The Business Opportunities in the Circular Economy
Good Ventures Ltd
We seize opportunities unlocked by the green transition to build sustainable businesses
1. Introduction
1.1 Context and Importance
Businesses today are at a critical crossroads, facing the accelerating crises of climate change and biodiversity loss. Reports from the Intergovernmental Panel on Climate Change (IPCC) and the UN Environment Programme highlight the alarming rate at which these issues are progressing (1). The unchecked increase in greenhouse gas emissions is driving global temperatures higher, resulting in more frequent and severe weather events. Concurrently, the destruction of natural habitats and overexploitation of resources are leading to a dramatic decline in biodiversity, with the World Wildlife Fund's Living Planet Report indicating a staggering 69% decline in wildlife populations since 1970 (2).
This dual threat poses significant existential risks to businesses. Traditional business models, which rely on the linear approach of "take, make, waste", are increasingly unsustainable. As natural resources become scarcer and environmental degradation worsens, the long-term viability of businesses adhering to these outdated practices is jeopardized. Notably, companies are increasingly viewing sustainability as a value creation opportunity. According to a Morgan Stanley report, 85% of companies see sustainability as either primarily or partly a value creation opportunity, with regulatory compliance and moral responsibility also being significant motivators (3).
This whitepaper explores the circular economy as a solution to pressing environmental challenges and an exciting opportunity for sustainable business growth. Embracing circular economy principles as a strategic business opportunity that reimagines traditional economic value creation models, shifting towards a regenerative system where resources are reused, remanufactured, and recycled.
This approach is not just a theoretical concept but an exciting opportunity to build service businesses that offer a natural route to implementing circular practices and capitalizing on new growth opportunities. Service business models such as product lifetime extension services, performance as a service, leasing, product as a service and sharing models not only extend product life cycles but also generate recurring revenue and strengthen customer relationships. By leveraging these service opportunities, businesses can drive innovation and position themselves as leaders in the transition to a circular economy.
By increasing the use of secondary materials and optimizing resource use, companies can also mitigate risks associated with raw material scarcity and price fluctuations. Additionally, circular economy strategies can lead to significant cost savings. According to the Ellen MacArthur Foundation, circular economy initiatives in the EU could generate net economic benefits of €1.8 trillion by 2030 (4). These savings stem from reduced material costs, lower waste management costs, and increased operational efficiencies.
Thus, the objective of this whitepaper is twofold:
This whitepaper is divided into two parts, with the first focusing on the economic and environmental benefits of the circular economy and the second on providing businesses practical guidance on how to implement and transition towards circular business models. In the first part of the whitepaper, we will introduce the Good Ventures Circular Business Opportunity Flywheel. This will then be used in the second part to dive deeper into real-world examples of industry leading companies that have implemented circular practices into their business.
1.2 A Global Movement
The circular economy is gaining traction globally, driven by a combination of regulatory pressures, technological advancements, and shifting consumer preferences. The European Union has been at the forefront, with its Circular Economy Action Plan aiming to make sustainable products the norm in the EU market (5). Similarly, countries like Japan and China are integrating circular principles into national policies, fostering innovation and collaboration across sectors (6).
For businesses, the transition to a circular economy involves rethinking product design, supply chain management, and business models. By leveraging circular principles, companies can drive innovation, stand out from the competition, and contribute to a sustainable future. Several companies are already improving their resource efficiency with the help of circular economy principles. Most OEMs have been developing their service businesses for decades to prolong product lifetimes and capture value through creating continuous value to customers. Many of them are scanning their supply chains and adopting eco design to improve sustainability metrics. Some of them are actively piloting new business models, such as remanufacturing or 2nd cycle business models to better understand the market. Startups are adopting circular business models from the get go. However, established companies that are consciously shifting from a linear model towards a fully circular business model still remain scarce. Companies like IKEA and Caterpillar seem to be going this way and implementing circular practices throughout their business (7). As less than 9% of the global economy is currently operating on circular principles (8), the potential for fast movers remains enormous.?
The transition to a circular economy represents a pivotal shift in how we approach economic development and environmental stewardship. By adopting circular principles, businesses can achieve sustainable growth while safeguarding the planet for future generations. This whitepaper serves as a guide to understanding the circular economy, its benefits, and the steps necessary to implement these principles effectively. The urgency is clear, the opportunity is immense, and the time to act is now.?
2. Limits to linear growth
2.1 Why This Matters
The traditional linear growth model is increasingly at odds with the finite nature of our planet's resources. Products and materials are generally not used to their full potential in a linear economy and, as the name suggests, always move in one direction – from raw material to waste. OECD reports that current rates of resource extraction and waste generation are unsustainable. For instance, global material use has more than tripled since 1970 and could double again by 2060 if current trends persist (9). This relentless consumption pattern is depleting vital natural resources such as minerals, metals, and fossil fuels, pushing ecosystems to their breaking points.
