The business models enabling a more circular economy
A more circular approach, therefore, is closely bound up with product design. That means thinking from the outset about issues such as what the product is made of, its durability and how it can be reused (for instance, through easy disassembly or modularity), rather than having to tackle them as problems when it is discarded.
But this is not the only way in which companies may play an active role in the transition to circularity. The Value Hill Business Model tool created by Circle Economy identifies four basic business models.
- In the circular design model, the company incorporates circularity into the heart of product design, as mentioned above. One example in the portfolio is the carbon-negative materials company Origin Materials, which converts sustainable biomass (for instance agricultural or wood waste) into products usually made from fossil fuels.
- The optimal use business model focuses on improving the use and lifespan of products or technologies. AutoTrader, which facilitates used car sales and purchases, is a good example here.
- Businesses following the value recovery model are recapturing value and pulling it back into the system, an example in the portfolio being Steel Dynamics, which processes scrap metal to make new steel products.
- Finally, circular support companies are focused on activities that support those of the other three models. US business Badger Meter, for instance, produces flow measurement and control tools to help customers monitor and optimise their use of water and other resources.
This classification tool is really valuable as we seek out the ‘enablers’ that are actively making transition happen. Importantly, it also helps us differentiate such businesses from ‘practitioners’, those that are merely integrating elements of circularity into their basically linear business models.
For example, while Nike incorporates some recycled rubber in the trainers it makes, it does not make it an ‘enabler’. Even Coca-Cola, the world’s largest plastic polluter, or leading greenwash proponent, Unilever, can point to some circular principles (and will flag them as evidence of their green credentials) – but they would clearly not make the cut as circularity enablers.
Clearly, these four business models encompass a broad range of circularity strategies; however, not all are equally powerful in terms of their impact in driving transition.