Circular Economy Principles and Business

In recent decades, people have slowly but surely been becoming more and more aware of global sustainability issues and what can they and other actors of the society do about them. In recent years, also large corporations and the finance industry have started to pay attention and assess how global environmental risks will affect the macroeconomic performance of companies, sectors, countries and global financial markets. Meanwhile, also policymakers are trying to figure out the tools to enable meeting climate and sus-tainable development targets. (WWF 2018) Yet, all those specific interest groups, large corporations, finance industry and policymakers, have a common conflict of interest: they should greatly diminish consumption, pollution and virgin material use, while selling more products, creating shareholder value, maintaining economic growth and keeping people happy.

Towards that end, the concept of Circular Economy (CE) comes in especially useful.

Maybe the most advanced and informed definition so far of the concept was made by Kirchherr et al. (2017): according to their literature review of 114 definitions, it is an eco-nomic system that replaces the traditional linear, “end-of-life” ecoeco-nomic model by

reduc-ing, reusreduc-ing, recycling and recovering materials in production, distribution and consump-tion processes. It aims to accomplish sustainable development, meaning simultaneously creating environmental quality, economic prosperity and social equity to benefit current and future generations. CE operates in three levels: micro (products, companies, con-sumers), meso (eco-industrial parks) and macro (city, region, country, global) levels.

The perhaps most cited, traditional model in the literature of applying Circular Economy consists of three principles, which are called 3R principles (see e.g. Ghisellini et al. 2016;

Murray et al. 2017; Su et al. 2013). The name ‘3R’ derives from verbs Reduce, Reuse and Recycle: by applying these three methods economic system becomes more circular instead of linear. Another widely used synonym for principles making the economic sys-tem more circular is closing the loop: by applying these principles, the products, compo-nents and materials loop through their lifecycles as many times as possible, instead of going linearly from material to waste. This is illustrated in Figure 1, which represents CE principles against the linear economy model, both adapted to technical materials. Re-ducing describes actions and strategies which are targeted in reducing material use, energy use and environmental effects overall. Reusing describes actions and strategies which allow the products to be used again for the same purpose they were originally produced. Recycling, possibly the most well-known principle, in turn describes actions and strategies towards reprocessing waste materials into products or materials, either for original or other purposes.

Figure 1. Linear Economy vs. Circular Economy: Loop-closing principles illustrated.

Adaption for technical materials. (adapted from van Buren et al. 2016; Ellen MacArthur Foundation 2014)

The 3R principles have gained more loop-closing principles (Rs) in the more recent liter-ature, with a purpose to define CE more specifically. For example, some definitions in-clude 4 Rs (e.g. previously mentioned Kirchherr et al. 2017), 6 Rs (e.g. Sihvonen and Ritola 2015), or even 9 Rs (e.g. van Buren et al. 2016; Potting et al. 2017). The 9 Rs, which is the most specific model adding 6 principles to the original 3, includes the follow-ing principles (original 3R marked with an asterisk):

1. Refuse: preventing the use of raw materials 2. Reduce*: reducing the use of raw materials

3. Reuse*: product reuse (second-hand, sharing of products) for a similar purpose 4. Repair: maintenance and repair

5. Refurbish: refurbishing a product

6. Remanufacture: creating new products from old products or parts of them 7. Repurpose: product reuse for a different purpose

8. Recycle*: processing and reuse of materials

9. Recover energy: incineration or residual flows. (van Buren et al. 2016)

As can be seen, they all have similar aims as the original 3R: to reduce waste, material usage and energy usage and overall try to extract as much value as possible of existing products, components and materials that would otherwise go to waste in making new products, components and materials.

A significant factor to consider in the CE principles is their hierarchical order, which is also referred to as the waste hierarchy. For each mentioned model of Rs the earlier the

principle is mentioned (i.e. the earlier the product is in its lifecycle), the better the principle is in capturing value and the less it produces waste. (van Buren et al. 2016; Kirchherr et al. 2017; Potting et al. 2017; Sihvonen and Ritola 2015) So, for example, according to the waste hierarchy, it is better to repair or refurbish a product instead of recycling it, if it just is possible. The idea behind the hierarchy is reasonable: the less processing must be done to the product, component or material for it to be usable again, the less it entails resource usage.

Circular Economy as a solution for sustainable growth

CE could very well be a solution (or at least a part of it) when trying to solve the question of how to maintain economic growth and environmental prosperity at the same time. By its nature, CE is heavily tied to the concept of sustainability and especially its environ-mental dimensions. CE’s aim is by definition to simultaneously pursue environenviron-mental values and economic prosperity (Kirchherr et al. 2017). Multiple authors (e.g. Ghisellini et al. 2016; Lieder and Rashid 2016) have also pointed out the same and stated that CE has a crucial role in decoupling environmental pressure from economic growth. To con-tribute to the decoupling of those issues, CE must be beneficial for both 1) environmental sustainability and 2) economic prosperity.

As for CE and environmental sustainability, many scholars have researched the subject (e.g. Geissdoerfer et al. 2017; Murray et al. 2017). According to Geissdoerfer et al.’s (2017) literature review, most of the scholars view CE as at least beneficial driver or even necessary condition for achieving a sustainable society, especially regarding environ-mental sustainability. Sustainability was defined by them (based on e.g. Elkington 1997) as an equal integration of three pillars: social, economic and environmental pillars, also known as triple bottom line considering ‘people, profit and planet’. They and e.g. Kirch-herr et al. (2017) state that by most authors, CE focuses greatly on economic and envi-ronmental dimensions, but does not consider social dimensions as much. Also, the scholars’ perspective to sustainability is said to vary from specific sets of issues to very holistic view, whereas CE’s perspective is usually simplified to resource input and waste and emission output, meaning that for example biodiversity or land use is not seen to be significantly affected by CE. But, as noted previously, by diminishing resource inputs and waste and emission outputs, CE is commonly viewed as a largely beneficial driver or even a necessary condition for sustainable development. (Geissdoerfer et al. 2017) As for CE, economic growth and economic feasibility overall, even more scholars have included economic prosperity as an essential part of CE than environmental sustainabil-ity (Kirchherr et al. 2017). Ellen MacArthur Foundation (2013, e.g. 2014) has researched

the economic benefits of CE comprehensively and lists the following things to be enabled by CE. New business opportunities: CE business models and circular principles open new market areas in the fields of e.g. reverse logistics, sales platforms, component re-manufacturing and recycling systems. Material savings: component and material re-covery from existing products and “waste” can significantly reduce the material costs of companies. Mitigation of material price volatility and supply risks: as materials could be produced from existing products, the dependence on the virgin materials and their relatively volatile prices would be reduced. Employment benefits (also pointed out by van Buren et al. 2016): all R-principles would create demand for new kinds of workforce, especially in the service sector.

The benefits of CE to economic growth and prosperity have been researched also em-pirically: for example Hysa et al. (2020) found in their study that CE had positive effects on economic growth on the EU level. On a company level, Ungerman & Dědková (2020) found that the involvement in CE activities was profitable for the studied companies in all but one partial segment of one of the 6 studied industry sectors, covering all major in-dustry sectors in the Czech Republic. Deriving from these results, they stated that com-panies’ involvement in CE activities add to the overall prosperity of the society. To con-clude the CE’s contribution to society, CE seems to be greatly beneficial for both 1) en-vironmental sustainability and 2) economic prosperity. Therefore, it could be the solution to the problem of maintaining economic growth while not damaging the environment.