The Stockholm Resilience Centre's research on planetary boundaries further emphasizes the critical limits we are approaching (10). Planetary boundaries define the safe operating space for humanity, based on Earth system processes. Crossing these boundaries increases the risk of generating large-scale, abrupt, or irreversible environmental changes. Assessments in 2009, 2015, and 2023 provide a stark visualization of how we are faring in respecting these limits. In 2009, seven planetary boundaries were assessed, and three were already crossed, signaling significant environmental stress. By 2015, the number crossed increased to four, indicating a worsening trend in environmental degradation. By 2023, the assessment expanded to nine boundaries, with six being crossed, highlighting an alarming escalation in ecological overshoot. This alarming trend shows that we are moving in the wrong direction. Each crossed boundary represents a domain where human activity has overstepped the safe limits, pushing the Earth’s system closer to potential collapse.
Beyond environmental concerns, the linear economy poses significant economic risks for businesses, including regulatory pressures and market shifts. Governments worldwide are responding to the climate crisis and resource depletion with stringent environmental regulations. The European Union's Circular Economy Action Plan (6), for example, sets ambitious targets for waste reduction, resource efficiency, and sustainable product design. Businesses that fail to adapt to these regulations may face significant compliance costs, penalties, and potential loss of market access. Additionally, finite resources are becoming scarcer, leading to rising and volatile raw material costs. This unpredictability poses a considerable risk to businesses that rely heavily on these inputs. Waste management is another growing financial burden. The World Bank estimates that global waste generation is projected to increase with 70% by 2050, if current practices persist (11). This dramatic increase in waste not only poses environmental challenges but also represents a significant economic burden for waste management
Market dynamics are also shifting as consumers become more environmentally conscious. According to a Nielsen survey, 73% of global consumers are willing to change their consumption habits to reduce their environmental impact (12). A new report from eBay has highlighted how younger generations of sellers and buyers are embracing the recommerce model. Younger consumers are the main emerging force in the secondhand marketplace with 80% of Gen Z buying second hand goods (13). This growing demand for sustainable products is creating market risks for companies that continue to operate unsustainably. Businesses that fail to adapt to the booming second-cycle market and emergence of new players risk being left behind in the evolving market infrastructure. Those unable to meet customer expectations and new buying habits may see a decline in brand loyalty and market share.
The urgency for transitioning to a circular economy is underscored by compelling data on resource depletion, waste generation, and the limited adoption of circular practices. The Global Footprint Network projects that by 2030, the world will need the equivalent of two Earths to keep up with our demand, threatening the availability of critical natural resources such as minerals, metals, and fossil fuels (14).
The convergence of environmental constraints and economic risks makes it imperative for businesses to rethink their business and growth models. The linear economy's reliance on finite resources and its contribution to environmental degradation are no longer tenable. Embracing the circular economy offers a strategic pathway to sustainable growth, aligning business practices with ecological limits and evolving market demands.
3. Transition to a Circular Economy
3.1 Definition and Principles
The circular economy represents a transformative shift from the traditional linear economic model of "take, make, waste" to a more sustainable and regenerative system. According to the Ellen MacArthur Foundation, a circular economy is "an economic system aimed at eliminating waste and the continual use of resources" (4). This approach redefines economic growth by focusing on positive, society-wide benefits and aims to decouple economic activity from the consumption of finite resources.
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A circular economy revolves around three key principles: designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. These principles are essential for creating a sustainable business model that reduces environmental impact and enhances resource efficiency.
Designing out waste and pollution involves creating products with their entire lifecycle in mind, prioritizing durability, repairability, and recyclability. This principle focuses on eliminating waste at the source by developing products that can be fully reclaimed and repurposed at the end of their initial use.
Keeping products and materials in use emphasizes maintaining the value of products, materials, and resources in the economy for as long as possible. Through strategies like maintenance, refurbishment, remanufacturing, and recycling, businesses can extend product lifecycles and reduce the need for virgin materials, thus minimizing waste. Regenerating natural systems encompasses processes that allow organic materials to be returned to the environment through processes like composting and anaerobic digestion.
3.2 Benefits for Businesses
Contrary to still somewhat popular thinking, the circular economy is not the latest sustainability fad and should not be thought of as a recycling or green program. By adopting circular economy practices companies can reduce their environmental footprint and business costs as well as increase revenues and handprint. To reach the benefits, companies need to re-evaluate their product design, business models and supply chain.
McKinsey projects that European consumer goods companies could achieve circular value pools exceeding €500 billion in annual revenues by 2030 through portfolio transformation, green business expansion, green premiums, and circular-focused operations (15). This profitability is driven by several factors, including tax subsidies, competitive advantages, the reuse of waste into new products, and more efficient use of raw materials and energy16.
