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Circular Economy Principles for Companies

Supporting the circular economy means minimizing waste and making the most of resources.  The ultimate goal is to create a system where products and materials are continually reused, reducing the need to extract new resources and minimizing waste. The ESRS E-5 of the CSRD define the reporting principles for the circular economy impacts of an enterprise.

Companies can adopt several strategies to embrace this model:

  • Design for Longevity: Make products that are durable, easy to repair, and built to last. This reduces the frequency of replacements and conserves resources. This means creating products that are built to endure and resist wear and tear. By ensuring a product has a longer lifespan, it reduces the need for frequent replacements, which in turn reduces waste and conserves resources. Techniques might include using high-quality materials, rigorous testing, and considering wear and tear in the design phase.
  • Design for Disassembly: Design products in a way that they can be easily taken apart at the end of their lifecycle, ensuring components can be reused or recycled. Products designed with this principle in mind can be easily taken apart. This is crucial for recycling, as materials need to be separated. Examples include modular smartphones or furniture designed without adhesives.
  • Recycle and Upcycle: Establish programs to take back used products, repurpose them, or break them down to extract valuable materials. Recycling involves breaking down a product to its core materials and using those materials to create new products. Upcycling, on the other hand, repurposes or transforms waste materials into products of higher value. An example is transforming old denim jeans into handbags or accessories.
  • Offer Product-as-a-Service: Instead of selling products, lease them. This model ensures products return to the company at the end of their life, where they can be refurbished or recycled. Instead of a one-time purchase, companies lease or rent their products. When the lease expires, the product returns to the company for refurbishment or recycling. This is seen in sectors like tech, where companies lease out their hardware.
  • Reduce Packaging: Minimize packaging or use biodegradable or recyclable materials. Consider refill stations or bulk buying options to reduce packaging waste. This can mean using minimalist designs, eliminating unnecessary components, or incorporating sustainable materials like bamboo or compostable plastics. Bulk stores, where customers fill their own containers, are an example of a business model that supports this.
  • Collaborate: Work with suppliers and distributors who also support circular economy principles. Companies can form partnerships with suppliers, distributors, and even competitors to drive circular initiatives. An example could be tech companies collaborating on a universal charger to reduce e-waste.
  • Educate Consumers: Provide information on how customers can maintain, repair, or return products for recycling. Offer workshops, guides, or online resources that teach customers how to maintain and repair products or inform them about recycling options. For instance, Patagonia, the clothing company, provides repair guides for their products.
  • Use Renewable Resources: Where possible, use biobased or renewable materials in products. These are resources that are not depleted when used, like bamboo, which grows rapidly, or materials derived from plants. Companies might also consider alternatives to fossil fuels, such as bio-based plastics.
  • Innovative Business Models: Consider models like sharing platforms or peer-to-peer rental schemes which can reduce the number of products manufactured and sold. The sharing economy is a prime example, where goods are shared or rented instead of being owned individually. This reduces the number of products that need to be manufactured. Car-sharing platforms or tool rental services are good examples.
  • Invest in R&D: Invest in research to find sustainable materials, waste reduction technologies, and processes that can support the circular economy. Allocate funds and resources towards finding more sustainable materials, methods, and processes. This drives innovation and can lead to cost savings in the long run. Adidas, for instance, researched and developed shoes made from ocean plastics.
  • Supply Chain Scrutiny: Monitor and manage the lifecycle of materials and products within the supply chain, ensuring they adhere to circular principles. Monitor the lifecycle of materials from sourcing to product disposal. Engage in responsible sourcing, ensure ethical labor practices, and encourage suppliers to adopt sustainable methods. This can involve audits, certifications, and tracking systems.
  • Set Clear Targets: Establish measurable goals related to waste reduction, resource efficiency, and recycling. Regularly review and adjust these targets. Establish measurable sustainability goals. This might mean vowing to reduce waste by a certain percentage by a set year or ensuring a percentage of products are recyclable. Regular reviews ensure these targets are being met and can be adjusted as needed.
  • Internal Training: Ensure that employees at all levels understand the importance of the circular economy and how they can contribute. Make sure employees are knowledgeable about the company’s sustainability goals and practices. This can be achieved through workshops, seminars, or e-learning platforms. A well-informed staff can contribute ideas and ensure the company’s circular economy strategies are implemented effectively.

By integrating these strategies into their business models, companies can significantly reduce their environmental footprint, foster innovation, and potentially realize economic benefits in the long run. These topics give a clear picture of how each strategy can be applied in a business context.

Design thinking as an important tool?

Design thinking is a human-centered approach to problem-solving that involves empathy, experimentation, and iterative learning. It’s particularly relevant to the circular economy for several reasons:

  1. Human-Centered Focus: Design thinking starts with understanding the user’s needs and perspectives. By focusing on the end-user, companies can design products and systems that people genuinely want to use and support, increasing the likelihood of adoption and success for circular initiatives.
  2. Prototyping and Iteration: The circular economy requires new models and solutions. Design thinking emphasizes rapid prototyping and iteration, allowing companies to quickly test new ideas, learn from failures, and refine their approach. This helps in developing effective circular solutions faster.
  3. Systems Perspective: Design thinking encourages looking at problems holistically. This aligns with the circular economy’s focus on systems thinking, understanding how parts influence one another within a whole. This perspective ensures that solutions are sustainable across the entire product lifecycle.
  4. Collaboration and Interdisciplinary Thinking: Design thinking promotes cross-functional collaboration. As the circular economy touches multiple facets of a business, from supply chain to customer service, this collaborative approach ensures that all stakeholders contribute their expertise to create comprehensive solutions.
  5. Empathy: Building empathy for users helps companies understand the real-world challenges and barriers to adopting circular practices. This understanding can lead to designing solutions that address genuine pain points and drive behavior change.
  6. Encouraging Innovation: As companies transition from linear to circular models, they’ll need to innovate. Design thinking fosters a culture of creativity and out-of-the-box thinking, essential for reimagining traditional systems and processes.
  7. Flexibility: Design thinking isn’t rigid. It provides a flexible framework that can be applied to various challenges, making it ideal for the diverse problems posed by the transition to a circular economy.

