The circular economy is an economic subsystem aimed at the efficient use of resources. This is achieved by closing linear material flows within value chains through circular management in the form of material loops. As a result, the service life of products and their components is extended. At the end of their use phase, they serve as valuable recyclable raw material sources. Circular design principles are essential for the successful strategic implementation of these circular economy processes.
Linear vs. Circular Value Creation
Motives for Circular Economy Orientation in Businesses
Profitability
The primary purpose of businesses is profit generation. They are founded and operated with this objective in mind. Understandably, corporate management will first carefully assess whether, and to what extent, a circular economy orientation contributes to achieving profitability.
This occurs when the implementation of circular economy concepts leads to revenue increases-such as the development of new market opportunities through product innovations or service offerings enabled by circularity-as well as cost savings, for example through the reduction of primary material consumption. In other words, the margin between revenues and expenses is maximized (economic efficiency).
Thus, profitability emerges as a direct economic driver for adopting circular economy practices. It remains at the company’s discretion whether to pursue short-term profit maximization-which often precludes medium- to long-term amortization periods-or to aim for a sustainable profit development, where achieving satisfactory rather than maximal profits is prioritized.
The intensity of profit realization pressure is determined by factors such as:
– The company’s economic situation
– Investor expectations
– Commitment to sustainability
– Mission and vision statements
– Strategic planning horizon
Image
Indirect economic effects arise from the development of a positive corporate image, which convinces stakeholders who hold significant power or on whom dependency relationships exist.
As a rule, these stakeholders include customer groups with strong purchasing power who demand circular products (environmental-ethical expectation matching), as well as investors who recognize the circular economy as a lucrative future market and thus demand corresponding corporate activities.
Credible sustainability reporting serves as an effective communication tool in this context. The company’s image should not be underestimated for (potential) internal stakeholders such as employees, especially highly qualified and talented ones, who tend to choose employers that reflect their personal ethical values (keyword: sustainable employer branding).
Competitiveness
Herein lies competitiveness as another potential motive for a company’s circular economy orientation, aimed at securing stability and ultimately ensuring survival-or ideally dominance-within competitive markets.
Competitiveness is significantly influenced by market position (e.g., market power through monopolies or oligopolies) and the resulting price elasticities. It is equally governed by the ability to anticipate market trends and the associated market presence.
Compliance with legal requirements
In addition to the aforementioned motivations, legal requirements related to the circular economy (e.g., the Circular Economy Act) also play a crucial role. These regulations primarily influence corporate thinking and behavior when they carry significant sanctioning potential.
In addition, there are a number of non-mandatory normative frameworks (e.g., EMAS) as well as incentive systems such as funding programs or subsidies for the implementation of circular economy concepts. Although often not as impactful as legal obligations, these measures can nonetheless support corporate ambitions towards circular operations.
Environmental Responsibility
Ecological motivations within a company should be considered in a differentiated manner. Three cases can be distinguished here:
1. Case
If profit-seeking is the sole driving force behind business activities, environmentally conscious behavior at best serves as a means to the end of profit generation-that is, it is instrumentalized and reveals itself as a pseudo-motive, even if corporate communication suggests otherwise. In reality, the company is not genuinely committed to ecological sustainability, which here is specifically expressed through the resource-conserving approach of circularity. Sustainability is realized only because it is profitable. In extreme cases, this can even lead to greenwashing, meaning the company deceives stakeholders by portraying itself as more environmentally responsible in its communications than it actually is. The boundary at which greenwashing begins is narrow, as marketing often emphasizes isolated sustainable attributes of products or the company that may not be clearly substantiated by instruments such as Life Cycle Assessments (LCA) or Product Carbon Footprints (PCF).
2. Case
Ecological motives exist but are only considered insofar as they do not conflict with profit generation. Specifically, this means that efforts-such as incurring transaction costs-are accepted to promote ecological sustainability, but only as long as these do not lead to significant financial losses. In this case, the company is willing to assume its environmental responsibility even if, in the aggregate, this neither increases revenues nor reduces costs, or if investments-such as those in cleaner technologies-only yield returns after many years.
3. Case
Regardless of whether the existing ecological motives potentially lead to a reduction in financial profits, they are nevertheless reflected in the company’s actions. Characteristic of such companies are idealistically driven value commitments, such as dependence on intact natural ecosystems, respect for planetary boundaries and the residual availability of scarce resources, a healthy environment (also appreciated aesthetically), waste avoidance purely for environmental protection reasons, responsible foresight across generations, and the internalization of negative externalities.