dissertation circular business model

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The Circular Business Model

• Atalay Atasu,
• Céline Dumas,
• Luk N. Van Wassenhove

More and more manufacturing companies are talking about what’s often called the circular economy—in which businesses can create supply chains that recover or recycle the resources used to create their products. Shrinking their environmental footprint, trimming operational waste, and using expensive resources more efficiently are certainly appealing to CEOs. But creating a circular business model is challenging—and taking the wrong approach can be expensive.

The authors argue that success depends on many factors, but perhaps the most important is choosing a strategy that aligns with the company’s capabilities and resources—and addresses the constraints on its operations. In this article they identify the three basic strategies to achieve circularity and offer a tool to help manufacturers identify which is most likely to be economically sustainable. Their recommendations draw on decades of research and consulting with dozens of manufacturers across the world.

Pick a strategy that fits your resources and capabilities.

Idea in Brief

The problem.

Manufacturing companies attracted by the promise of circular business models—in which used products can be recovered and reused or recycled—may struggle to make them sustainable.

Why It Happens

Managers all too often select circularity strategies that don’t align with their resources, capabilities, and constraints.

The Solution

The three basic strategies for creating a circular business model are retaining product ownership, product life extension, and design for recycling. In determining what combination of these to adopt, managers should consider the ease of gaining access to used products and the ease of recycling materials, components, or the complete product. These factors, together with how much value is locked up in the product, determine how much value can be recovered from a given pathway to circularity.

It’s easy to see why more and more manufacturing companies are talking about what’s often called the circular economy—in which businesses create supply chains that recover or recycle the resources used to create their products. Shrinking their environmental footprint, trimming operational waste, and using expensive resources more efficiently are certainly appealing to CEOs.

• AA Atalay Atasu is a professor of technology and operations management and the Bianca and James Pitt Chair in Environmental Sustainability at INSEAD.
• CD Céline Dumas is a senior manager of operations and sustainability at Accenture France.
• LW Luk N. Van Wassenhove is the Henry Ford Chaired Professor of Manufacturing, Emeritus, at INSEAD and leads its Humanitarian Research Group and its Sustainable Operations Initiative.

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Green to gold: consumer circular choices may boost circular business models

• Open access
• Published: 05 October 2023

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• João M. Lopes   ORCID: orcid.org/0000-0002-2968-4026 1 ,
• Micaela Pinho   ORCID: orcid.org/0000-0003-2021-9141 2 , 3 &
• Sofia Gomes   ORCID: orcid.org/0000-0002-0326-0655 2  

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Consumers are the true agents of transformation in the circular economy. By making conscious and sustainable choices, they drive the development of circular business models, challenging the status quo and inspiring change for a more sustainable future. The main purpose of this paper is to assess the role of consumers in the circular economy as drivers of the development of circular business models. In detail, we explore whether Portuguese citizens make circular consumption choices and what factors influence these choices. An online questionnaire was used to collect data from a sample of 826 Portuguese. The quantitative analysis was performed using the Partial Least Square (PLS) method. Overall, we found that: (i) both pro-environmental habits and environmental concerns positively influence their circular consumption choices, (ii) pro-environmental habits positively influence consumers’ greenwashing perception, and (iii) greenwashing perception highlights environmental concerns. This study demonstrates that by adopting pro-environmental habits, consumers can play a central role in transforming companies’ traditional business models into circular business models. Consequently, a model is proposed where consumers’ motivations for adopting circular behaviors are used to convert the companies’ business model from linear to circular. The model emphasizes the active participation of consumers.

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1 Introduction

By embracing the transition to a circular economy, the world is embarking on a journey of immense potential. This provides the chance to achieve remarkable economic growth and empowers us to make a lasting impact on our environmental and social environment. In this way, we aim to create a future where assurance and sustainability go hand in hand, inspiring the next generations. However, this implies a transformational change both in consumption and production (Ferreira et al., 2023 ; Meis-Harris et al., 2021 ). The essence of this transformation is to minimize waste. Waste minimization requires a longer useful life of resources and products (OECD, 2020 ). Extending the life cycle of products and materials implies that they are reused, recycled, remanufactured, and disposed of (Korhonen et al., 2018 ).

The transition to a circular economy is one of Europe’s key priorities for fulfilling the commitment made to the United Nations 2030 Agenda for Sustainable Development and the Paris Agreement (Fetting, 2020 ). Although the circular material rate in the European Union has been increasing, it remains at deficient levels. In 2014 (the first year of evaluation), the rate of circular material was around 8.3% and reached 12.8% six years later (Eurostat, 2021 ).

Although companies progressively understand the value of a circular economy and are more aware of the opportunities that may arise, practical changes and implementing circular business models are still very incipient (Geissdoerfer et al., 2017 ). However, the responsibility to implement a circular economy should not fall only on companies but should be extended to consumers. According to Meis-Harris et al. ( 2021 ), the successful implementation of a circular economy depends heavily on consumers engaging in informed circular consumption behaviors. Consumers’ circular purchasing choices can be an important trigger for companies to move from traditional production systems to pro-environmental production systems and to adopt circular business models. We can ask what role civil society plays in transforming consumption-based business models into circular economy models.

By recognizing the importance of consumers in structuring a circular economy, this study aims to explore the factors that influence Portuguese citizens to make circular consumption choices (CCC). Based on the study’s results, a proposal was made for active consumer participation in transforming companies’ traditional business models into circular business models. Thus far, few studies have addressed the importance of the role of consumers in promoting a circular economy (Gomes et al., 2022 ; Mostaghel & Chirumalla, 2021 ; Ratner et al., 2021 ; Testa et al., 2020 ; Wastling et al., 2018 ). Moreover, consumer participation in the circular economy is essentially based on acceptance models of circular practices (Kuah & Wang, 2020 ) without exploring the motivations for doing so.

