Circular Economy: What Is It and Why You Should Know About It?
For centuries, the world has operated with a “linear economy” focused only on production.
As the name implies, a linear economy happens in a straight line:
- The steps include take, make, and waste.
- Raw materials are collected. Then they are transformed into a product.
- Finally, anything not used – like the packaging – is simply disposed of.
Society at large has accepted this as the norm. But this linear model produces crazy amounts of waste and is simply not sustainable.
- Every minute, one garbage truck of plastic is dumped into our oceans.
- In that same second, perfectly edible food that could fill six garbage trucks is wasted.
By 2050, experts estimate that staying the course with a linear economy could result in overusing the earth’s capacity by more than 400%.
Sea level will rise 1-8 feet by 2100. People and animals are being displaced by the millions. Storms and fires are increasing in strength and number. Climate refugees are fleeing their homes. Drought, famine, food shortages, heat waves, hurricanes, and more will affect the livelihood of people across the globe.
More than 275 million metric tons of plastic waste were generated in 192 coastal countries in 2010. From there, nearly 8 metric tons of plastic find their way into the ocean each year.
It’s not just a pollution problem.
Plastic degrades and fragments. These small pieces end up in our environment.
When this happens, toxic substances are released into our waterways. Fish eat the plastic fragments as food. So the take-make-waste cycle also affects the food chain.
All of this is very damaging to human and planetary health.
Investors troubled by this image are:
- Reallocating their portfolios to invest in innovative companies
- Searching for companies committed to developing new products, business models, and technologies to provide for a better tomorrow
- Finding ways to make a difference and have an impact on what matters most to them
These investors are looking for solutions that a circular economy delivers.
The Circular Economy Solution for a Linear Economy Problem
So do we have to throw out our entire economic model?
No, we don’t.
Extractive industries have alternative solutions.
The available materials can suffice if they are rescued and recycled correctly.
Thomas Seifert, professor at the TU Bergakademie Freiberg believes that developing new materials is not the answer. He suggests:
- Replacing the “make” part of the take-make-waste cycle with recycling.
- The solution is a “huge recycling institute in Europe” that would promote recycling material from batteries, solar cells, magnets, computers, and wind turbines.
The circular economy offers that alternative solution.
Using supply chain and resource management, a circular economy challenges our current exploitive model.
The aim of the circular economy isn’t to end growth. Instead, the aim is to adjust how businesses operate. The aim is to work in harmony with nature.
However, before investing in a circular economy, it would be wise to define a circular economy further and understand the difference between a linear vs. circular economy.
What Is a Circular Economy?
A circular economy eliminates waste by creating a closed-loop economy.
Such a system keeps all materials produced within the loop by reusing byproducts as future inputs.
Making the Move: Linear vs. Circular Economy
Both companies and investors around the world are seeking innovative and more sustainable pathways to financial success.
Why? Several factors are contributing to this trend, including:
- Evolving consumer preferences
- Concerns about global warming
- A notable increase in fires, drought, storms, and flooding
The question is no longer if these challenges will impact the global economy, but how the economy will address them.
There are many benefits of making this shift away from the traditional linear economy model. As more companies embrace a circular economy, the benefits will include:
- Minimizing or eliminating waste and pollution during production
- Products maintaining a longer useful life
- Breaking the cycle of resource scarcity by using only resources that can be continuously reused
- Efficient reduction, reuse, and recycling
- Less carbon dioxide in the air
- Environmental sustainability for the earth
Are Investors and Corporations Really This Altruistic?
Investors invest – and corporations incorporate – to generate profits, not to save the world, right?
Savvy investors and innovative companies are more socially aware. They’re seeking investments and ventures that generate profits and create a better tomorrow.
And these sustainable ventures and investments are garnering a lot of attention.
Understanding Circular Economy Principles
Sustainable investments that support a circular economy can produce seriously significant returns by driving down costs.
- The circular economy model aims to dramatically minimize labor and energy costs powered by renewable energy and recycled materials.
- Companies can drive profitability by reducing, reusing, and recycling.
- The cost savings – when compared against sourcing virgin materials – can be tremendous.
According to one study, circular manufacturing will generate $2 trillion in annual U.S. revenues and $7 billion in new revenue.
Large established companies are updating their production practices.
Plus, new smaller companies are starting up and are laser-focused on supporting this transformation.
In fact, according to a report titled “Financing the Circular Economy”, hundreds of companies are already moving to the circular economy to reduce costs, generate new sources of revenue, and manage risks.
A Case Study: Building a Circular Economy in the Fashion Industry
Building new and innovative systems will be critical for all sectors of the global economy. And across verticals of each industry.
Let’s take a look at the fashion industry.
In the U.S. less than 1% of all garments are recycled into a high-quality product.
The rest are downcycled, burned, or put into a landfill.
