Circular economy: what it is and how it benefits the environment

Read about circular economy and the why the opportunities it presents are yet to be fully understood.

At a glance

  • A circular economy aims to reduce the environmental impact of production and consumption while driving economic growth through more efficient use of natural resources.
  • A key part of “circular” production is a design process that enables effective recovery of components and materials that can be used, reused, recycled, redesigned and remanufactured.
  • Proponents of a circular economy argue that circular economic principles can foster innovation and productivity while creating more job opportunities and encouraging social inclusion.

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A circular economy is based on three principles – design out waste and pollution, keep products and materials in use and regenerate natural systems.

These ideas aren’t new. Back in 1970, the American Association for the Advancement of Science (AAAS) declared, “The object of the next industrial revolution is to ensure that there will be no such thing as waste, on the basis that waste is simply some substance that we do not yet have the wit to use…There must be a loop back from the user to the factory.”

The concept of a circular economy has since evolved beyond better waste management, says Jaine Morris, COO at Coreo, an Australian company that advises and guides organisations through their circular economy aspirations.

“There is a clear distinction between designing from waste and designing out waste. The circular economy focuses on upstream innovation,” says Morris.

Coreo started out advising 45 small businesses in one city street on how to implement a range of tangible circular economy concepts around energy, water and waste.

The company’s success is a mirror of how quickly circular economy ambitions have grown. Four years on, Coreo has delivered more than 100 circular economy projects with organisations including BHP, Lendlease, Mirvac, the City of Sydney and the Queensland Government.

The circularity gap

Despite a circular economy’s great promise, global statistics tell a different story. The Circularity Gap Report 2021, first published in 2018, shows that, pre-COVID-19, the world economy was 9.1 per cent circular. In 2021, that figure fell to 8.6 per cent.

“Circular business models are still not well understood by the finance community, and so circular economy initiatives are not always readily financed,” says Lisa McLean, CEO at NSW Circular, a government-funded body whose aim is to deliver a zero-carbon circular economy in New South Wales.

The business models and cash flows of circular businesses are quite different from linear companies that take, make and waste. Instead, circular companies share, reuse, recycle and repurpose. They can be very profitable, because they have multiple revenue streams, taking waste and turning it into a new or renewed product, and reducing costs because they require less virgin material.

“We’ve gone past the point of sustainability being enough. Sustainability seeks to be neutral – taking as much as we are giving back. The circular economy needs to be doing more good, not simply less bad.” Lisa McLean, NSW Circular

For example, UK charity the Ellen MacArthur Foundation, in an analysis of medium-life products, has estimated that the cost of remanufacturing mobile phones could be reduced by 50 per cent if the industry produced phones that were easier to take apart and if there were more incentives in place for returning phones. Similarly, if high-end washing machines were leased instead of sold, it would save customers about a third on each wash, while earning manufacturers about a third more in profits.

The challenge is that regulators do not currently value externalities associated with sharing and reuse, says McLean. “There’s not a level playing field for circular businesses. Work needs to be done to open our markets to new circular solutions and to enable them at scale.”

McLean believes that the circular economy represents a colossal multi-trillion dollar economic opportunity. “This is where the new jobs and industries of the future are coming from.

“Over the next decade, 100,000 new jobs could be generated. Opening up closed markets to more innovation – more recycling, sharing and reuse – would boost the economy.”

Not only does the circular economy help tackle resource scarcity and prevent climate breakdown, says McLean, but circular economy businesses have also been found to outperform traditional competitors and promote social justice and fairness.

CPA Library:
Circular economy, industrial ecology and short supply chain: towards sustainable territories. Read now

Circular operating model

Understanding the circular economy is one thing, but how you apply its concepts to your own business, or how to participate in it as a consumer, is far from clear.

Adrienna Zsakay, CEO of Circular Economy Asia, argues, “We do not need circular economy general practitioners, but specialists who fulfil a job within the core functions that enable the circular economy to be integrated within a company’s operation, delivering an agreed intended impact.”

Reverse logistics is another core function of the circular economy, Zsakay says, by virtue of the fact that, if you cannot get a product back, you cannot assess how any of the other circular economy functions can be applied – for example, repair, remanufacturing or the reprocessing of materials when products reach the end of their use-cycle.

Zsakay suggests that aligning the functions of the circular economy with environmental, social and governance (ESG) reporting, increasingly essential for companies and more mature than the current status of the circular economy, provides businesses with extra insights into their resource efficiency and resource management in ways standard environmental issues do not.

Government and business are understanding it is not enough to just be zero carbon, agrees McLean. “We need to decouple economic growth from virgin resource use and transition our investments, our infrastructure and services to be regenerative.

“We’ve gone past the point of sustainability being enough. Sustainability seeks to be neutral – taking as much as we are giving back. The circular economy needs to be doing more good, not simply less bad.”

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