Consumers’ contribution to a circular economy has been studied through pro-environmental habits (Testa et al., 2020 ), their environmental concerns and greenwashing (Ratner et al., 2021 ). These items were measured with close-ended statements. However, despite the recognized contribution of these studies, these statements do not differentiate consumers’ environmental concerns or environmentally friendly habits from their circular consumption choices. Thus, based on the statements explored by the authors, we created a new variable denominated “Circular Consumption Choices.” From here, we examined the influence of (i) pro-environmental habits and environmental concerns in making circular consumption choices and (ii) pro-environmental habits in recognizing greenwashing and its influence on environmental concerns.

This study demonstrates consumers’ relevant role in the circular economy, exploring their motivations to adopt circular consumption behaviors. This proves that consumers can actively contribute to the circular economy. Few studies have addressed consumer participation in the circular economy, focusing essentially on the part of companies, given the legal impositions they face and their contribution to green economic growth. This study contributes to the literature on the circular economy and, specifically, the literature on circular consumer behavior, demonstrating that consumers’ adherence to circular consumption is encouraged by pro-environmental habits, their environmental concerns, and greater awareness of greenwashing. We believe that if society reveals a concern about pursuing circular consumption choices, this will, in the long term, pressure companies to change their business models to meet their customers’ preferences. The present study, proposes a model of effective consumer participation in the circular economy.

2 Literature review

2.1 circular consumption choices.

In today’s world, Consumer Circle Choices (CCC) have to be taken into account since each consumer decision can shape a better future for our planet. By embracing CCC, the consumer becomes a catalyst for change, driving a sustainable revolution that transcends traditional consumption patterns. In a linear economy—production, consumption, and disposal, a customer buys a manufactured product without any follow-up of the process. There is no concern with what the user does with the product when having it. The circular economy has been identified as a viable alternative to the traditional linear economic model (Ottelin et al., 2020 ; Schandl et al., 2018 ), and a means to fulfill the 2030 Agenda of United Nations for Sustainable Development.

From a circular business model perspective, there is already a growing interest in knowing what happens to the product after it leaves the manufacturer to be recycled and re-enter the production process. In this regard, the role of customers is crucial to the extent that consumer behavior can significantly influence the overall flow of products, components, and materials. Thus, customers’ consumption choices become important to circular economy. Consumers are important actors in circular business models and can encourage them through their consumption choices (Meis-Harris et al., 2021 ). Two strategies for designing products and business models for a circular economy have been proposed by Bocken et al. ( 2016 )—slowing and closing resource loops. While slowing resource cycles involves increasing product utilization through product lifespan extensions or sharing schemes, closing resource cycles, on the other hand, seeks to ensure that materials can be recycled at the end of the assets useful life (Bocken et al., 2016 ). In addition to entrepreneurs, consumers can (and should) undertake these strategies. In this regard, consumers can adopt a variety of behaviors. They can, for example, buy products designed for recycling or that have greater longevity, they can use repair and maintenance services to fix things instead of buying new replacement products, they can use renewable energy, they can recycle their waste (Ottelin et al., 2020 ), they can reuse some packaging, avoid using disposable products and/or give away clothes they do not use.

2.2 Environmental concerns

In the last three decades, societies have shown increasing environmental concerns, which has been changing consumer behaviors (Hirsh, 2010 ). Awareness about the importance of preserving the planet has led to a paradigm shift in the way consumers relate to the products they consume. Sustainability and circularity must stop being vague, distant, and unreachable concepts to become a real and present concern in everyone’s’ day-to-day life. Environmental concerns (EC) can be defined as consumers’ awareness of the degradation of natural resources and pollution (Testa et al., 2020 ; Trivedi et al., 2018 ).

Consumers’ environmental concerns stem from their beliefs or values, which, in turn, influence their attitudes and behaviors, from holding recycling practices to purchasing green or circular products (Fuxman et al., 2022 ; Schultz, 2000 ; Trivedi et al., 2018 ). Greater sensitivity toward the environment, as well as environmentally conscious behaviors has been increasing the demand for eco-friendly products made with recycled materials and reuse of waste, resulting in new green products or circular products (Bulut et al., 2021 ; Hamzaoui Essoussi & Linton, 2010 ; Yarimoglu & Binboga, 2019 ). Some authors (Boesen et al., 2019 ; Yu & Lee, 2019 ) claim that consumers prefer to purchase upcycle products. Upcycle products come from reusing other products (reuse), extending their useful life. These products are greener and less harmful to the environment.

There is evidence that consumer EC grow positively impacts on CCC (Camacho-Otero et al., 2018 ; Szilagyi et al., 2022 ). According to Camacho-Otero et al. ( 2018 ), consumers who hold a more favorable view toward circular products, driven by their environmental concern, tend to act accordingly when shopping. Furthermore, the authors found that EC significantly positively impacts circular buying behavior. These findings confirm that more environmentally conscious individuals are likelier to make consumption choices that follow circular principles. Thus, we hypothesize that:

Greater environmental concern positively influences circular consumption choices.

2.3 Greenwashing

A raising interest has followed concerns about sustainability in greenwashing. As customers become more aware of the consequences of their consumption acts on the environment, particularly their excessive consumption, they buy more ecological products (Gomes et al., 2023 ). Growing consumers’ concern with the environment encourages companies to develop green marketing strategies (Pickett‐Baker and Ozaki, 2008) to show potential buyers their social responsibility and enhance their good corporate image. Companies from all sectors have presented themselves as environmentally responsible and involved in practices to fight climate change. However, consumers may consider these marketing strategies ‘greenwashing’ (GW) when they understand that companies advertise more environmental benefits than they deliver. In this context the need arises to discuss greenwashing and how it can affect conscious consumption. Despite the existence of many definitions of greenwashing (de FreitasNetto et al., 2020 for a review), we can define the phenomenon as the combination of two antagonistic corporate behaviors: weak environmental performance and positive communication about ecological performance (Delmas & Burbano, 2011 ). Indeed, GW is a method of highlighting a good practice while hiding all other practices with negative impacts on the environment to show itself to be more environmentally sustainable than it is (Adamkiewicz et al., 2022 ; Fuxman et al., 2022 ; Zaidi et al., 2019 ). Thus, GW deliberately distorts a company’s environmental practices (Ferrón-Vílchez et al., 2021 ) which may jeopardize fulfilling of the objectives of the United Nations 2030 Agenda for Sustainable Development and the Paris Agreement.

