In 2019, a Florida rock snail journeyed across the Atlantic on the plastic sole of a discarded shoe. Arriving on England’s south coast as an invasive predator, the snail posed a threat to native molluscs. On the same beach, a Columbus crab from the Caribbean crawled out of a plastic pipe, scavenging food needed by native species. These arrivals, carried by waste leaked into the ocean, are just two of countless examples of the impact we have on the environment through the way we make and use products.

Efforts have been made to lessen these impacts through environmental clean-ups, whilst attempts have been made to reduce the risk of resource depletion through efficiency drives. But tweaking a system that is fundamentally flawed is never going to provide the solutions we need to global challenges.

Our current economic model is linear – we take resources from the planet, make products from them, and throw them away as waste. This system is causing untenable environmental degradation, climate change, biodiversity loss, and pollution, and is not working for business or people.

To address these global challenges, we need to rethink and reshape our entire global economy. But what would that look like? What if we could build an economic system where growth actually regenerates the environment, rather than degrading it — where the goal is not simply to do less harm, but to actively improve? What if the system, by its nature, could increase biodiversity and tackle climate change, all while enabling businesses and people to thrive?

Such a system can be built on the principles of the circular economy, where waste and pollution are designed out, products and materials are kept in use, and nature is regenerated. The circular economy provides solutions that address the root causes of challenges, not just the symptoms. It provides a meaningful response to the issues people care about and it is relevant everywhere in the world.

A low carbon, resilient recovery post-Covid-19

Fragilities in the global economy have been emphasised by the Covid-19 pandemic, which has led to goods shortages, businesses losing markets, and supply chains faltering. This was illustrated in the early stages of the crisis by issues with the availability of medical equipment. As we recover and rebuild, transitioning to a circular economy is more relevant than ever since applying its principles can increase the economy's resilience to shocks. In the medical equipment example, this effect is achieved by employing design factors such as repairability, reusability, and the potential for remanufacturing. 

A circular economy model will also provide the opportunity for new and better growth. Across industries, the linear model results in huge economic losses that could be recaptured. For instance, in the fashion industry, USD 500 billion is lost due to clothing becoming waste that could be recaptured, and in the plastics sector, USD 80-120 billion could be saved each year if plastic packaging was reused and recycled. Adopting circular economy principles in Europe, in the mobility, built environment, and food sectors could offer annual benefits of EUR 1.8 trillion (USD 2.1 trillion) in 2030. In China, applying circular economy practices at scale in five key sectors could save businesses and households CNY 70 trillion (USD 10 trillion or 16% of China’s projected GDP) in 2040.

Beyond the economic opportunities, a circular economy can help meet global climate targets by transforming the way we produce and use goods. If we only focused on energy efficiency and switching to renewable energy, we would only be able to address 55% of global greenhouse gas emissions. By adopting circular practices as well, we can almost half the remaining emissions. For example, circulating products and materials – instead of producing new ones – can help cut energy demand, by maintaining the energy that went into making them. In agriculture, adopting circular principles is an effective way to sequester carbon in the soil.

If a circular approach were adopted in just five sectors – steel, aluminium, cement, plastic, and food – annual greenhouse gas emissions would fall by 9.3 billion tonnes of CO2e in 2050, equivalent to the reduction that could be achieved by eliminating all transport emissions globally.

The benefits of a circular economy also extend more broadly. It is estimated that a circular economy could create over half a million jobs by 2030 in Britain alone, in activities such as resale, remanufacturing, and recycling. There are also social benefits that stem directly from the environmental benefits offered by the circular economy, such as a reduced number of deaths from particulate emissions, reduced health costs of pesticide exposure, reduced days of work lost to sickness due to poor indoor air quality, as well as much more.

As an illustrative example of the interlinked benefits for the economy, environment, and society, a comprehensive circular economy approach for the plastic sector has the potential to generate savings of USD 200 billion per year, reduce the annual global volume of plastics entering our oceans by over 80%, reduce greenhouse gas emissions by 25%, and create 700,000 net additional jobs by 2040. 

By having a positive impact on economic, environmental, and social outcomes, the circular economy has the potential to achieve mutually reinforcing benefits. It does so by fostering innovation and competitiveness, increasing productivity, reducing resource dependency and environmental impact, increasing resilience, and creating new jobs.

Progress is being made

The potential of the circular economy has not gone unnoticed. Businesses and governments around the world are turning their attention to the transition to a circular economy. More and more companies across industries are adopting circular principles to reduce costs, increase revenues, and manage risks. Circular solutions accounted for 13% of Philips’ revenues in 2019, while Caterpillar offers more than 7,600 remanufactured products. The circular economy has started transforming entire industries: in fashion, clothing resale is expected to outstrip fast fashion by 2029; and in plastics and consumer packaged goods, profit pools along the value chain are being transformed by increasing regulation, public pressure, and innovation. Governments are accelerating this shift, with the circular economy a key pillar of the European Green Deal and circular economy roadmaps and legislation in place in countries including China, Chile, and France.

Financial institutions are beginning to invest in this economic approach. The market is taking off, with very rapid growth of circular economy financing over the last 18-24 months. While no such fund existed in 2017, by mid 2020 ten public equity funds focusing partially or entirely on the circular economy had been launched by leading providers, including BlackRock, Credit Suisse, and Goldman Sachs. Since the beginning of 2020, assets managed through these funds have increased six-fold, from USD 0.3 billion to over USD 2 billion. In the first half of 2020, on average these funds performed 5.0 percentage points better than their Morningstar category benchmarks.

The question is no longer whether circular economy matters to businesses, governments, and the financial services sector, but what they need to do to bring it about. The circular economy can scale fast. Digitisation and an increase in innovative technologies mean we can bring it to life faster than ever. Now is the time for the private and public sector to work together to build on the momentum and scale the circular economy.