Circular economy is an important goal for many companies. At least, that is what can be read in many company reports. Circular economy is also a hot topic in policy circles. Europe, China, Japan: they all have policy proposals on how to become a circular economy.

Circularity is often used as synonym for sustainability; circular seems to be sustainable. It is also a container term. To some, it has to do with resource preservation and recycling. To others it means a completely new economy, with different foundations and different rules.

And yes, the concept of circularity is very broad, and the circular economy encompasses a lot. But ‘a lot’ can be too much, too complex, making the concept too vague, and too ambitious. In fact, after several years of intense discussions, experiments and policies, we must be honest. The latest report of Circle Economy shows that our global economy is becoming less instead of more circular: we are using ever more resources for our economic activities instead of less.

We should remain bold in our ambition to create an economy within the limits of our ecosystem but must become more practical in how we can achieve this.
Hans Stegeman, Head of Research and Investment Strategy

It is high time we take the next step. We should remain bold in our ambition to create an economy within the limits of our ecosystem, but must become more practical in how we can achieve this. Take it step by step but without compromises.

Bold goal

Bold ideas for the future are often called moonshots, challenges that require significant investment of time and money, together with creative thinking and innovative technology. This word dates back to the Sixties, when the bold idea was to put a man on the moon. It seemed impossible at the time, yet we did just that. The circular economy is one of our present-day moonshots. Yet, contrary to reaching the moon, this is a goal that we absolutely must achieve if we are to solve such challenges as climate change. Replacing fossil fuels with renewable energy, and primary resources with secondary resources. Trying to minimise waste and becoming more efficient with material inputs. Using products for as long as possible by designing them for repair, refurbishing them and creating second-hand markets and sharing platforms. This is the idea, and there is evidence that this is possible. If we can create a more resource-extensive economy, we will reduce our carbon footprint. We will also reduce our detrimental mining activities, and a lot of other environmental benefits.

Experiments in recent years have shown that a circular economy is possible. At least, on a small scale, for some small and mid-sized companies and for some activities of larger companies. To achieve that bold goal, however, we need more than experimenting. We also need governments to step in and companies to embrace the circular economy in the heart of their business model.

Step by step

There are (at least) two routes that must be taken: first, a route – more on a macro level - towards an economy that makes circular business easier. Secondly, a route more on a micro level, to help companies to take circularity to their core.

The first route largely concerns policy and policy making. Pricing the externalities of resource use, for example pollution through carbon emissions or waste, helps to become more conscious about resource use and to switch to renewable resources. Such interventions help circular businesses to compete with non-circular ones. Also, consumer awareness of the effects of their behaviour (buying too many clothes, or a new cell phone every two years, for example) and transparency of the material footprint of products may help in this regard.

The second route concerns businesses and financiers. This route is about stimulating companies to become more circular, simply by asking them about circularity. While their answers will hardly be unambiguous, getting a (positive) answer on these questions shows that the company at least is aware of the concept of circularity and maybe even working on it.

  1. How does its material footprint compare to competitors?
  2. Does it source renewable/secondary resources instead of fossil/primary resources?
  3. Does the company take responsibility in its sourcing?
  4. Does it use circular principles in the design of its products or in its business model?
  5. Are circular materials or products a substitute for conventional resources and products?
  6. Does it take responsibility for its products after sale, varying from product-as-a-service models, to extended guarantee periods, free repair services, or take-back schemes?
  7. Does a company have a strategy aimed at making its business model more circular?

We shouldn’t expect every company to be able to answer such questions – let alone positively. We still live in a linear economy, after all. Raising these questions will push companies to think about becoming more circular, however.

Circular economy may seem like a moonshot, yet it is the new reality we must create.

Read more about the circular economy

The ethic of growth and overabundance in our economic system is not sustainable, as natural resources are not unlimited, and the waste produced by the linear model seriously harms our ecosystem. We therefore need to transform our current economic system into a circular system that is regenerative by design.

As an impact investor, Triodos Investment Management selects companies that develop solutions to the world's most critical sustainability challenges. The circular economy is one of seven transition themes we have defined that will be instrumental in securing a sustainable future. These themes, which have been derived from global mega-trends that we believe will shape the future, guide the portfolio construction of our listed equity and bond funds, making sure we only invest in sustainable frontrunners.

Also read Hans' column True pricing is not enough to make an economy circular, in which he addresses some of the fundamental changes that are required to reach "something resembling a circular economy."