One major benefit of a circular business model is resource optimization and cost savings. By optimizing resource use, reusing materials, and minimizing waste, companies can reduce production costs. For instance, businesses can save on raw material costs by reusing and recycling materials, and they can lower operating costs through improved resource efficiency, energy savings, and reduced waste management expenses. Ellen MacArthur Foundation reports that circular economy practices in Europe could generate net materials cost savings of up to $630 billion per year in the future (16).?
Another significant advantage is the creation of new revenue streams and business opportunities. Companies can innovate by adopting circular business models like product-as-a-service, sharing platforms, refurbishing and reselling, and recycling. These models allow businesses to monetize products and services multiple times over their lifecycle, leading to growing revenues and improved profitability. For example, Caterpillar opened its first remanufacturing plant in 1973, when they noticed that customers and dealers were remanufacturing their products locally through independent builders already. They launched their own remanufacturing program in order to provide customers and dealers with top-quality remanufactured parts with warranty for less than 2/3rds the price of new products (7). Today, the Reman business is growing double-digit numbers annually.
Additionally, the shift towards sustainability is creating new markets and customer segments that prioritize environmental responsibility. Companies that lead in circular economy practices can differentiate themselves and tap into this growing demand to access new customer segments. Accenture reports that the circular economy could unlock $4.5 trillion of new economic output by 2030, driven by opportunities in new business models and innovative products designed for longevity and recyclability (17).
The advantages of circular practices extend beyond boosting a company’s top-line. They also serve as effective risk management, mitigating challenges linked to resource scarcity and supply chain disruptions. Prioritizing secondary materials over virgin resources helps companies mitigate price volatility and supply constraints. Moreover, integrating circular practices enables businesses to proactively navigate regulatory shifts, minimizing potential compliance costs and penalties.
3.3 Circular Business Opportunity Flywheel
Despite the clear benefits, widespread adoption of circular practices remains limited, with less than 9% of the global economy currently operating on circular principles (17). One of the reasons behind this is that the conversation has often been driven by environmental and regulatory perspectives, rather than focusing on the tangible business advantages and practical models that work already today. The transition to a circular economy can seem daunting, especially given that regulatory support is still evolving and the market, along with customers, may not yet be fully prepared for such changes. Businesses are unlikely to adopt these practices out of goodwill alone.
To address this challenge, The Circular Business Opportunity Flywheel offers a comprehensive, business driven framework that helps decision-makers understand and implement circular economy practices without compromising their core operations. This approach demonstrates how companies can grow and innovate within a circular economy, ensuring the overall "pie" grows rather than cannibalizing existing business areas. Service business models are particularly crucial in this context, as many companies are already aiming to expand their service offerings. Our model equips businesses with the necessary tools and insights needed to start building these capabilities today, enabling them to capture value and drive sustainable growth.
The Good Ventures Circular Business Opportunity Flywheel highlights specific strategies that companies can adopt to enhance their financial performance through circular practices.? As the flywheel shows, a circular approach to business can take multiple forms. From using and reusing products to extending product lifetimes and building service businesses, most companies are set to benefit from implementing business models that drive circularity into its practices.
The Circular Business Opportunity Flywheel is a versatile tool that can be adapted to various industries and company sizes. By mapping out circular business models outlined in the flywheel, companies can systematically assess opportunities to build and integrate circular practices into their operations. The flywheel serves as a practical starting point to explore potential avenues of interest, helping businesses understand where to begin before addressing execution barriers such as market challenges or internal capability gaps.?
4. Conclusion
The circular economy represents an enormous opportunity for companies. It has the potential to help companies improve their profitability and continue growing while securing environmental sustainability for future generations. Today’s linear economy relies on finite resources, depends on fossil fuel energy and leads to pollution, and waste generation. The circular economy aims to retain as much value as possible from products, materials, and resources for as long as possible by recovering and reusing them at the highest utility. This is a totally different mindset from the linear mindset, but elements of this much needed circular mindset already exist in all companies involved in the product-related service business.
Forward-thinking organizations are already transitioning from linear to circular models, unlocking substantial value in their operations and positioning themselves at the forefront of sustainable innovation. By embracing circularity in their business, these organizations not only reduce their environmental footprint and costs but also benefit from the impact that circularity has on their business growth and handprint.
The key take-away from the first part of the whitepaper is that circular economy is not just good for the environment, it is good for the business. New revenue streams, access to new market opportunities and potential cost savings are the key reasons on top of sustainability metrics that should drive companies towards adopting circular economy practices. In the second part of the whitepaper, with the help of the Good Ventures Flywheel and industry case studies, we will focus on providing clear examples of practical steps and strategies that companies are taking to implement circular economy principles and unlock new growth opportunities.
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