In summary, design thinking offers a structured yet flexible approach that puts humans at the center of the solution. When applied to the challenges of the circular economy, it can drive innovation, ensure solutions meet real user needs, and foster collaboration — all crucial elements for creating a more sustainable future.

How can the DMAIC process support the circular economy principles?

The DMAIC (Define, Measure, Analyze, Improve, Control) process, a core tool in Six Sigma methodology, can be highly beneficial when applied to circular economy initiatives. Here’s how each step of the DMAIC process can help:

Define: Purpose: Identify the problem or opportunity.

Circular Economy Application: Clearly articulate the specific waste or inefficiency challenges a company wants to address. For instance, “reduce packaging waste by 30% in the next two years.”

Measure: Purpose: Collect relevant data to establish baselines.

Circular Economy Application: Gather data on current waste outputs, resource consumption, and existing recycling or reuse practices. This step quantifies the current state and offers a baseline to measure improvements against.

Analyze: Purpose: Examine the data to identify the root causes of the problem.

Circular Economy Application: Delve into why waste is being produced at its current rate. This could involve analyzing product design, manufacturing processes, supplier practices, or consumer behavior. Understanding the root causes helps target interventions effectively.

Improve: Purpose: Develop, test, and implement solutions to the problem.

Circular Economy Application: Design solutions like new recycling processes, product redesigns for longevity or disassembly, or introducing new materials. Pilot these solutions, gather feedback, and refine them for broader implementation.

Control: Purpose: Monitor and maintain the improvements.

Circular Economy Application: Establish monitoring systems to ensure that waste reduction or recycling targets are consistently met. This could involve periodic audits, employee training programs, or establishing key performance indicators. This step ensures the company doesn’t revert to old, less sustainable practices.

The DMAIC process offers a structured approach to continuous improvement. When applied to the challenges of transitioning to a circular economy, it can help companies identify inefficiencies, target interventions effectively, and maintain progress over time. Given its systematic nature and emphasis on data-driven decisions, DMAIC complements design thinking and other methodologies in pursuing circular economy objectives.

What are the benefits for companies out of the circular economy?

The circular economy offers a range of benefits for companies, both tangible and intangible. These advantages not only promote sustainability but can also contribute to a company’s bottom line and long-term resilience. Here are some key benefits:

  1. Cost Savings:
    1. Resource Efficiency: By reusing, recycling, and reducing waste, companies can decrease their reliance on raw materials, leading to significant cost savings.
    1. Waste Management: Lower waste outputs can reduce the costs associated with waste disposal and treatment.
  2. Revenue Generation:
    1. New Business Models: The circular economy can lead to innovative business models like product-as-a-service, which can open new revenue streams.
    1. Secondary Markets: Selling refurbished or remanufactured products can create additional revenue channels.
  3. Risk Mitigation:
    1. Supply Chain Security: Reducing dependence on scarce resources can make companies less vulnerable to supply chain disruptions or volatile raw material prices.
    1. Regulatory Compliance: With increasing environmental regulations worldwide, adopting circular practices can help companies stay compliant and avoid potential fines.
  4. Enhanced Brand Reputation:
    1. Consumer Appeal: Many consumers today prioritize sustainability. Companies that embrace the circular economy can enhance their brand image and appeal to this growing market segment.
    1. Stakeholder Relations: Demonstrating commitment to sustainability can strengthen relations with stakeholders, including investors, who increasingly prioritize Environmental, Social, and Governance (ESG) criteria.
  5. Innovation and Competitiveness:
    1. Differentiation: Adopting circular practices can provide a competitive edge, differentiating a company from its competitors.
    1. R&D Opportunities: The need for sustainable solutions can drive research and development, leading to innovative products, services, or processes.
  6. Employee Engagement and Attraction:
    1. Purpose and Values: Employees, especially younger generations, often seek employers with strong ethical and environmental commitments. A focus on the circular economy can help attract and retain talent.
    1. Skill Development: Transitioning to circular models can provide opportunities for training and skill development, enhancing the company’s human capital.
  7. Resilience and Longevity:
    1. Adapting to Change: Companies that are proactive in embracing sustainability are better equipped to adapt to changing market dynamics, resource availabilities, and regulatory landscapes.
    1. Future-proofing: Anticipating future constraints and opportunities related to resources ensures the company’s relevance and longevity.
  8. Environmental Benefits:
    1. Reduced Footprint: Circular practices lead to decreased carbon emissions, reduced water usage, and less waste, directly benefiting the environment.
    1. Conservation: By reducing the demand for raw materials, companies contribute to the conservation of ecosystems and biodiversity.

Incorporating circular economy principles allows companies to transition from short-term, linear growth strategies to sustainable, long-term, and resilient models. The multifaceted benefits not only ensure environmental well-being but also offer economic advantages, making it a win-win approach for businesses. Contact us to redesign your processes and products.

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Georg Tichy

Georg Tichy

Georg Tichy is a management consultant in Europe, focusing on top-management consultancy, projectmanagement, corporate reporting and fundingsupport. Dr. Georg Tichy is also trainer, lecturer at university and advisor on current economic issues. Contact me or Book a MeetingView Author posts