The Circular Economy has emerged as a pivotal economic model, offering not only sustainability but also significant financial opportunities. With projections indicating exponential growth, understanding its profitability is crucial for businesses and policymakers alike.

Current State and Forecast

The worldwide revenue of circular economy transactions was estimated to total roughly $339 billion in 2022¹. This is forecasted to more than double by 2026, reaching a $712 billion market opportunity. Keep in mind that this estimation only takes into account the categories of secondhand, rental, and refurbished goods, leaving aside a large pool of major circular business models, such as recycling. Including those in the equation would likely increase the value of the economy significantly, considering the projected value of the global waste recycling services market size of $88 billion, which in turn registers a 4.79% annual growth (CAGR) for the period 2020-2030².

In a forward-looking perspective, delving into the future reveals the potential of the Circular Economy to contribute an extra $4.5 trillion to global economic output by 2030, a figure that could surge to a remarkable $25 trillion by 2050³. Additionally, the projections by The World Economic Forum highlight the transformative impact of recycling, reuse, and remanufacturing, suggesting that by 2025, these practices could unleash annual untapped resource savings of $1 trillion. Looking even further ahead, this value is predicted to double, reaching an impressive $2 trillion per year by 2050⁴.

McKinsey’s Projections

According to McKinsey’s projections, European consumer goods companies can achieve circular value pools exceeding €500 billion in annual revenues by 2030 through portfolio transformation, green business expansion, green premiums, and circular-focused operations. This significant shift will be propelled by changing consumer preferences, especially among younger generations who are using their purchasing power to express their values. 

Zooming in on the added value per industry, McKinsey estimates that in FMCG, recycled and sustainably produced products are expected to see 15 to 25 percent annual growth (CAGR) until 2030, while recycling in fashion is expected to record 15 to 30 percent CAGR, generating €45 billion to €110 billion of annual value.

Part of the added value would be due to more efficient raw material usage. McKinsey reports that a circular economy would allow Europe, which is very resource-dependent, to grow resource productivity by up to 3% yearly. This transition is expected to generate a primary resource benefit of as much as €0.6 trillion annually by 2030 to the EU economy. Additionally, the forecast for non-resource and externality benefits is €1.2 trillion, bringing the annual total benefits to around €1.8 trillion.

This would translate into a GDP increase of as much as 7 percentage points relative to the current development scenario, with additional positive impacts on employment.

Drivers of Circular Economy

The reasons for the profitability of the Circular Economy are, among others, tax subsidies or preferential treatments from the government, a better competitive advantage, the reuse of waste into new products, and more efficient use of raw materials and energy consumption. Therefore, oftentimes, the benefits associated with circularity are greater than the involved costs⁵.

The profitability of the Circular Economy is multifaceted, encompassing tax incentives, competitive advantages, and resource efficiency. As benefits outweigh costs, embracing circularity presents not only sustainability but also financial gains for stakeholders.

Sources:

¹ P. Smith, Worldwide circular economy revenue 2022-2026, https://www.statista.com/statistics/1337519/circular-economy-market-revenue/, November 2023.
² Bruna Alves, Global waste recycling services market size 2022-2032, https://www.statista.com/statistics/239662/size-of-the-global-recycling-market/, January 2023.
^₃ P. Lacy, J. Rutqvist, Waste to wealth: The circular economy advantage, 2016.
⁴ Paul Ekins and Nick Hughes, Resource Efficiency: Potential and Economic Implications, https://www.resourcepanel.org/sites/default/files/documents/document/media/resource_efficiency_report_march_2017_web_res.pdf, March 2017.
⁵ Rubén Michael Rodríguez-González, Does circular economy affect financial performance? The mediating role of sustainable supply chain management in the automotive industry, March 2022.