In recent years, the interest in GW has increased (seeZhang et al. 2018 for a review), and some studies (Bulut et al., 2021 ; Sun & Shi, 2022 ; Zhang et al., 2018 ) have related environmental concerns with GW. While, Zhang et al. ( 2018 ) suggest that green concern strengthens the negative relationship between GW perceptions and green purchasing intentions, Bulut et al. ( 2021 ) found that GW perception decreases the effects of environmental concern on green behavior. Recent evidence suggests that consumers’ GW perception negatively influences consumers’ green purchasing intentions and that environmental responsibility reinforces the negative influence of GW perception on green purchasing intentions (Sun & Shi, 2022 ).

Although there is evidence concerning the direct relationship between EC and GW (Bulut et al., 2021 ; Zhang et al., 2018 ), the existence of an opposite relationship (between GW and EC) remains to be proven. Actually, if consumers perceive that organizations communicate half-truths or hide information about their products or services, they may seek more product information to discover the whole reality (Leonidou & Skarmeas, 2017 ). This search for information to attest to the integrity of business practices can also highlight consumers’ environmental concerns and increase the likelihood of making environmentally conscious choices related to purchasing circular products.

In this context, some studies point out that increased awareness of GW may influence consumers’ EC (Bulut et al., 2021 ; Schmuck et al., 2018 ; Urbański & ul Haque, 2020; Zhang et al., 2018 ). Zhang et al. ( 2018 ) found that consumers’ perception of GW is directly negative toward green purchase decisions and has an indirect negative effect via green word of mouth. Bulut et al. ( 2021 ) explained that the perception of GW mitigates the association between EC and Millennial consumer behavior. Schmuck et al. ( 2018 ) point out that false claims in green advertising harm consumer attitudes toward these ads and brands. Urbański and ul Haque (2020) documented that consumers, even those who consider themselves high environmentalists, can be seduced of identifying GW products as being sustainable, leading to a negative association between green purchasing and consumers’ green behavior. Overall, the literature suggests that increased awareness of GW may lead to a greater degree of skepticism and critical evaluation of green marketing claims, which can raise more significant environmental concerns among consumers. Thus, we hypothesize that:

A greater awareness of Greenwashing influences an individual’s environmental concerns.

2.4 Pro-Environmental Habits

Adopting pro-environmental habits (PEH) and circular behaviors by consumers plays a fundamental role in creating a more sustainable future. By incorporating circular practices that protect and preserve the environment, consumers can make a global difference. Every choice consumers make (namely, how they buy products and use and dispose of them) has the power to impact the planet positively. Studies on pro-environmental behaviors have focused on the role of norms, values, motivations, and intentions, neglecting the role of habits (Sörqvist et al., 2016 ). While habits are overlooked in sustainability science, they have been recognized as a potential barrier to aligning intrinsic motivation with sustainable behavior change (Jackson, 2004). Habits are the basis for many daily actions and can be powerful barriers to change. Once adopted, habits tend to persist without much deliberation or reconsideration (Wood & Rünger, 2016 ). PEH can be defined as changing from non-ecological habits to more ecological ones (e.g., energy and saving; water saving; waste management; no plastics; sustainable mobility) (Dahlstrand & Biel, 1997 ; Sabbir & Taufique, 2022 ). The adoption of PEH by consumers is essential to achieve the United Nations 2030 Agenda for Sustainable Development goals and the Paris Agreement.

PEH can be planned and adjusted to the daily routines of each individual (Huang et al., 2020 ). Indeed, families with PEH invest more in energy-efficient appliances (Busic-Sontic et al., 2017 ; Ramos et al., 2015 ); larger families with children are more likely to save water (Berk et al., 1993 ; Martínez-Espiñeira et al., 2014 ). Some authors (Gould et al., 2016 ) argued that individuals had successfully adopted waste management. The transition to zero plastics depends not only on consumers’ adoption of this attitude but also on suppliers that need to change their current practices. However, on the supply side of the market, there is a significant dependence on the industry for plastic packaging (Beitzen-Heineke et al., 2017 ), which will undoubtedly delay the reduction in the use of plastics. Further, although, in general, individuals seem to value sustainable mobility, it does not translate into sustainable attitudes, as there is a perception that sustainable mobility entails more significant financial expenses (Herberz et al., 2020 ; Rezvani et al., 2018 ).

The PEH approach might be an effective way to promote pro-environmental attitudes and promote CCC. Zeng et al. ( 2023 ) found that PEH positively relates to sustainable consumption behavior. Thus we will confine ourselves to the PEH used by Ratner et al. ( 2021 )—energy and water saving, waste management, avoiding plastic, and sustainable mobility—to explore their role in circular consumption choices and greenwashing perception. Thus, we hypothesize that:

Pro-environmental habits have a positive association with circular consumption choices.

The pro-environmental energy saving habit has a positive association with circular consumption choices.

The pro-environmental habit of water saving positively correlates with circular consumption choices.

The pro-environmental habit of waste management has a positively associates with circular consumption choices.

The pro-environmental habit of zero plastic has a positive association with circular consumption choices.

The pro-environmental habit of sustainable mobility positively associates with circular consumption choices.

Regarding the association between PEH and GW, Lyon and Montgomery ( 2015 ) provide evidence that companies often use GW to reach consumers concerned about the environment. This shows that individual pro-environment behaviors can promote the company’s environmental reputation. Conversely, PEH also has the potential to mitigate GW. Parguel et al. ( 2011 ) show that consumers with PEH are more likely to denounce bad environmental practices by companies and, as such, help expose GW. Thus, while pro-environmental behaviors can be misused to promote GW, they can also play a significant role in its mitigation. Therefore, we hypothesize that:

Pro-environmental habits have a positive association with greenwashing.

The pro-environmental habit of energy saving has a positive association with greenwashing.

