3.4.2 Circular business models

Helpful prior knowledge and learning objectives

Helpful prior learning:


Learning objectives:

You might not realise it, but you’re likely already part of the circular economy.

Do you ever decide not to buy something because you don’t need it? Have you swapped clothes with friends or bought second-hand? Do you refill a reusable water bottle or collect food scraps for compost? Do you repair items instead of throwing them away, or recycle plastic, paper, or glass?

If you do any of these things, you’re supporting the circular economy, helping human systems become more regenerative. Businesses play a big role too. Which business models support circular practices, and what are the key principles?

Figure 1. 7Rs of the circular economy

(Credit: Icons from Noun Project, various artists)

What are the principles of a circular economy?

A linear economy takes resources from nature, makes products, uses them, and discards waste into landfills, by burning, or dumping them into ecosystems where they poison plants and animals. This system harms Earth systems in two ways: by depleting resources and polluting ecosystems.

Linear economy of take (with an Earth icon), make (with a factory icon), use (with a person icon) and waste (with a trash can icon)

Figure 2. The linear economy, degrading Earth’s systems

In contrast, a circular economy mimics nature, taking less from ecosystems and returning valuable matter back into biological/ecological and economic systems. Its three principles are:


The short video below summarises the ideas.

What types of circular business models exist?

Businesses that support the circular economy use circular thinking at every stage of production development, from design to disposal. There are a number of circular business models, and some businesses use more than one:


Circular supply models

Circular supply models replace non-renewable resources with renewable resources or recovered ones. Many businesses now find it easier to switch from plastics to eco-friendly materials. They can design their production and distribution to support these models from the start.

For example, packaging business Loop works with companies like Procter & Gamble and Nestlé to create reusable packaging. Customers return empty packages, which are cleaned, refilled, and reused. This reduces single-use plastics and waste, turning disposable items into long-lasting resources.

The 1-minute video below promotes choosing recyclable, biodegradable wool over synthetic fibres that “haunt” the planet.

Resource recovery models

Resource recovery models focus on collecting, sorting, and processing waste to be reused by producers. Unlike circular supply models, the focus here is on collecting waste and turning it into resources businesses can buy.

People may need to place recyclables in designated containers (Figure 4), or a service might collect the materials (Figure 5). For example, some businesses collect food waste from homes, schools, and organisations. They decompose the waste, capture methane for energy, and turn the leftovers into compost, which can be sold to farmers and households to fertilise soil.

Recycling bins of different colours in a park

Figure 4. If you collect and deposit glass, plastic, paper or other waste for recycling in bins, you are participating in the resource recovery model

(Credit: Vlad Vasnetsov, Pexels licence)

A man loading up cardboard for removal on a bicycle

Figure 5. Some businesses collect materials from households and businesses, as in this case with cardboard

(Credit: zhang kaiyv, Pexels licence)

Product life extension models

Product life extension models keep products in use longer, reducing the need for new resources. There are several ways to do this:

A photograph of hands sewing clothing

Figure 6. A tailor repairs clothes, helping them to last longer and reduce waste and use of new raw materials

(Credit: nappy, Pexels licence)

Sharing models

Sharing models, often supported by digital platforms, let multiple people share access to a product, reducing the need for ownership and saving resources.

Shared products can be owned by businesses and rented to consumers, called business-to-consumer models (B2C). Or consumers can own the products and share them with other consumers, called consumer-to-consumer models (C2C). For example, many cities offer car-sharing services so residents don’t need to own a car. These can be B2C or C2C models. People can also rent bikes and scooters to reach areas public transport doesn’t cover, usually through B2C models (Figure 7).

Figure 7. Cities now have shared bikes and scooters to rent in many locations, helping people get to their destinations without cars.

(Credit: Krzysztof Popławski, CC BY-SA 4.0)

Product service systems (PSS)

In product service systems (PSS) models, businesses sell access to a product rather than the product itself. This encourages the business to make durable, high-quality products since they keep responsibility for maintenance.

