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Circular Economy

Which new, circular business models arise?

Circular business brings about new business models. The field is developing rapidly, but a common denominator starts to emerge.

Based on several sources, the Working Group FinanCE of the Ellen MacArthur Foundation identified three categories of circular business models: Circular Innovation Models, Circular Use Models and Circular Output Models.

Circular Innovation Models

Circular Innovation Models focus on the development phase of a product. Products are designed to last longer and are easy to maintain, repair, upgrade, refurbish, remanufacture or recycle. Additionally, new materials are developed and sourced, e.g. bio-based or fully recyclable materials.

Examples of business models in this category include:

  • Product design: Provides products that are designed to make them long and useful life and/or be easy to maintain, repair, upgrade, refurbish or remanufacture;
  • Process design: Develops processes that increase the reuse potential and recyclability of industrial and other products, by-products and waste streams;
  • Circular supplies: Provides input materials such as renewable energy, bio-based, less resource-intensive or fully recyclable materials.

Circular Use Models

These business models focus on the use phase by optimally using the product and maintaining added value. These business models make it possible to retain ownership of the product (e.g. by servicing a product rather than selling it) and take responsibility for the product throughout its useful life (e.g. through maintenance services, or add-ons to extend the life of a product).

Examples of business models in this category include:

  • Product-as-a-service: Delivers product performance rather than the product itself through a combination of product and services. Ownership of the product is retained by the service provider;
  • Sell and buy-back: Sells a product on the basis that it will be purchased back after a period of time;
  • Sharing Platforms (Access provider): Enables an increased utilization rate of products by enabling or offering shared use, access or ownership;
  • Lifetime extension: Extends the useful life of products and components through repair, maintenance, or upgrade;
  • Tracing facility: Providing services to facilitate the tracing, the marketing and trade of secondary raw materials.

Circular Output Models

These business models focus on the output and added value of a product’s after-use phase. In these business models revenue is generated through transforming after-use products into new products or useful resources in order to add value, reduce costs, or reduce waste. The development of reverse logistics is essential for this model.

Examples of business models in this category include:

  • Recaptured material supplier: Sells recaptured materials and components to be used instead of virgin or recycled material;
  • Refurbish & Maintain: Refurbishes and maintains used products in order to sell them;
  • Recycling facility: Transforms waste into raw materials. Additional revenue can be created through pioneering work in recycling technology;
  • Recovery provider: Provides take-back systems and collection service to recover useful resources from disposed products or by-products;
  • Support lifecycle: Sells consumables, spare parts and add-ons to support the life cycle of long-lasting products.

Working Group Finance, 2016, p.42