The challenges of circular economy

Circular economy has become a trendy concept. It has arisen lately as a possible solution for climate change.  It basically aims to build a more sustainable way of producing and consuming goods and services by re-utilizing products’ components to create new ones. However, firms must be willing to change their traditional way of making money which means that circular economy models must also be profitable.

The key concept around circular economy is how products are conceived from the very beginning of the production process and how companies determine their components will serve to create new products once original ones become useless. Beyond the current recycling activities and the “green” culture, there is a need to change linear process for another where each part of a product can be used again. There is an important difference between recycling and producing based on the principles of circular economy. For instance, when a product becomes useless only specific or few parts of it can be recycled while circular economy should guarantee that more than 90% of the product’s components are used again to develop new ones.

Nevertheless, for companies to migrate to a more sustainable model, circular economy business models must provide stakeholders with attractive levels of profit. In fact, one of the reasons why companies have not yet adopted a more sustainable model is the lack of sufficient profits when trying to become “green” and they just make sure some of their waste can be recycled instead of adopting an alternative way of producing where most parts may be used to create new products and services. For example, we can think about the environmental programs and practices of big companies around the world that try to be a solution ex-post instead of ex-ante. The main goal is to develop a plan for re-utilizing every part of the product before starting to produce.

The challenge of circular economy is to become a profitable model in order to replace the traditional linear production process. This will determine if this form of production is indeed a new alternative for a more sustainable world or if it is just a trendy concept.

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