For example, Signify’s "light as a service" model lets businesses pay for the light they use while Signify maintains and upgrades the lighting fixtures. This pushes them to design energy-efficient, long-lasting products. The Papillon Project, in partnership with Bosch, rents energy-efficient appliances to low-income households, with Bosch handling maintenance and recycling.


A product service system model that you might be familiar with is music or movie streaming services. Years ago, people owned physical music records, tapes, CDs and DVDs. Now they may subscribe to stream music or movies (Figure 8).

Two photographs: one of a record player, and one of a youth listening to streamed music on a smartphone

Figure 8. Instead of owning music or movies, many people buy listening or viewing services instead, though these have their own negative impacts on energy use

(Credit: KoolShooters, Mikhail Nilov, Pexels licence)

What conditions make it easier for businesses to adopt circular business models?

​​Several factors affect how easily businesses adopt circular models:

The French repairability index

Figure 9. The French repairability index helps consumers choose products that are more easily repaired. A higher index number means more easily repaired.

(Credit: Chloé Mikolajczak)

What are some limitations and possible unintended consequences of circular business models?

Circular business models are key to regenerative economies, but they come with challenges and unintended consequences.

First, it’s hard for a single business to adopt circular strategies. Circular models often need multiple businesses working together. For example, a clothing company using recycled cotton must buy cotton materials from a resource recovery firm. Finding and collaborating with such partners isn’t always easy. Also, higher production costs can make circular businesses less competitive. That’s why it's in their interest for strict laws on circularity to ensure equal rules for all.


Second, circular strategies can have negative side effects. Using bio-based materials could reduce food production. Monocultures, like rapeseed for biodiesel (Figure 10), can harm biodiversity. Social problems can also arise (Figure 11). For example, investors have bought housing in popular cities to rent out on sharing platforms like Airbnb. This limits housing and pushes up rents for locals.

A yellow field of rapeseed plants

Figure 10. Cultivating plants like rapeseed, to replace fossil fuels can result in less land for food and less biodiversity.

(Credit: Chafer Machinery, CC BY 2.0)

Figure 11. Temporary apartment rentals have reduced housing available for permanent residents and increased noise in neighbourhoods in popular tourist destinations

(Credit: Miltos Gikas, CC BY 2.0)

Another unintended consequence is the rebound effect, or Jevons paradox. If businesses lower production costs through circular strategies, they may reinvest the savings to increase output, which cancels out the benefits. This is common when business and economic growth is the main goal.

Figure 12. A ‘fix’ that can fail, circular business models increase efficiency, but if we still focus on growth, resource extraction will continue to grow


Note: the + symbol means that the two variables have a positive relationship, when one increases the other increases and when one decreases, the other decreases. The - symbol is an inverse relationship; when one increases the other decreases and vice versa. The || symbol indicates a delay in the feedback.

A causal loop diagram with feedback showing that improved efficiency can actually cause increased resource extraction

To avoid these issues, circular business models should be used with other strategies discussed in this course to meet human needs within planetary boundaries.

The slideshow below offers a quick and interesting comic illustration of the limitations of circular economy:

The Impossibilities of Circular Economy Slides

Activity 3.4.2

Concept: Regeneration

Skills: Thinking skills (transfer)

Time: varies, depending on option

Type: Individual, pairs, or group


Option 1: Video examples of circular business models

Time: 20 minutes

Watch the short video below, which shows some examples of circular business models and consider (alone, with a partner, on paper or verbally:

Option 2: Circular business models in your community

Time: 20 minutes

Do you know of examples of these business models in your community? For example, you might have a sharing system for cups at coffee shops, or bowls for take-away food? Maybe there is car or micromobility (bike or scooter) sharing? A library of things? 

See how many you and your classmates can come up with and classify them by business model.



Option 3: Circular economy laws and regulations in your community

Time: 40+ minutes, depending on how much time is given to research

The text mentions France’s 2020 Anti-Waste Law that strengthens the circular economy. Research what, if any, laws have been passed in your country related to the circular economy. If there are laws, to what extent do you think they will be effective at helping businesses move to circular strategies? Share what you find with a partner, or your class. Difficulty level: high



Option 4: Exploring circular businesses globally

Time: 35-40 minutes

Use Ellen MacArthur Foundation library of circular business case studies.