So the fashion industry needed to tackle how to recycle clothing and other garments more effectively:
- Clothing that is stitched must be taken apart before it can be recycled.
- Taking apart clothing is time-consuming and costly.
- Removing the typical synthetic high-strength thread is particularly tedious.
A new innovative company called Circular Systems designed three new types of threads to address the situation.
Resortecs designed a new type of thread to address the problem. This new thread makes the disassembly process easier. The threads can be dissolved at various melting points in a commercial oven. This innovation allows more than 1000 pairs of jeans to be taken apart at the same time.
Now let’s take a vertical look at the fashion industry.
Making clothing with a new thread is not going to solve the problem on its own. After clothing is produced, the packaging choices are also critically important.
Technological advances now enable packaging that breaks down naturally after use. Several companies are exploring these possibilities:
- Ecovative has designed environmentally friendly packaging with protective attributes. But it breaks down naturally and can be disposed of at home in a compost pile. So it won’t contribute to the million tons of plastic that enter our oceans every year.
- Sana designs completely sustainable cannabis packaging. It’s made from 100% plant-based hemp plastic, 100% reclaimed ocean plastic, and other innovative materials.
Even if a company produces and packages the clothing responsibly, there is still more to consider. Perhaps this is why you’ll hear “circularish” when talking about solutions.
It’s quickly becoming clear that there is no silver bullet. We’re playing the long game here.
One more piece of the puzzle lies with how clothing will be recycled or disposed of after the primary use.
The company threadUP is working to change that.
They’ve created a managed marketplace that provides a logical and easy way to buy and sell secondhand clothes.
thredUP estimates that if every person in the U.S. had bought one item used in 2020 it would have saved:
- 3.6Mts of CO2e (the equivalent of planting 66M trees)
- 100 billion liters of water (enough for 1.25B showers)
- 200 million kilos of waste (could fill 18,700 full garbage trucks)
Keep in mind that these are just a few examples from just one industry. So there is reason to believe that a circular economy is possible.
Outlook for the Circular Economy
In 2021, as the world continues to consume 100 billion tons of material each year, only 8.6% of the global economy is circular.
But there’s good news:
- The shift toward a global circular economy is a rapidly emerging trend.
- Forward-thinking businesses are working hard to de-risk their practices to support long-term solutions for people, the planet, and profits.
- Emerging markets, while risky, are also packed with potential and growth opportunities.
The interest in a circular economy has shined a blazing spotlight on socially responsible investing (SRI). This interest is making SRI one of the strongest and fastest-growing investment trends in the market today.
The financial outlook for the future of a circular economy is creating massive opportunities for socially responsible investors. These investors can impact the world and take action on what matters most to them through their investment choices.
How to Invest in the Circular Economy
Investors have several options to invest in support of the circular economy model:
- Stocks & Bonds: Invest directly in stocks and bonds of publicly traded sustainable companies. But be aware that ‘greenwashing’ is a common practice amongst polluting industries, so do the research. For example, if you want to invest in renewable energy stocks or bonds, don’t get fooled into investing in a fossil fuel company rebranding itself as a sustainable company.
- 401Ks & IRAs: Make sure your retirement savings are not invested in fossil fuels. Research to find retirement savings that aren’t working against your values. For more info, visit:
- Private Sector: Identify private equity investments in environmental and socially responsible ESG companies in the early stages. These companies need financing to scale. The cannabis industry has many opportunities in this area.
Look Beyond the Surface
Due to pressure from customers, environmental groups, and government policies, many companies are making changes.
They’re behaving more ethically, and they’re innovating to adapt to the circular economy.
However, it’s important to realize that other companies give lip service to the circular economy model. But they don’t adopt any real changes.
So investors must educate themselves. It’s critical to tell the difference between a company that says they care about sustainability and one that proactively invests in ESG standards as part of its core business model.
Plus, companies that drive innovation in sustainability and the circular economy will likely be the companies that have the most significant growth potential.
Learn More About Sustainable Investing
Customers and investors alike now expect – and demand – more from today’s businesses.
They want to invest in companies focused on sustainability that’s good for society and the planet as a whole.
Companies creating innovative, affordable, and sustainable products to improve quality of life have the most potential for tremendous growth.
For more information on sustainable investing, book a complimentary Investment Consultation with Gladbrook’s Co-Founder, Warren Blesofsky.
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Co-Founder & President, Gladbrook
Warren is a scientist, real estate broker, environmentalist, and co-founder of the Sklar Center for Restorative Medicine. After graduating from UC San Diego with a Master's degree in Biochemistry, Warren has had several successes in medical research, alternative medicine, real estate, and distressed asset fund ventures. Warren and co-founder Ryan Elmore's mission is to improve our world's health, well-being, and enjoyment by investing in the future of cannabis and plant medicines.
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