What a Circular Business Looks Like

Circular Business Models and How they Operate

Having a clear and thorough understanding of different principles of sustainability can help business leaders and innovators decide the best practices to introduce for their products and services. But as sustainability gains momentum in the business community, you may struggle to keep up with the jargon that accompanies it.

One term that has become prominent in the business world in recent years is “circular economy.” You may have a general idea of what this term means but not fully understand its implications for businesses or how organisations can embrace it to help further their sustainability.

So let’s explore what a circular economy is and a few ways businesses can utilise it to become more sustainably-minded and future-focused.

What is a Circular Economy?

Currently, the waste system we live in is mostly a linear economy. This is also known as the take-make-waste model, where we produce materials and items, use them, and then dispose of them once we perceive their usefulness is gone.

A circular economy, in contrast, is a closed-loop model of production that ensures resources and materials are used in a restorative and regenerative way. It is a system where materials are recycled, reused, or composted into products of similar quality or value to maintain usefulness to society.

The Ellen MacArthur Foundation – a leading authority on the subject – breaks down a circular economy into three main principles. These are:

• Eliminate Waste and Pollution
• Circulate Products and Materials (at their highest value)
• Regenerate Nature

Through these principles, the idea is to design a robust, resilient system that is good for people, businesses, and the planet.

Embracing Circularity as a Business

There are many steps a business can take to become more sustainable, but working towards a circular economy can have one of the biggest impacts, and can also benefit your bottom line through improved efficiencies, less operational waste, and a better public reputation. While businesses that embrace circularity can do so through many means, there are generally two big approaches to take – designing circular products and switching to a circular business model.

Circular Products

Businesses that choose to introduce circular products into their existing business model should address the three main principles through the design of high-quality products to eliminate waste, product stewardship with end-of-life solutions for those products, and considering environmental concerns when operating as a business.

The first part – designing high-quality products – is something that many businesses already strive for. But to do so in a circular fashion means evaluating materials for maximum durability and longevity, while emphasising recyclability to ensure products reenter the loop at the end of their life. This may even save your business money, as durability can set you apart from the competition and win you more business over time.

For Method, when designing our bins, we looked at different materials that would feed into circularity. We settled on PP plastic, as it’s durable, strong, and easily recyclable. We’ve worked hard to introduce between 50-80% recycled plastic into our bins and are continually working to improve those numbers by exploring new sources of recycled consumer plastic. Plastic often gets a bad reputation, but we believe that it is a great material when used responsibly and with an end-of-life solution in place.

That’s where the second part of circularity as a business model comes into play – through end-of-life solutions. Circular businesses ensure that products are returned to the loop by offering take-back schemes for products that are no longer wanted. This is known as product stewardship, and it’s something we practise at Method, by taking back bins that are no longer needed, for refurbishment or recycling. We believe that it is our responsibility to find new uses for our products either through donation or by finding new life as other high-quality products elsewhere. This also guarantees that products don’t end up in landfills or nature, where they can harm the environment and wildlife.

The third principle – regenerate nature – may be harder to concretely define, depending on the business. For businesses with manufacturing processes or long transport, it may mean optimising these in a way that uses the least amount of resources necessary, or offsetting transport and manufacturing emissions through carbon credits. It may also mean looking beyond the products themselves, by looking into renewable energy for operations or alternatives to harsh chemicals that pollute the air. By embracing the first two principles, you’re already working toward regenerating nature by eliminating harmful mining and waste practices needed for raw materials. But it’s always good to look for more ways to increase sustainable and regenerative practices. The Ellen MacArthur Foundation has a ton of resources for businesses looking to improve their circularity.

Circular Business Model

A more encompassing approach to circularity as a business is to operate with a circular business model. This would include considerations for circular products discussed above, but would also change the model of business as a whole to ensure that products fully remain in the loop.

For instance, instead of selling a product that is now out of your hands completely, you move to a leasing system, where you remain the ownership of the product, and the customers pay a monthly fee for use of the product. In this system, you would have greater responsibility over the products it creates, including when they break or are no longer needed. This business model is called Product as a Service (PaaS), where companies retain product ownership. Several major brands, including HP and Philips Lights, have started offering PaaS to combat e-waste and take responsibility for their products.

Another example of a circular business model would involve offering product life extensions for all goods and services. This can come in the form of additional lifetime services to fix damaged goods, instead of replacing them – therefore extending their life. It also means designing products that are inherently easier to fix and service, which lends itself to recyclability as well. Companies like outdoor clothing brand Patagonia and home appliance provider Miele already offer these services as a way to ensure fewer products get binned while raising brand loyalty from satisfied customers.

A third model of circular business involves offering trade-ins and trade-ups as customers need new products. Many phone companies already offer these types of services, where you can trade in an older model for a discounted new model. In this sort of model, it’s easier for companies to recover and reuse materials from the traded-in products, thereby keeping them in the loop and out of the landfill, while offering incentives for customers to stay with the brand. And similarly to the product life extension, this would help ensure products are designed with recyclability in mind.

There are many ways this could work in addition to the examples listed above, and the best option would depend on the types of products offered. PaaS may not be ideal for clothing or homeware brands but generally works well for B2B products, tech, or home appliances, whereas product life extension may best serve other businesses. There is no one right way to do circularity in business, but more and more businesses are exploring alternatives to the old ways of selling goods.