Closing the Loop: How Circular Economy Functions​

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Are you familiar with the term circular economy? You must have heard it floating around in discussions that are centered around sustainable production and consumption practices. Today we’re going to dive into this concept and see how it has made its way to both mainstream and professional discussions in business.

Developed societies around the world have a largely consumerist lifestyle. Materialism fuels a fad-like consumer pattern that benefits no one in the long run, neither the unknowing consumer, nor the business-minded producer. In the backdrop of this, the themes of sustainability, responsible consumption patterns, better supply chain management etc. are often discussed, and the concept of circular economy lies at the convergence of these.

The World Economic Forum (WEF) defines a circular economy as “an industrial system that is restorative or regenerative by intention and design”. The concept of circular economy is gaining more attention as we face increasing pressure to address the environmental challenges of our time. A circular economy is an economic model that aims to eliminate waste and promote the continuous use of resources. In other words, a circular economy is a system that seeks to keep resources in use for as long as possible and extract the maximum value from them while minimizing waste and pollution. In fact, WEF also says that a transition to a circular economy has the potential to transform how business is done

Credit: DXC Technology

In a linear economy, a product is produced, then utilized by the consumer, and then it becomes waste. A recycling economy, on the other hand, re-uses the product as many times as it can possibly offer its utility and reduces net waste in the long term. Circular economy operates on a different tangent, and differs in how value of a product is created and preserved. 

In contrast to the traditional linear economic model of “take, make, and dispose,” a circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. This means that products are designed to be durable, repairable, and recyclable, and materials are reused and repurposed rather than discarded. It therefore works on a resource-efficiency principle rather than excessive manufacturing.

The benefits of a circular economy are numerous. First and foremost, a circular economy can help to reduce the amount of waste that is sent to landfills or incinerators. Instead of disposing of materials, a circular economy encourages the reuse and repurposing of those materials, which can significantly reduce the amount of waste produced. This, in turn, can help to reduce greenhouse gas emissions and other forms of pollution. While it may sound similar to a recycling model, a circular economy is in fact creating a ‘closed loop’ instead of an open one. Instead of creating waste, it aims at utilising a product nearing the end of its life as a raw material to the next product.

This essentially means that a circular economy can help to conserve natural resources. By reusing materials rather than extracting new ones, it is focusing on resource creation by and reducing the environmental impact of resource extraction. This can also help to mitigate the economic risks associated with resource scarcity and price volatility. Fast fashion brands, for instance, have recently faced a lot of backlash for their role in filling up the many landfills that house discarded clothes. Several popular brands, such as H&M, have opened up ‘sustainability lines’ where they offer discounts to customers who can return old clothes from their brand. These old clothes are utilised for resource creation, i.e., to make new clothes and then sold at a higher price under the label of ‘sustainable fashion’.

With the central tenet of sustainability, a circular economy model looks at three things in particular – people, profit and planet. In order to sell products that are essentially created using ‘recycled resources’, brand loyalty is critical. Therefore, people who are willing to buy such products are key to the success of such models. Secondly, profit is a goal of any business, therefore if the cost-benefit ratio of the new product to the old product is not in favour of the producer, the model offers no incentive to the producing party. And finally, if the first two are in place, however, the products are unable to go through multiple cycles, the planet still suffers.

Then what is the solution to this? The concept seems utopian, and perhaps a few decades ago, this would be enough to dismiss it. However, it has gained momentum and is being considered seriously and even implemented by several popular and upcoming brands. 

To achieve a circular economy, we need to shift our thinking away from the linear “take, make, and dispose” model and embrace a more holistic approach to resource management. Here it is not the supply chain, but the value chain which is being managed. Products should be designed with circularity in mind, with a focus on durability, reparability, and recyclability. Materials should be chosen for their ability to be reused or repurposed, and packaging should be minimized or designed for reuse.

Credit: Thousand Fell


Credit: Adidas


Another important aspect of a circular economy is the development of new business models. Businesses should look for opportunities to create value from waste and other by-products, such as by developing new products from recycled materials or repurposing waste streams for energy production. In addition, businesses should explore ways to extend the life of their products through services such as repair, refurbishment, or rental.

Credit: Adidas


Protix, a company that upcycles food waste to produce sustainable protein for animals is a good example to understand how business models can be created around the principles of circular economy. The processes involved are fast, low cost and have a low impact on resources. They are trying to create a zero-footprint food system through innovation and technology.

Finally, a circular economy requires a shift in consumer behavior. Consumers should be encouraged to prioritize products that are designed for circularity and to adopt practices such as reuse, repair, and recycling. Education and awareness campaigns can help to promote these behaviors and encourage a more circular mindset.

With a generational shift in the population with purchasing power, the younger customers are actually seeking out more sustainable options. In the coming decades, these would be the consumers with the highest share of disposable income and they would want to opt for greener products that are not causing a strain on the resources or jeopardizing  the existence of coming generations. 

In conclusion, a circular economy offers a promising vision for a more sustainable and equitable future. By prioritizing the circular use of resources, we can reduce waste, conserve natural resources, create new economic opportunities, and mitigate the environmental and economic risks of resource scarcity. Achieving a circular economy will require collaboration and innovation from all sectors of society, but the benefits will be well worth the effort.

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