circular economy

The circular economy system diagram, commonly referred to as the butterfly diagram, provides a visual representation of the constant flow of materials within a circular economy. This model highlights two main cycles: the technical cycle and the biological cycle.

• In the technical cycle, products and materials are kept in circulation through various practices such as reuse, repair, remanufacturing and recycling.
• In the biological cycle, nutrients contained in biodegradable materials are returned to the soil to regenerate and revitalise nature. This integrated approach seeks to maximise resource efficiency and minimise waste, thus promoting a more sustainable and resilient economic system.

What are the benefits of the Circular Economy?

The circular economy offers a number of significant economic benefits that impact both at the macroeconomic level and in the everyday life of people.

1. Economic growth: driven by the transition to a circular model. This growth, as measured by GDP, is achieved primarily through an increase in income from emerging circular activities and a reduction in production costs due to more productive use of resources. These changes affect supply, demand and prices throughout the economy, thus contributing to overall economic growth.
2. Significant material cost savings opportunities: it is estimated that in the European Union, in medium-life product sectors (such as cell phones and washing machines), there is an annual net material cost savings opportunity of up to US$630 billion. For fast-moving consumer goods (such as household cleaning products), the potential for material cost savings is as high as US$700 billion globally.
3. Job creation: It is estimated that in the EU up to 700,000 jobs could be created by 2030. Repurposing materials and products for circular use would stimulate innovation in different economic sectors, providing consumers with more durable and innovative products that would improve their quality of life and save them money in the long run.
4. Fostering innovation: by providing a creative opportunity to replace linear products and systems with circular models. This innovation leads to faster technological development, better materials, energy efficiency and more profit opportunities for companies.
5. Protection of the environment: by slowing down the use of natural resources and reducing total greenhouse gas emissions. By reusing and recycling products, intervention in ecosystems is minimised and biodiversity loss is limited. In addition, by creating more efficient and sustainable products from the outset, energy and resource consumption is reduced, thus addressing environmental impact at the design stage.
6. Reduced dependence on raw materials, which is crucial given population growth and demand for resources. By recycling materials, risks associated with supply, such as price volatility and import dependence, are mitigated, especially for critical materials needed for the production of key technologies.

How to Apply the Circular Economy in a Company

Implementing the Circular Economy in a company is a process of continuous improvement, but it remains essential for long-term sustainability and success in a market increasingly aware of the environmental impact of economic activities. Here are six essential steps to apply the Circular Economy in your business:

1. Adapt the business model to circularity: promote an extended life cycle for products, considering aspects such as ease of repair and reusability from the initial design. It is strategic to reorganise the final stage of products to reintegrate all materials and minimise the amount of waste sent to landfill.

2. Design products for circularity: circular products are conceived and designed considering their complete life cycle, incorporating elements that allow repair, recycling and reuse from the beginning and that contemplate characteristics such as modularity and durability.

3. Collaborate with all the actors in the product life cycle: from conception to production, sale and end use, all the phases and agents involved must contribute to closing the cycle.

4. Manage the end-of-life of the product: it is essential to efficiently manage the end use of products, through their reincorporation into the production process, their sale, donation or recycling.

5. Calculate and measure the environmental footprint: to identify areas for improvement and set realistic sustainability goals, it is necessary to understand the environmental impact of operations and products.

6. Educate consumers about circularity: Involve customers in the impact of a circular model by providing information on how to contribute to closing the cycle.

7. Continuous improvement: just as companies evolve in other aspects of business operations, such as productivity or profitability, there is also room for improvement with respect to circularity. Products can be made even more durable, new ways can be found to reintegrate and reduce waste in the value chain, or renewable energies can be implemented.

Circular Economy Facts: Circularity Gap Report

The concept of circular economy is becoming increasingly popular and discussions about this model have increased significantly in recent years. However, global circularity is decreasing and the use of secondary materials has dropped. These are data from the Circularity Gap Report 2024 (Circularity Gap Report) in which these findings stand out:

• The global economy consumes about 100 billion tons of materials.
• Only 7.2% are reincorporated into the economy after the end of their useful life.
• More than 90% of materials are wasted, lost or left with no possibility of reuse in constructions or other goods.
• The share of secondary materials consumed by the global economy has decreased from 9.1% in 2018 to 7.2% in 2023, a decline of 21% over five years.

The Circular Economy in the EU

In 2020, about one third of the total waste generated in the EU was landfilled, and another nine percent was incinerated without energy recovery or otherwise disposed of. This data shows that additional efforts are needed by Member States for more circular waste management.

The European Commission proposed in March 2022 an ambitious Circular Economy Action Plan as part of the Green Pact, with the aim of accelerating the transition to a circular economy. This plan encompasses various measures aimed at promoting sustainable products, revising regulations on construction and textiles, and strengthening the role of consumers in this green transformation.

In addition, it emphasises the need to address e-waste, one of the fastest growing waste streams in Europe. Reuse and "right to repair" are promoted as strategies to extend the life of electronic products.

How does the EU measure the circular economy in companies? As we explain in this article, the EU has not established official indicators to measure business circularity, but has developed several regulations and policies in its circular economy strategy. These are the 5 main ones:

1. Directive 2018/851 on waste.
2. Directive 2018/852 of the European Parliament and of the Council
3. Directive (EU) 2019/904 of the European Parliament and of the Council.
4. New Corporate Sustainability Reporting Directive (CSRD)
5. European Taxonomy

On the other hand, the EU, in line with its climate neutrality objectives, also establishes that the countries of the region should implement circular economy strategies.These include instruments such as Landfill and Incineration Taxes, to achieve their recycling targets; Waste Pay-As-You-Go Systems, based on the "polluter pays" principle, which encourage waste reduction and separate collection; and Separate Collection Systems, required by the Waste Framework Directive and essential to facilitate recycling.

The Role of Waste in the Circular Economy

Waste management has become a crucial challenge in the modern era, as the Global Waste Management Outlook 2024 highlights. This report, a collaboration between the United Nations Environment Programme (UNEP) and the International Solid Waste Association (ISWA), highlights the urgent need to transform our approach to solid waste to reverse a worrying trend.

If we continue with current patterns, the global generation of municipal solid waste is expected to increase dramatically by 2050, underscoring the importance of concrete actions to decouple economic growth from waste production. Currently, only 19% of municipal solid waste is recycled globally, indicating a low level of effective waste management.

This study also mentions that the implementation of a circular economy system could mitigate these costs and improve environmental efficiency. This approach entails drastically reducing waste and valuing secondary materials as resources, which requires significant investments in infrastructure and coordinated actions between governments and producers. This implies viewing waste as a potential resource and working to reintegrate it into the value chain. In addition, it highlights the importance of extending the useful life of materials and improving recyclability, as well as ensuring safe and fair conditions for those working in waste management.

Tools for Applying the Circular Economy in the Enterprise

In the circular economy, where the goal is to maximise the value of resources and minimise waste, the integration of environmental data into business strategies is crucial.

That is why Zero, TEIMAS' software for waste control in large companies, stands out as an essential tool for multinationals looking to implement circular economy practices.

In addition, this cloud-based platform enables carbon footprint measurement and cost tracking, streamlining operational improvements and promoting more sustainable and efficient management. Using this tool transforms waste management into a significant competitive advantage. Request more information here.‍