Identify one you are interested in and write up a brief description of it, including linking it to the principles of circular economy and one or more of the business models covered in this section. You could work with other students to make an exhibit of these to put in the classroom or school hallway.


Note: there are more activities on circular economy in Section 1.4.2.

Ideas for longer activities and projects are listed in Subtopic 3.5 Taking action

Checking for understanding

Further exploration

They recently produced three short videos to address each of the three circular economy principles. Difficulty level: easy

Sources

Ellen MacArthur Foundation. It’s time for a circular economy. https://www.ellenmacarthurfoundation.org/

Jensen, H. (2022). “5 circular economy business models that offer a competitive advantage”. World Economic Forum. https://www.weforum.org/agenda/2022/01/5-circular-economy-business-models-competitive-advantage/

OECD (2019). Business Models for the Circular Economy. https://doi.org/10.1787/g2g9dd62-en

Raworth, K. (2017). Doughnut economics: seven ways to think like a 21st century economist. London: Penguin Random House

Terminology

Link to Quizlet interactive flashcards and terminology games for Section 3.4.2 Circular business models - in order of appearance


circular economy: an economic system where nature is regenerated and materials are kept in circulation through maintenance, reuse, recycling, composting, and other processes

compost: to collect and store plant material so it can decay and be added to soil to improve its quality

regenerate: the process of restoring and revitalising something

business model: a plan for the successful operation of a business, identifying sources of revenue, intended customers, products, and financing

linear economy: an economic system where resources are extracted to make products that eventually end up as waste

landfill: the place where waste is disposed of by burying it

ecosystem: the interaction of groups of organisms with each other and their physical environment

pollution: the presence of a substance that has harmful effects on the environment

economy: all the human-made systems that transfer and transform energy and matter to meet human needs and wants

system: a set of interdependent parts that organise to create a functional whole

circular business model: business models that focus on keeping materials in use for as long as possible and minimizing waste

circular supply model: a circular business model that focuses on replacing non-renewable resources with renewable resources or recovered ones

nonrenewable resource: natural resources that cannot be regenerated in a human timescale

renewable resource: natural resources that can be regenerated in a human timescale

resource recovery model: a circular business model focusing on collecting, sorting, and processing waste to be reused by producers

energy: the ability to do work or cause change

product life extension model: a circular business model that aims to keep products in use longer, reducing the need for new resources

refurbishing: to repair and make improvements to something

sharing model: a circular business model that organises multiple people share access to a product, reducing the need for ownership and saving resources

business-to-consumer model (B2C): market activity where products are sold from businesses to consumers

consumer-to-consumer model (C2C): market activity where used products are sold from consumers to consumers

product service systems (PSS): a circular business model where a business sells access to a product rather than the product itself

regulation: a rule that guides individual or group behaviour and enforced by an authority

subsidy: a payment made by the state to a business or individual to encourage certain behaviour

infrastructure: large scale physical systems that a society needs to function (roads, railways, electricity networks, etc)

repairability index: a rating system that indicates the repairability of a product

norm: a social rule for accepted and expected behaviour, can be stated or unstated

demand: the quantity of a product that consumers are willing and able to purchase at various prices

renewable energy: energy from sources that are continuously available or regenerate quickly

sustainability: meeting people’s needs within the means of the planet

regenerative economy: an economic system that meets human needs in a way that strengthens social and ecological systems

unintended consequence: unforeseen outcomes or effects that arise as a result of a particular action or decision

bio-based material: a material made entirely or partly from substances derived from living (or once-living) organisms

monoculture: when a single crop is grown a given area

biodiversity: the variety of living organisms on Earth

investor: an individual that puts money into an entity such as a business for a financial return

rebound effect: a situation where efficiency gains in an input are counteracted by increased consumption and production, resulting in even greater use of the input

Jevons paradox: a situation where efficiency gains in an input are counteracted by increased consumption and production, resulting in even greater use of the input

economic growth: an increase in the total value of goods and services produced in a period of time

planetary boundaries: the limits of Earth systems to absorb the impact of human activity and continue to function