The pro-environmental habit of water saving has a positive association with greenwashing.

The pro-environmental habit of waste management positively associates with greenwashing.

The pro-environmental habit of zero plastic has a positive association with greenwashing.

The pro-environmental habit of sustainable mobility positively associates with greenwashing.

Figure  1 describes the reduced (Fig.  1 A) and the developed (Fig.  1 B) structural model.

a Simplified structural model. b Developed structural model

Data from this study were collected through a questionnaire constructed in google forms and made available online for two months (September and October, 2022). The link to the questionnaire was published on social networks, which is why it is a convenience sample, not a probabilistic one. The criteria for inclusion in the sample were Portuguese citizenship and being a consumer over 18 years old. The questionnaire was anonymous, and participants were informed about the academic purpose of the data. Written consent of the participants was obtained. A pre-test was conducted with 20 participants to assess their understanding of the questions.

A total of 826 valid responses were obtained from the available questionnaire. Most respondents were women (69.9%), and the average age of participants was 33.8 years (minimum age 18 years and maximum age 78 years). The majority of respondents (73.6%) reside in the central region of Portugal. Regarding education, 39.2% of respondents have completed secondary education, and 47.7% were licensed. The rest have a master’s degree (11.9%) and a doctorate (1.2%). As for professional occupation, 46.4% were employees, 28.9% were students, and 10.2% were self-employed. Most respondents had a net monthly income of less than €1000 (63.9%).

3.2 Measurement of the constructs

The questionnaire comprises five sections. The first section collected information regarding respondents’ sociodemographic characteristics. The remaining sections collected the opinion of participants about their circular consumption choices (CCC), their environmental concerns (EC), their awareness of greenwashing (GW) and their pro-environmental habits (PEH). This information was collected through close-ended statements used elsewhere (Ratner et al., 2021 ; Testa et al., 2020 ).

In section two, eight statements were presented to evaluate CCC related attitudes. These statements represent the five dimensions of the circular economy: (i) reuse—three statements: CCC1, CCC2 and CCC7; (ii) recycle—one statement: CCC3; (iii) reduce—two statements: CCC4 and CCC5; (iv) repair—one statement: CCC6 and (v) minimal take—one statement: CCC8.

The third and fourth sections comprised four statements related to EC and GW, respectively. Respondents’ PEH were collected in the last section through 31 statements, of which ten statements related to energy saving, six statements related to water saving, five statements related to waste management, three statements related to plastic avoidance and six statements related to sustainable mobility.

The answers to statements presented in sections two to four were measured on a 5-point Likert scale ranging from 1—Strongly Disagree to 5—Strongly Agree. The PEH presented in section five was also measured on a 5-point Likert scale ranging from 1—never and 5—whenever/whenever I can. The statements are detailed in the first column of Table A1 , in the Appendix.

3.3 Data analysis

This study performed a quantitative approach. First, a descriptive statistical analysis of the structural model constructs—CCC, EC, GW and PEH, was performed. Then, a factor analysis was performed, and an exploratory factor analysis (EFA) was implemented to factor the items. A confirmatory factor analysis (CFA) was implemented to validate the reflective nature of the structural model. The relationships established in the structural model (hypotheses) were tested by the Partial Least Square (PLS) method in the Smart PLS 4.0 software (Ringle et al., 2020 ). This method allows combining a factorial analysis with simple linear regressions estimated by the Ordinary Least Square (OLS) method and does not require the data to follow a normal distribution. The PLS method allows for multivariate data analysis and is widely used in topics related to the social and behavioral sciences (Hair et al., 2019 ). This method has still been widely used to measure variables such as environmental concerns and sustainable consumption behavior (Antonetti and Maklan ( 2014 ); Saari et al., 2021 ). The PLS is also a suitable method for modeling data for forecasting purposes, in which the investigation focuses on a target construct, such as the circular consumption choices construct in our study (Calvo-Mora et al., 2020 ).

The PLS method has advantages over the OLS method, which is most commonly used for estimating simple and multiple linear regressions. The PLS method allows modeling regressions with numerous variables and indicators without being affected by multicollinearity problems. Then it produces factors with high covariances and, as such, factors with high predictive power (Jørgensen et al., 2004 ). However, the PLS method, compared to the OLS method, has more difficult interpreting the factor loadings. Since the estimators of the regression coefficients do not have known distributions, their significance test can only be performed through resampling methods (Jørgensen et al., 2004 ). The model obtained after applying the PLS method to the structural model was evaluated using three measures proposed by Hair et al. ( 2019 ): (i) Cronbach’s Alpha measurements (Cα ≥ 0.70); (ii) Average Variance Extracted (AVE ≥ 0.50) and (iii) discriminant validity tested by the Fornell–Larcker criterion (comparison between the squared construct correlations and AVE). The model obtained after applying the PLS method was also validated regarding coefficient of determination (R2) and predictive relevance using the Stone–Geisser measure (Q2), which is based on the cross-validated redundancy approach. Finally, the hypotheses contained in the structural model were tested through a bootstrap analysis in Smart PLS 4.0.

4.1 Descriptive analysis

Table A1 in the Appendix summarizes the descriptive statistics of the CCC, EC and GW constructs. Respondents agreed with all statements presented. The results show that respondents, in general, exhibit a circular behavior mainly in terms of reuse—they value especially products with a longer shelf life (M = 4.65), those whose packaging can be reused for other purposes (M = 3.67) and, recycling—they do not throw clothes in the trash, they recycle them through donating (M = 3.42). Concerning EC, respondents were worried about wasting resources (M = 4.86), the consumption of natural resources, and the consequences for future generations (M = 4.67). Regarding GW, the most valued item was related to the absence or concealment of important information about the actual environmental characteristics of the products (M = 4.03).

On average, the PEH most followed by participants were saving energy (M = 3.19) followed by not using plastic (3.06), managing wastes (M = 2.86), and sustainable mobility (M = 2.55). Water saving was the least frequent PEH (M = 2.48).

