Circular economy and linear economy: differences and advantages for companies

6 min

Striving to save our planet is not just about reducing emissions, taking a sustainable approach, or joining green initiatives. In recent years, we are realizing that what doesn’t work is the linear economy. Waste, in any sector, is no longer sustainable. But what are the business challenges required by a circular economy? Let’s look at them together.

Antonio Grasso's Book

What is the difference between a circular economy and a linear economy?

In the years marked by the economic boom, concepts such as recycling or reuse were not covered. Companies adhere to a linear economy without launching alternatives. The process was simple: buy a particular product or service, use it, and dispose of it permanently. In this case, the actors involved aimed for profit and convenience at the expense of environmental sustainability.

While companies, before the economic boom, designed products intended to last with attached marketing campaigns focusing on their longevity, at some point, there was a change of course. There was a preference to go for the disposable. They were no longer interested in the washing machine that lasted 10 years. Companies were putting products on the market at a much lower price as their quality was lower. This is because the approach of the consumer who wants to renew the model quickly has also changed. In a few years, quality plummeted and profit margins increased. What have we not taken into consideration? The environmental and social impact of the linear economy.

Today, all we talk about is the climate emergency and the suffering of our planet but also the scarcity of raw materials and the difficulty of waste disposal. Our conscience is pushing us to think about the life cycle of products and the circular economy.

Here is the definition of the circular economy given by the European Parliament:
“The circular economy is a production and consumption model that involves sharing, lending, reusing, repairing, reconditioning and recycling existing materials and products for as long as possible.”

This means designing a green flow that starts from the extraction of raw materials and ensures a sustainable process at all stages, all the way back to the purest version of a product’s components.

The stages of the circular economy

That the circular economy affects, first and foremost, the scarcity of raw materials is undeniable. But its benefits, as we shall see below, do not stop there. However, when the reckoning is done on the circular business model, the discourse changes. For companies, this process is sustainable only if the value can be recovered economically from the product.

In effect, adopting a circular business model means changing the entire flow of creation, distribution, and disposal of a product.

Here is an overview of the stages of the circular economy:

  1. The first sustainable step concerns how raw materials are extracted and how much is used;
  2. one then moves on to the product design phase, which should be recycling-oriented (Design for Recycling). That is, products and manufacturing processes are chosen that can be recovered or used for new products;
  3. afterward, the production or remanufacturing phase is started;
  4. Subsequently, distributors using sustainable means of transportation are chosen;
  5. consumers are told, through targeted marketing campaigns or explanatory packaging, how they will have to dispose of the product;
  6. finally, the steps of collection, reuse, recycling, repair, or controlled disposal of waste are defined

Throughout this process, digitalization has offered companies valuable support at various stages, going to reduce waste and ensuring monitoring and control of the entire product life cycle.

What are the challenges of a circular economy?

If the circular economy is best suited to addressing the climate emergency, resource scarcity, and improving social welfare, why are not all companies going in this direction? Because the circular business model requires radical transformation. High investment, involvement of the entire value chain, and a lower profit margin than that provided by sustainability-oriented initiatives.

Realizing this, the European Commission has drafted a new action plan for the circular economy that has become one of the cornerstones of the European Green Deal. So much commitment is linked to the affirmation of Frans Timmermans, Executive Vice President responsible for the European Green Deal:

“If we are to achieve climate neutrality by 2050, preserve our natural environment and strengthen the competitiveness of our economy, it must become fully circular. Our economic model today is still, for the most part, linear: only 12 percent of secondary materials and resources are reintroduced into the economy.”

12% is a rather low slice when we think about the state of climate and environmental emergencies in recent years.

But what are the barriers that make transformation complex?

  1. First and foremost, there are the consumers, who are increasingly accustomed to disposable or desiring more and more advanced models and technologies;
  2. In addition, there is a lack of experts and proven technologies in implementing the circular economy;
  3. just as a culture that extols the benefits of the circular economy is often lacking in companies: in this area, more awareness and/or a willingness to commit to addressing such a radical change is needed;
  4. the required investments are still too expensive: to date, there is a lack of economic viability of circular economy business models;
  5. Finally, there is a lack of policies that support companies in the transition to the circular economy.

The circular economy is the solution to turn waste into resources for reuse. Building a waste-free economy means improving the social and environmental future. Share on X

The benefits of a circular economy

The challenges, previously highlighted, rest on one plate of the scales. On the other side is the increasing weight of the benefits of a circular economy. Although the benefits of a circular economic model are not immediate, the reach affects not only the individual company but the entire society. This is good from an ethical and social responsibility point of view but less beneficial from a return-on-investment point of view that companies would have to bear.

Circularity is achieved, as we have seen, by going to all phases of a product’s life cycle. Therefore, adopting a circular business model is significantly easier for startups. Indeed, long-lived companies have long-standing profits to defend or capital-intensive assets for which they must maximize returns.

However, the environmental benefits would be substantial: from reduced consumption and, especially, waste of raw materials; to less pressure, the economy would put on the environment. Waste would be eliminated and a change, of course, would take place, focusing again on durability, innovation, reuse, and recycling. This would allow the regeneration of natural systems in favor of better environmental sustainability.

To date, leaders, who are adopting circular business models, aim to assess the potential for circular flows in their existing value chain, and select options that can increase that value.

Circular economy: examples of companies that are trying it

There are few manufacturing companies that, to date, offer us examples of a complete circular economy. Indeed, most large companies have set broad sustainability goals, but few have specific circularity goals. And here is the proliferation of hybrid solutions in which, it is not the entire life cycle of the product that is circular, but only a part of it (almost always the final phase related to disposal). That is, the product is not already designed with sustainable materials or processes but an attempt is made to reduce the damage associated with disposal.

The recycling of electronic items

Technology is advancing rapidly, and with it, brands that produce cell phones, televisions, or electronic devices, in general, are also rushing to market the latest release of models that now last a few months. Consumers, incited by marketing, buy new devices even if the old ones are fully functional. This exaggerated consumerism greatly damages the environment. There are organizations whose goal is precisely to prevent the production of electronic waste by repurposing unusable products. How? By reclaiming working computer equipment discarded by large companies. The product is remanufactured and put back up for sale. If this is not possible, individual parts are reclaimed as spare parts.

The reuse of polluting materials

Looking instead at the international scene, there are technology companies that aim to recover plastics found in the oceans. This commitment has resulted, in recent years, in PCs whose hardware is made from recycled ocean plastic.

Whether or not your company is ready to embrace a circular economy model, it is important to be aware of the inevitability of the choice that, in the long run, will have to be made by all organizations. We don’t have another planet to move to, and the sudden environmental changes of recent years are forcing us to think about what to do to ensure our future survival.

Subscribe to our newsletter