February 5, 2020

What is Circular Economy and why act now?

The “circular economy” - pretty sure you have heard about it already. What do you think it’s about: waste management? Sorry to tell you this, but you are not even close. The circular economy is much more!

A framework for an economy that is restorative and regenerative by design

The circular economy has become increasingly important in politics, industry and society over the past few years. Behind this lies a shift away from a linear economic model towards a system of closed cycles. But what does that actually mean?

There are different schools of thought on the circular economy. German chemist Michael Braungart developed the cradle-to-cradle concept, which is on everybody's lips at the moment. Braungart says there are two cycles: biological and technical. The biological cycle is regenerative by nature as it includes food and biologically-based material such as cotton or wood that are designed to feed back into the system for example through composting. The technical cycle recovers and restores products through strategies like reuse, repair, refurbish or recycle.

Walter Stahel, a swiss industrial analyst, believes that selling services rather than selling products is a way towards a closed-loop approach - an idea also referred to as ‘performance economy’. It pursues four main goals: product-life extension, long-life goods, reconditioning activities and waste prevention in order to preserve natural resources and decrease related greenhouse gas emissions.  

The Ellen MacArthur Foundation summarizes those approaches and says that the circular economy is based on three principles, which apply to large and small businesses, to organizations and individuals, globally and locally:

Design out waste and pollution
Keep products and materials in use
Regenerate natural systems


The time for a change is now!

You might have noticed some uproar recently - be it discussions on CO2 taxes or Fridays for Future. That is probably because the time for a change is now! The linear economy as we know it is running out of resources. Did you know that the production of one smartphone takes 12.000 liters of water? That Polish brown coal mines will be exhausted by 2030? And that rare earth elements we use in the production of electronic goods are as rare as the name implies…? IT’S TIME FOR A CHANGE!

During the World Economic Forum, politicians and industry leaders called for a change towards the circular economy. “Climate change”, “positive” and “impact” were trending terms on Twitter during the WEF in January and the world's largest asset managers Blackrock is increasingly pushing for sustainability.  

But what is holding you back?

And yet, many companies are still skeptical about moving their business model towards the circular economy. The main reason for this skepticism is obvious - it’s a huge change. And humans are naturally resistant to change.

Do these statements sound familiar? “I am losing revenue when I rent out my products instead of selling them!”, “If I improve my product quality, I will run out of business because my products last for 40 years!” “I won’t cover the costs for my production with the rent of the product!” … hand on heart: was that your thoughts, too?

Then I have some good news for you: the Circular Economy is decoupling economic activity from the consumption of finite resources - meaning, that your concerns are unfounded.

The Circular Economy is happening already!

Some very well known companies are proving and capitalizing on the Circular Economy in order to generate new business. While many new and disrupting business models will come from entrepreneurs, industry leaders can also play a critical role and should not miss out on the opportunity to be the leading force in the disrupting change towards a circular economy.

Here are some outstanding and impressive examples of companies that are paving the way towards the circular economy:

Philips & Architect Thomas Rau: “Light-as-a-Service”

Architect Thomas Rau worked with Philips to purchase light as a service. The end result was a bespoke 'pay-per-lux' intelligent lighting system to fit the requirements of the space, at a manageable price. Philips keeps control over the items they produce, enabling better maintenance, reconditioning and recovery.

I told Philips, ‘Listen, I need so many hours of light in my premises every year. If you think you need a lamp, or electricity, or whatever – that’s fine. But I want nothing to do with it. I’m not interested in the product, just the performance. I want to buy light, and nothing else.

- Thomas Rau

Bundles: pay-per-use model

Bundles is a Dutch company founded in 2014 offering a subscription model for washing machines, tumble dryers, dishwashers, and (most importantly) coffee. The company offers products on a pay-per-use basis where the consumer is in control of use, and Bundles is in control of the lifetime

The leasing scheme transforms a long-term investment in a 10,000-cycle machine into multiple cash flows and the right to use the machine for a certain period of time. This results in an economic win-win situation and yields positive material and energy implications through prolonged lifetimes of the products.

- Towards the Circular Economy vol. 1, 2012, Ellen MacArthur Foundation

MUD Jeans: subscription model for recycled jeans

The Dutch company MUD Jeans proves that fashion can also be sustainable. They use the raw material from old jeans - the garbage - to produce new fibers, from which the final product, mud jeans, is made. 40% of the old jeans are recycled and reused in this process and from two old jeans, a new pair of jeans is produced. To secure a constant supply of old Jeans, they offer their products as a subscription model.  

Those examples show very well how established companies, as well as startups, are positioning themselves as leaders in the circular economy. Seeing the demand for sustainable products and subscription models rising, this is just the beginning of a bright and circular future.

Let’s create a circular future. Together.