Concerning energy saving, respondents showed that they often turn off the lights in empty spaces (M = 3.65) and turn off the TV when no one is watching (M = 3.49). The most frequent habits engaged by respondents to save water were turning off the water while washing their face or brushing their teeth (M = 3.42) and taking short showers (M = 3.17). Concerning waste management, respondents most often follow garbage separation rules (M = 3.19) and avoid throwing away used cooking oil (M = 3.15). Finally, regarding sustainable mobility, respondents’ most frequent habit was maintaining correct tire air pressure (M = 3.24).

4.2 Factor analysis

Table A2 in the Appendix, contains the results of the EFA and the CFA. The 46 items initially collected were divided into eight factors corresponding to each of the constructs included in the structural model. None of the items was removed. Eight factors present an accumulated variance of 72.55%, and none explain more than 50% of the variance. All items have commonalities greater than 0.70, enough to proceed with the rotation of the factor matrix. Regarding CFA results, all items have high confirmatory factor loads (0.70), confirming the reflective nature of the items in the model, and thus, no item has to be deleted.

4.3 Assessment of the measurement model

Table 1 presents the values for the individual reliability indicators of each research model construct (Cα and CR), convergent validity (AVE) and discriminant validity (square root of the AVE). The PLS model reveals high levels of reliability (Cα > 0.70 and CR > 0.70) and convergent (AVE > 0.50), and discriminant validity. The measures proposed by Hair (2019) were used to assess the quality of the model’s fit, such as the Chi-Square (p = 0.081), Goodness-of-Fit (0.92), Comparative Fit Index (0.91) and Standard Root Mean Square Residual (0.095). Fulfilling the reference values, the estimated PLS model presents a good fit.

4.4 Assessment of the structural model

According to Hair et al. ( 2021 ), the assessment of the structural model implies verifying i) collinearity problems using the variance inflation factor (VIF), ii) the predictive power of the models with the determination coefficient (R 2 ) and the predictive relevance (Stone–Geisser Q 2 ) based on the approach of cross-validated redundancy, and iii) the endogeneity problems with the Gaussian copula approach.

Regarding collinearity, the largest inner VIF is 1.389, so collinearity is not a critical issue. According to Cohen ( 1988 ), the latent variables CCC (R 2 adjusted = 0.691) and GW (R 2 adjusted = 0.650) have a “substantial effect,” and the latent variable EC (R 2 adjusted = 0.102) has a “moderate effect.” The estimated model reveals predictive relevance for predicting CCC, EC and GW since Q 2 is greater than zero (Q 2  = 0.267; Q 2  = 0.510 and Q 2  = 0.520, respectively).

We apply the Gaussian copula approach to ensure that the estimated coefficients are not affected by endogeneity problems, according to Park and Gupta ( 2012 ). The structural model focuses on the relationships between the EC independent variables and the CCC pro-environmental habits (ES, WS, WM, ZP and SM). GW is considered in the structural model a variable dependent on pro-environmental habits. According to the Gaussian copula approach, independent variables cannot have a normal distribution. We apply the Shapiro–Wilk test and Kolmogorov–Smirnov test with Lilliefors correction and verify that EC and the pro-environmental habits have a p < 0.01. As such, we confirm that they do not have a normal distribution. The Gaussian copula analysis was performed in Smart PLS 4.0 as described by Hult et al. ( 2018 ), and the results are shown in Table 2 . None of the Gaussian copula terms of EC and pro-environmental habits are significant for a 1% or 5% probability of the error terms, and the differences of the β between the original model and the results of Gaussian copula are reduced. In this way, the PLS results are robust and are not affected by endogeneity problems.

4.5 PLS model

Table 3 presents the results of the bootstrap analysis carried out in Smart PLS 4.0, intending to estimate the relationships established in the structural model using the PLS method.

Circular consumption choices (CCC) can be explained by pro-environmental habits (PEH) or environmental concerns, although the PEH are more explanatory. Among the PEH, not using plastic is the practice most explanatory of CCC (β = 0.393). Engaging in sustainable mobility is the second most explanatory habit for CCC (β = 0.183), followed by the habit of saving energy (β = 0.181) and waste management (β = 0.143). Finally, water savings is the PEH that least explains the CCC (β = 0.094). Moreover, respondents with more significant environmental concerns tend to have a more circular consumption and, as such, to make a greater contribution to developing a more circular economy (β = 0.127). Thus, hypotheses H1 and all H3a were confirmed.

PEH only partially explained the awareness of greenwashing. Participants who did not use plastic (β = 0.156) and those who followed sustainable mobility (β = 0.098) proved to be more sensitive and attentive to GW. The daily habit of saving energy and water and waste management did not explain GW significantly. This result is not surprising since these habits are separate from the production practices of companies. Thus, hypotheses H3 b4 and H3 b5 were confirmed.

Finally, the results indicate that greenwashing was statistically significant in explaining EC (β = 0.322), confirming hypothesis H2.

5 Discussion and implications

5.1 discussion.

The transition to a circular economy is essential for developing a more sustainable world and meeting the priorities imposed by the 2030 Agenda (Fetting, 2020 ). While playing the role of consumer, society must pressure companies to adopt sustainable production methods, implying changes in their business models. This study investigates whether Portuguese society may play a role in companies’ construction of circular business models. To this end, we explored the impact of Portuguese pro-environmental routines and ecological concerns on circular consumption choices. Additionally, we explored the influence of Portuguese daily pro-environmental habits on their perception of greenwashing and whether this perception influences their environmental concerns.

In general, the results confirmed the formulated hypotheses. We find evidence that the environmental concerns of Portuguese respondents’ positively influenced their circular consumption choices, as seen in studies by Camacho-Otero et al. ( 2018 ) and Szilagyi et al. ( 2022 ). Consumers with greater environmental awareness are more sensitive to environmental problems and, as such, are more likely to value circular products and to engage in circular behaviors, namely in their circular consumption choices (Camacho-Otero et al., 2018 ; Yarimoglu & Binboga, 2019 ). Moreover, the findings show that Portuguese respondents revealed significant environmental concerns, which translated into protecting future generations. They seemed to be especially worried about wasting resources and using natural resources. Analogous findings were found elsewhere (Trivedi et al., 2018 ; Yarimoglu & Binboga, 2019 ).

