The circular economy action plan (CEAP) was adopted by the European Commission (EC) in March of 2020. The plan is, according to the EC, “one of the main building blocks of the European Green Deal,”  which is the new plan for sustainable growth in Europe. The CEAP covers a number of initiatives, such as taking into account the entire life cycle of a product, promoting sustainable consumption, preventing waste and ensuring that resources used can remain in the EU economy for as long as possible.

The benefits of transitioning to a circular economy for businesses are the focus of this blog post. This blog post will not only explain what a circular economy is. It will also address the following topics:

• Why a circular economy could benefit the bottom line and the European economy as a whole
• Why a change of perspective is vital to the way value is created, especially when it comes to waste management
• How businesses can increase their resilience and innovation

Combined, these points are intended to not only give a clearer picture of what a circular economy is, but also to show why it is important to pursue it in the first place. Here, the benefits will be laid out, demonstrating why a circular economy is advantageous for the environment, economic health and for businesses. 

What is a Circular Economy?

Before discussing the various benefits, it is beneficial to understand what a circular economy is. This will serve as the basis for all further discussion and arguments from this point onwards.

Following research conducted by the Copernicus Institute of Sustainable Development at Utrecht University, which inspected 114 different definitions of what constitutes a circular economy, the following definition was formulated:

“A circular economy describes an economic system that is based on business models which replace the ‘end-of-life’ concept with reducing, alternatively reusing, recycling and recovering materials in production/distribution and consumption processes, thus operating at the micro level (products, companies, consumers), meso level (eco-industrial parks) and macro level (city, region, nation and beyond), with the aim to accomplish sustainable development, which implies creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations.”

This definition covers all key elements of circularity. It takes into account not only the life cycle and material transformation of a product, but also other facets such as socio-economics and overall sustainability. The reason for the use of this definition in this blog post is that it is a reflection of reality - it is multifaceted. It considers the different factors and impacts at all levels, as companies must.

For more information on the current system and why a circular economy is an ideal alternative, you can read the associated blog post ”The Push for Circularity: Historical Factors at Play in Europe“.

Although the definition is theoretically excellent and provides a better picture of what a circular economy should involve, many companies ask "What's the point?" when considering the reality of its implementation. The point is that a circular economy not only benefits the environment and promotes sustainable practices, it also has a multitude of associated benefits for businesses.

Better for the Bottom Life

Transitioning to a circular economy and implementing its principles aids companies in having the potential to go beyond government environmental regulations, helping them to stay ahead of new requirements like meeting sustainability quotas and reporting. However, there are numerous benefits that go beyond the scope of regulations and environmental protectionism - for example, there are financial benefits. 

Focusing on the financial and economic aspects, the European Parliament says that moving towards a circular economy has the potential to yield benefits such as:

•  Improving the security of the supply of raw materials
•  Increasing the competitiveness of businesses
•  Stimulating innovation
•  Boosting economic growth which could correlate with an additional 0.5% of GDP and
•  Generating job opportunities - 700,000 jobs in the EU alone by 2030

Simultaneously, with these benefits, a report from McKinsey Sustainability reports that the adoption of “circular-economy principles [...] could [potentially] generate a net economic benefit of €1.8 trillion by 2030” for Europe as a result.

All About Perspective: Waste & Value

Moving from a waste intensive linear economy to a value-creating circular economy has advantages. A prime example is that of waste management. In the context of waste management, a circular economy creates a change in thinking, from the overall approach to the way a material is managed and viewed.

Starting with perspective, the circular economy encourages a fundamental reorientation of waste perception. Rather than seeing it as an extra burden that only costs the business money to dispose of, circularity encourages businesses to see waste as a resource from which value can be extracted - i.e. an opportunity to turn this cost into a profit centre. Once this shift is made, the true potential of a material can be realised and opportunities as such can occur: 

• Securing material supply chains
• Creating innovative products from recovered materials
• Finding ways to salvage unusable material rather than discard it
• Innovative thinking to adapt product design to material availability
• Capturing value from resources by means of selling to those seeking such material
• Saving money

If managed wisely, waste can be regarded as a business asset.

Driving Innovation and Resilience

A circular economy could also develop greater industrial resilience. A paper published in 2021 by the Ellen Macarthur Foundation, in 2021, states that in a circular economy, "business models are underpinned by designs that enable products to be reused, components to be remanufactured, and materials to be recycled [meaning that] supplies of materials and components are therefore increasingly decoupled from the consumption of raw materials that may be vulnerable to climate-related risks.”

More specifically, when considering the vulnerability of the supply of materials stemming from climate-related risks, diversifying material streams - such as changing how waste is viewed and used - helps develop and strengthen resilience.

In a circular economy, supply is increasingly flexible, relying on products and materials that have been recovered and diverted from waste streams. This has the potential to spread the impact of climate-related disruptions further along the supply chain, increasing stability and robustness.

The Whole Package

While a circular economy means a major shift in economic operations, there are a multitude of benefits which make taking the leap worth it. As was detailed above, a circular economy can:

• Boost economic growth and job creation which in turn can bolster an increase in GDP
• Transition waste into a profit centre, generating innovation and material security while also saving money
• Increase the competitiveness of a business while simultaneously increasing resilience

All in all, going circular is a win-win situation for everyone involved. Not only does it provide a competitive advantage, a stable future and financial security, it also helps the planet and society as a whole. In short, it is the best solution for all involved.