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Magdalena Zapryanova
Circularity, Growth

The Circular Economy Business Model: The New Standard of Doing Business

With the tightening European legislation on waste management and investment in the circular transition gaining traction, it becomes clear that circularity is no longer a buzzword, it’s a necessity for those who want to stay competitive. For the ones who don’t recognize the ongoing shift, this should serve as a wake-up call: Circularity is the new standard of doing business and first-movers are already reaping the benefits. 

For the past years, the circular economy has already instigated transformative shifts across industries. In the fashion sector, for example, clothing resale is projected to surpass fast fashion by 2029, while the realm of plastics and consumer packaged goods is witnessing the metamorphosis of profit pools throughout the value chain, driven by mounting regulation, public expectations, and innovative recycling technologies1.

Governments are propelling this transformation, exemplified by the circular economy’s integral role in the European Green Deal, alongside circular economy roadmaps and regulatory measures established in nations like China, Chile, and France. As a result of this and other driving factors of circularity, the use of circular materials in the EU increased by roughly 41% between 2004 and 2021, accounting for 11.7% of total material use in 20212.

The Concept of a Circular Economy

According to McKinsey, approximately 63% of potential emissions reduction in the fashion industry is estimated to come from the use of cleaner energy sources3

All of the other 37% of emissions reduction, however, necessitates innovative strategies: this is where circularity comes in. Processes encompassing prolonged product life cycles, shifts in consumer behaviors, adoption of circular business models, curbed overproduction, increased integration of recycled materials, and other circular economy principles could contribute immensely—up to 654 million metric tons of emissions reduction in the fashion industry by 2030, effectively bridging the emissions reduction gap. This approach can be similarly applied across various consumer goods industries3.

Within a circular economy framework, four pivotal loops support the extension of product life cycles: repair, resale/rental, refurbishment, and recycling.

Source: McKinsey & Company

Circularity is the Future Standard of Doing Business

It is clear that the circular economy is driving transformative changes across entire industries, opening up fresh prospects while also presenting risks for those who fail to keep pace. Embracing circular practices is becoming essential for businesses to thrive in this dynamic landscape.

Already in 2019, roughly 28% of professionals in supply chain functions disclosed that they have incorporated circular design processes in their company innovation strategy. And around 39% stated that they plan on implementing circularity methods within the next 2 years4.

Source: Statista

What Drives the Shift to Circularity?

Shifting consumer demand, regulation, technological progress, infrastructure, supply-side activity, and the macroeconomic environment are the main drivers of demand for circular consumer goods.

Shifting Consumer Demand

Research by McKinsey reveals that nearly 40% of European consumers consider sustainability to be of “high importance”. This heightened concern for sustainability is driving an increased demand for recycled, refurbished, and reused products. A recent survey conducted in 2021 indicates that approximately half of consumers in Germany, France, and the United Kingdom have already bought pre-owned items. As environmentally-conscious Generation Z individuals age, this trend is expected to gain further momentum3.


Governments worldwide are progressively acknowledging the circular economy’s capacity to enhance competitiveness, foster robust supply chains, and achieve societal and environmental goals. Notably, the circular economy constitutes a fundamental element of the European Green Deal and features among the EU Taxonomy’s six environmental objectives. Several countries, including China, Chile, and France, have taken significant strides by implementing circular economy roadmaps and enacting legislation to promote sustainable practices. This growing recognition highlights the critical role of the circular economy in shaping future policies and fostering global sustainability5.

Other notable government initiatives are the Circular Economy Action Plan (CEAP) committing billions of euros to support initiatives that drive the journey towards achieving net-zero targets within the next decade. A central element of the CEAP involves a robust eco-design strategy, which emphasizes aspects like product longevity, reusability, upgrade potential, and advocating for a “right to repair.” Additionally, the plan emphasizes the integration of recycled materials, remanufacturing practices, and the promotion of high-quality recycling methods.

In the meantime, multiple European countries have begun the process of enacting extended producer responsibility measures. These initiatives offer substantial financial incentives to companies aiming to make the shift towards circular business models.

Technological Progress

Innovation progress in areas such as chemical recycling, digital product passports, and scalable disassembly technologies is allowing for the more and more accessible industrial-scale transition to circularity3

The growing demand for solutions that facilitate product reselling, refurbishment, and recycling especially when it comes to developing scalable material collection and take-back programs, reverse logistics, as well as automated systems for material sorting, will drive further innovations in these areas, getting the industry a step closer to full circularity3.


1 thredUP (GlobalData Market Sizing), ThredUP 2020 Resale Report,2020.
2 Bruna Alves, Circular material use rate in the European Union 2004-2021, https://www.statista.com/statistics/1316448/circular-material-use-rate-in-european-union/, June 2023.
3 Sebastian Gatzer, Stefan Helmcke, and Daniel Roos, Playing offense on circularity can net European consumer goods companies €500 billion, https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/playing-offense-on-circularity-can-net-european-consumer-goods-companies-500-billion-euros, June 2022.
4 Martin Placek, Supply chain approaches to the circular economy worldwide 2019, https://www.statista.com/statistics/1182874/circular-economy-supply-chain-approach/, April 2022.
5 Bocconi University, Ellen MacArthur Foundation, Intesa Sanpaolo (2021), The circular economy as a de-risking strategy and driver of superior risk-adjusted returns, http://www.ellenmacarthurfoundation.org/publications.

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