Introduction

The last 200 years of industrial evolution have been dominated by a linear model of production and consumption in which goods are manufactured from raw materials, sold, used, and then discarded as waste. Economies around the world are currently locked into a system that favours the linear model of production and consumption. However, this lock-in is weakening, and the clamour for transition to a circular economy model is gaining traction under the impact of several powerful disruptive trends such as increased volatility across the global economy, the adverse impact of climate change and increasing signs of resource depletion. The search for a substantial improvement in resource performance across the economy has led businesses to explore ways to reuse products or their components and restore more of their material, energy, and labour inputs.

The concept of circularity has deep-rooted historical and philosophical origins. The idea of feedback and circular loops in real-world systems is ancient and finds a mention in various schools of philosophy. Circularity is making inroads into the linear economy and has moved beyond the conceptual stage to increasingly being adopted by businesses in the mainstream economy. With rapid advances in artificial intelligence and digital technology, the transition to a circular economy can be accelerated by radically increasing virtualisation, dematerialisation, transparency, and feedback-driven intelligence.

Need for circular economy

The industrial economy has hardly moved beyond the fundamental characteristic established in the early days of industrialisation: a linear model of resource consumption that follows a take-make-waste pattern. Companies extract raw materials, use them to manufacture a product, and sell the finished product to a consumer, who uses it and discards it when it has served its purpose. Many companies now notice that this linear system increases their exposure to risks, the most notably higher resource prices and supply disruptions. Businesses are increasingly feeling squeezed between rising and volatile prices in resource markets on the one hand and high competition and stagnating demand for certain sectors on the other.

Some of the other trends which indicate that the power of the linear model is reaching its limits are:

• In modern manufacturing processes, opportunities to increase efficiency still exist, but the gains are insufficient to generate real competitive advantage or differentiation.
• Agricultural productivity is registering slower growth than before, and soil fertility and even the nutritional value of foods are declining.
• Burning of fossil fuels and inappropriate disposal of waster materials has led to global warming and an increase in pollution.
• The risks to the well-established global supply chains appear to be increasing.
• Many production sites with excessive requirements for scarce resources such as water or land are struggling to renew their licence to operate as they compete in sensitive local resource markets.

Against this backdrop, business leaders and visionaries are moving towards the ‘circular economy’ model, which offers opportunities for better growth, through an economic model that is resilient, distributed, diverse, and inclusive. It tackles the root causes of global challenges such as climate change, biodiversity loss, and pollution, creating an economy that is restorative and regenerative by design.

What is a circular economy?