Also, our findings indicate that Portuguese respondents’ pro-environmental habits positively influenced their circular consumption choices. From these habits, reducing plastic use, engaging in sustainable mobility, and energy saving had the most significant influence. These results corroborate the findings of Sabbir and Taufique ( 2022 ) and Huang et al. ( 2020 ), who demonstrate that pro-environmental habits result from planning and transforming conventional daily practices into ecological ones. This adjustment of individual practices essentially involves the more efficient use of energy (Busic-Sontic et al., 2017 ), water saving (Martínez-Espiñeira et al., 2014 ), waste management (Gould et al., 2016 ), plastic reduction (Beitzen-Heineke et al., 2017 ) and greener mobility (Herberz et al., 2020 ). Our findings suggest that respondents follow a circular consumption materialized mainly on reusing and recycling products. This finding aligns with international evidence that consumers prefer to upcycle products because they are more beneficial to the environment (Boesen et al., 2019 ; Wilson, 2016 ; Yu & Lee, 2019 ). Adopting pro-sustainable habits awakens individuals to a greater environmental awareness and to adopt sustainable consumption choices (Zeng et al., 2023 ). Despite the environmental concerns expressed by respondents, their daily contribution to preserving the environment leaves much to be desired. Their effective contribution is materialized in saving energy and avoiding plastics, in line with previous studies (Arı & Yılmaz, 2017 ; Liu et al., 2020 ; Ratner et al., 2021 ). Waste management practice, saving water and resorting to more sustainable means of mobility were daily routines least followed by the respondents. Safeguarding the due methodological differences, our respondents seem aligned with Russian respondents (Ratner et al., 2021 ). We can only speculate about the reasons for these findings. The lack of concern of participants with saving water can be explained by the water price, which, in Portugal, is one of the lowest in Europe. Indeed, empirical evidence demonstrates that a higher water price enhances water conservation (Grafton et al., 2011 ; Worthington & Hoffman, 2008 ). Further, the low adherence to sustainable mobility may be due to the lack of an appropriate public transport infrastructure network and or for hedonic reasons such as status, independence and security (Herberz et al., 2020 ; Rezvani et al., 2018 ).

On the other hand, we found evidence that being aware of greenwashing increases environmental concerns, corroborating the findings of several studies (Bulut et al., 2021 ; Schmuck et al., 2018 ; Urbański & ul Haque, 2020; Zhang et al., 2018 ). This result demonstrates that greater awareness of greenwashing actions promoted by companies’ increases consumers’ skepticism and arouses greater environmental concern (Bulut et al., 2021 ). However, it was shown that participants’ greenwashing perception was positively linked to the practice of not using plastic and sustainable means of transport, with no statistical evidence for the relationship between the perception of greenwashing and the remaining pro-sustainable habits. These results can be explained by the fact that these habits, unlike the other three, involve greater contact with companies that try to demonstrate to consumers that the organization has implemented environmentally essential procedures and that the products and services sold meet the ecological requirements they promote through their marketing campaigns (Mohr et al., 2022 ; Wahab, 2018 ).

In sum, we found that CCC was explained by EC and by PEH. Given the results of our study, we propose a model of consumer participation in the companies’ circular business model (Fig.  2 ).

Circular consumption and business model. PEH pro-environmental habits, PGW perceived greenwashing, EC environmental concerns

The Circular Consumption and Business Model assume the interaction between three dimensions: (i) drivers to consumer involvement in the circular economy; (ii) circular consumption choices, and (iii) circular business model. The drivers of consumer involvement are their PEH, their perceived GW, and their EC. Consumers more endowed with PEH, with greater GW perception and more concerned with the environment, make a more significant contribution to the circular economy by engaging in circular consumer choices, which, in turn, will push companies to follow circular business models. The consumer’s circular choices translate into avoiding buying unnecessary disposable products (minimal take), reducing the consumption of disposable products (reduce), trying to conserve products before buying new ones (repair), recycling products (recycle) and looking for rechargeable products whose packaging can be used for other functions (reuse). In response to this consumption pattern, firms must formulate new production models that become increasingly circular.

5.2 Theoretical implications

Our study provides significant contributions to some dimensions of the circular economy. Despite the recent but growing attention that researchers have directed toward the circular economy, studies that analyze the participation of consumers in the circular economy are still scarce and focus essentially on models of consumer acceptance of circular consumption practices (Kuah & Wang, 2020 ). This study makes an essential contribution to the literature because it explores the factors influencing circular consumption choices. Our model lets us conclude that daily pro-environmental habits followed by environmental concerns determine of circular consumption choices. Furthermore, pro-environmental habits trigger a greater awareness of greenwashing, positively influencing ecological accountability.

5.3 Practical implications

The present study allows inferring a set of practical implications. First, greater consumer participation in the circular economy requires the intervention of several actors. Governments must be genuinely committed to helping implement a circular strategy for consumers and businesses. They should promote greater public awareness campaigns to pursue more sustainable habits. Second, governments should monitor companies’ marketing campaigns by punishing those who practice greenwashing as people increasingly perceive it. Third, governments should provide tax incentives for sustainable products so that they become more competitive. Fourth, governments should provide greater financial support to companies to facilitate and encourage the transition from traditional production to circular business models. In this regard, companies must change or restructure their product portfolio to offer products with a longer life, reusable, recyclable and repairable, that is, to encourage collaborative consumption. Finally, the current energy crisis can be an opportunity to drive the transition from a linear economy to a circular economy, as it will force consumers and companies to save energy and, as such, to be more aware of the exhaustibility of resources.

