What is circularity?

Circularity can help organizations meet the growing demand for environmentally-friendly business practices and create value. Using resources more efficiently can create cost savings on raw materials, which often constitute a large portion of production expenses.

Reducing waste and lengthening the lifecycle of products can also contribute to lower energy consumption, which further reduces costs and environmental impact.

Circularity is a sustainable business practice that protects the environment. Increased consumption and production can deplete natural systems, create pollution and contribute to greenhouse gas emissions, which are a leading cause of climate change.

Circular solutions minimize carbon emissions throughout a product’s lifecycle, from production to waste management. Circularity also reduces the use of natural resources, which decelerates ecosystem and habitat destruction and limits biodiversity loss.

The circular economy is an economic model that aims to eliminate waste and promote sustainability through reuse and resource efficiency. Through sharing, repairing, refurbishment, remanufacturing and recycling, a circular economy creates a closed-loop system. Examples and case studies include:

Renewable energy systems, such as wind and solar power installations, reduce a company’s dependency on fossil fuels, which are finite resources.

As opposed to devices that must be discarded after they break, repairable electronics have an extended product life, which keeps materials in the value chain longer.

Sharing economy platforms allow people to share assets such as cars or homes instead of owning them. Sharing lowers the manufacturing demand for new products and encourages more sustainable consumption.

New approaches to packaging—such as reusable or refillable packings, or packaging made from compostable or recycled materials—can significantly reduce environmental impact.

Retailers that create recycling programs can encourage customers to return old clothing for recycling or resale—keeping textiles out of landfills.

Integrating circularity and circular systems into business models can offer several benefits, including:

While circularity and sustainability are related terms, they are not interchangeable. Sustainability is the long-term ambition for people to coexist on Earth without depleting its natural resources. It is a larger goal to create a more sustainable future for both people and the planet and involves three pillars: environmental, social and economic.

Circularity is a sustainable practice and just one step toward achieving the larger goal of sustainability through reuse and minimizing waste. For instance, although a circular supply chain is likely to be more sustainable than supply chains in the linear economy, there are other ways to achieve supply chain sustainability.

However, governments and policymakers recognize the role circularity can play in reducing emissions and are including it in sustainability policy. The European Union, for example, enacted the Circular Economy Action Plan as part of the European Commission’s Green New Deal.¹ The Action Plan includes initiatives along the entire lifecycle of products and encourages sustainable consumption to keep resources in Europe’s economy for as long as possible.

In 2024, the government of Chile published a plan for a circular economy called “Roadmap for Circular Chile by 2040.”² The detailed program created a long-term vision for a fair circular economy that creates jobs, reduces waste, increases recycling, regenerates ecosystems and recovers illegal dump sites.

The five “Rs”—also called R-strategies or R-models—are actions within sustainability, circularity and the circular economy that encourage keeping materials at their highest possible value throughout the value chain. They are:

• Reducing involves decreasing how much and how often new materials are produced. This strategy aims to increase the efficiency of manufacturing or use, resulting in fewer natural resources being used.

• Reusing refers to extending the lifespan of a product or its parts by using it again, either for its original purpose or a new function. This strategy helps to keep materials in circulation for longer.

• Repairing means fixing broken parts. This strategy extends a product’s lifespan by returning a defective product to a usable condition through remanufacturing or upcycling.

• Refurbishing entails restoring a used product's performance. This model is often applied to technology and appliances, where refurbished product programs upgrade old devices with new components or software for resale.

• Recycling involves processing a product when it can no longer be used. Recycling at end-of-life reduces waste and provides material for new products.

There are several strategies organizations use to implement a circular approach:³

Retain product ownership is when a business rents or leases their product instead of selling it to the consumer. This model works best with durable, high-value products, such as furniture, machinery or other electronics. Xerox, for example, leases printers, photocopiers and other multifunction devices to corporate clients, in addition to selling machines.

This strategy involves manufacturing high-quality products that last longer. While this model means fewer purchases over time, durability is a key competitive differentiator and creates customer loyalty. Bosch Power Tools extends the lifespan of used tools through remanufacturing and sells refurbished products.

When a company designs for recycling, it establishes manufacturing processes that optimize the recoverability of materials used in its products. American multinational Colgate redesigned its toothpaste tubes to be made entirely of the same kind of plastic, making the tube easier to recycled.⁴ When an item is made with more than one type of single-use plastic, it needs to be disassembled before it can be sorted by the recycler.