5.4 Limitations and future lines of investigation

The present paper presents some limitations and new avenues for future studies. First, regarding the sample, it is a convenience sample and not probabilistic and, as such, the sample is not representative of Portuguese consumers and may be biased. The pre-test performed may need to be increased, and including more participants in the sample pre-test would be beneficial. Despite the acceptable sample size, it is still insufficient to explore the differences in circular consumption at the Portuguese national level (North, Lisbon, Centre, Alentejo, Algarve, Madeira, and Azores). Thus, it would be beneficial that future studies use a larger sample covering the seven Portuguese regions. By increasing the sample, it would be relevant to study the circular consumption from the perspective of generations X, Y and Z. Furthermore, sociodemographic variables, such as age, gender and net income, were not used as mediating variables. The results of this study may be different when considering sociodemographic characteristics. Second, this paper did not consider the role of social norms and cultural values and their influence on pro-environmental habits, which could be included in future studies. Third, the findings of this study are limited to Portuguese consumers. Since the cultural context can influence circular consumption choices, it would be interesting to design a cross sectional questionnaire to be applied in regions of different economies (either developed or developing). The responses may have been influenced by commercial and economic factors specific to Portugal, making it advisable to conduct further studies in other countries to complement and strengthen the present study’s findings. It would also be interesting to consider in future studies whether non-cognitive and cognitive factors are different by considering demographic characteristics (e.g., age, gender, level of education, marital status, and ethnicity). Finally, as this study does not include companies’ perspectives regarding circular consumption, it would be important that other studies have the viewpoint of companies concerning circular consumption.

6 Conclusion

Transitioning to the circular economy is one of the main challenges for companies, society and policymakers. The circular economy is considered a giant step toward sustainable development. However, this step must be taken jointly by companies and societies. Therefore, it is important to know what role customers and or civil society play in transforming economic systems based on linear ‘take-make-consume-dispose’ models into circular models. To this end, this study evaluated the potential role of society/consumers in building circular business models.

Respondents revealed a pattern of circular consumption, particularly concerning reuse and recycling. These choices are strongly conditioned by the pro-environmental habits they engage in daily (especially energy saving and avoiding plastics) and (albeit to a lesser extent) by their environmental concerns, which fall heavily on the waste of resources and intergenerational commitment. These environmental concerns are, in turn, driven by their perception of greenwashing, which is more commonly perceived by respondents who do not use plastic and by those who resort to more sustainable mobility.

This study contributes, in general, to the literature on circular economy and, in particular, to the literature on circular consumer behavior. The few existing studies on consumer participation in the circular economy have demonstrated a passive role for these agents, centered on models of acceptance of circular practices. This study indicates that it is necessary to understand consumers’ motivations, and that consumers can contribute to transforming companies’ business models. The Circular Consumption and Business Model is an integrated model that includes consumers’ participation in the companies’ circular business model. We believe that if society reveals circular consumption, there will be more pressure on companies, “forcing” them to transform their traditional business models into circular ones. This transformation will be faster the faster civil society follows circular consumption. Change toward sustainable development, in general, or toward a circular economy, can only be successful with everyone’s contribution.

Data availability statement

The data that support the findings of this study are available from the corresponding author, upon reasonable request.

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Lopes, J.M., Pinho, M. & Gomes, S. Green to gold: consumer circular choices may boost circular business models. Environ Dev Sustain (2023). https://doi.org/10.1007/s10668-023-03930-6

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DOI : https://doi.org/10.1007/s10668-023-03930-6

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Find a Circular Strategy to Fit Your Business Model

Products and services that maximize use and reuse of materials and other resources can be both growth opportunities and sustainability measures..

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Companies seeking to meet ambitious sustainability goals to reduce fossil fuel consumption and reduce waste must go beyond a shift to renewable energy. Roughly half of global emissions are linked to the production and consumption of goods such as food, packaging, buildings, and textiles. 1 Accelerating decarbonization will require that we rethink the materials and services sourced from suppliers, the distribution and use of products by customers, and what happens to products at end of life.

That’s where circular models come into focus. They aim to optimize the use of material resources in organizations and thus help reduce carbon emissions and mitigate strain on natural systems. For businesses, circularity promises to enhance competitiveness by improving bottom lines through resource efficiency and boosting resilience against resource market volatility through closed-loop supply chains. Moreover, compelling circular offerings, such as refurbished furniture or new items made from recycled materials, appeal to customers striving to meet their own sustainability goals.

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Despite these advantages, circular businesses remain uncommon, largely due to the challenge of identifying and operationalizing suitable models that align with a firm’s overall strategy and capabilities. 2 In this article, we draw on our research into organizations implementing these models to explain four different routes to circularity, and key considerations for effectively implementing them.

The practical principles underlying circular business models can be stated as simple goals: use less , use longer , use again , use differently . 3 (See “Four Approaches to Circularity.”) Most circular models emphasize one of these paths, but often in combination with others.

Extend Product Lifespan

Reuse, resale, repair, or refurbishment are among the use-longer tactics that help companies maximize the usable life of products, reducing both waste and consumption of new resources. The challenge for companies that pursue this approach is preserving the benefits customers derive from newly manufactured products. Some ways to operationalize this include the following:

Design products for longevity. To enable repair or refurbishment, products must be designed for durability, modularity, and disassembly. That may require using more durable materials, avoiding adhesives in assembly, and ensuring that standard tools can be used in repairs.

The Dutch Ministry of Defense (MoD) has adopted a circular approach to the uniforms it provides, cleaning and repairing them to extend their usable life. It redesigned uniforms to allow easy replacement of components like damaged sleeves without destroying the whole item. This not only reduced waste but also led to an annual savings of 8 million to 10 million euros that would have been spent on new purchases and disposal. 4 Smartphone manufacturer Fairphone similarly designed phones with modular, swappable components. Customers wanting a better camera or battery can simply upgrade those components rather than having to buy a new phone, delaying obsolescence.

Designing for disassembly and repair does involve trade-offs. More durable and modularized components or detachable fasteners can increase manufacturing complexity and cost. Despite the complexities, this approach is a key principle in enabling circular models from electronics to buildings. 5

Establish repair and refurbishment capabilities. Extending product lifespans requires building repair and refurbishment capacity, either in-house or through partnerships. The Dutch MoD chose the latter route. With item volumes in the hundreds of thousands, the MoD needed an industrial-scale repair facility. Rather than build it themselves, it partnered with Biga Groep, a social enterprise that provides employment to members of disadvantaged communities. The two parties collaborated to develop industrial-scale repair capabilities. This partnership grew over time as Biga Groep gradually expanded its capabilities, also creating new jobs.

It is crucial that product development teams work closely with those responsible for repair and refurbishment to better understand design requirements for longevity and repair. When shoe manufacturer Vivobarefoot launched a repair and refurbishment program, it learned that its shoes could be difficult to repair. It subsequently started having its design teams engage with repair partners to gain feedback for future product.

Manufacturers must also plan for longer-term availability of spare parts and repair services, including how repair and refurbishment will be provided, such as through expanded warranty plans or as chargeable services that could be additional revenue streams. Buy-back plans can encourage customers to return products to manufacturers for refurbishment and resale.

Depending on the sector, independent companies may already offer resale, repair, and refurbishment services, for example, in the mobile phone market. Manufacturers can support this market with spare parts, repair kits, and manuals. This may become a regulatory requirement under emerging Right to Repair laws across different jurisdictions. For example, the EU’s right to repair rules require manufacturers to make spare parts available for professional repairers for up to 10 years for certain product categories. A looming issue on this front is support for software components in so-called smart products.

Leverage data and digitalization. Data can enable more effective maintenance, repair, and refurbishment. Some manufacturers use internet-connected sensors and predictive analytics to monitor product health and schedule maintenance. Data analysis can also shed light on customer usage, common faults, and wear-and-tear patterns to improve product designs.

Additionally, digital platforms provide a channel for resale of used and refurbished products, especially if supported by comprehensive data on product condition and history, enhancing transparency and trust in the resale market. Brands may find that their used or refurbished products are already available on marketplaces like eBay, Vestiaire Collective, or Back Market.

Reclaim and Regenerate Resources

For companies following the use-again approach to capture value from waste materials, the distinction between technical and biological resources is key. Originally defined in the cradle-to-cradle model, 6 biological resources include raw materials such as food, wood, cotton, and other animal or plant-based materials, while technical resources include metals, plastics, synthetic chemicals, and other artificial materials. The two require different approaches.

Because biological resources are in principle renewable, the focus should be on recovering and reusing nutrients to regenerate natural systems and ensure sustainable production. Plant and animal waste can be composted and used to enrich soil health, and biogas can be recovered for energy production through anaerobic digestion.

Remanufacture or recycle technical materials. Metals used in electronic products, such as copper, lithium, aluminum, and gold, could theoretically be reused indefinitely, particularly if recovered into their elemental forms. On the other hand, plastic is a nonrenewable resource, and plastic packaging has limited reuse. A use-again approach through recycling can be a viable option to ensure circularity of technical materials. U.K.-based packaging manufacturer Charpak uses recycled plastic as raw material for its products, which are themselves recyclable.

Turn waste into revenue. Use again can also involve turning waste resources into products through intermediate processing. For example, materials science companies Biohm and Ecovative are using agricultural residues to grow mycelium, the rootlike structures of fungus, as bio-based materials for packaging, fashion, and building materials. Biotech company Entomics Biosystems uses organic waste to cultivate insect larvae, which is turned into a sustainable protein source for animal feed in livestock farming.

Use again can also involve turning waste resources into products through intermediate processing.

Given the vagaries of fashion, unsold inventory can be a significant source of waste for apparel manufacturers. Luxury brand LVMH has spun out a platform, Nona Source, where others can purchase deadstock yarn, fabric, and leather. Aside from avoiding waste, this enables smaller, independent designers to purchase high-quality material that they typically would not have access to. Rype Office remanufactures used office furniture into high-quality, low-carbon products for corporate clients. As furniture makes up to 30% of embodied emissions in commercial buildings, shifting to remanufactured items can help organizations reduce their carbon, resource, and waste footprint.

Design products with recycling in mind. Like use longer, use again starts with product design. Most products today suffer from low recycling rates, and most recycling is really downcycling into lower-quality products, such as garments into rags or insulation materials.

One reason for this is that many products are not designed for recyclability. They are often composed of a mix of materials, each with different degrees of recyclability and requiring different treatment. For example, clothing often contains a mix of natural and synthetic fibers; electronic devices comprise a host of different metals, plastics, glass, and other materials; and packaging frequently includes labels or linings. Ideally, products should be made from single materials, such as mono-fiber textiles or polyethylene terephthalate (PET)-only packaging, although this is often not possible.

Most products suffer from low recycling rates, and most recycling is really downcycling into lower-quality products.

Designing for use again involves several approaches. The first step is to maximize the proportion of recycled or regenerative materials that are themselves recyclable or biodegradable in order to reduce the use of virgin materials and production of waste. This includes eliminating toxic elements. For example, flooring company Tarkett’s carpet brand Desso and carpet manufacturer Hook & Loom designed out toxic chemicals and materials that would limit the reusability or biodegradability of their materials.

Designers must also consider disassembly. Just as with use-longer models, products should be designed to be easily taken apart so that components can be remanufactured or recycled. The E.U.-funded Buildings as Material Banks project applied this principle, developing standards and tools such as the Reversible Building Design Protocol so that buildings can be deconstructed to recover and reuse materials.

This design approach will often require development of new materials and processes that meet quality and performance criteria. Charpak addressed this by working with innovation partners on modular design and replacing black plastic with 100% recyclable gray plastic. This required a full life-cycle analysis of product design for recyclability, including considering the post-use phase and managing trade-offs. For example, a certain percentage of virgin material was required to meet functional and aesthetic requirements.

Establish reverse logistics systems and partnerships. Designing circular products does not necessarily result in actual circularity in the absence of effective reverse logistics systems. Modern supply chains are typically optimized for producing and distributing products into the market, with less emphasis on getting products and materials back for reuse. For manufacturers transitioning to a circular model, the challenge extends beyond merely ensuring effective recycling of their products to also guaranteeing certainty of supply of raw materials to create their products.

Accomplishing this may require innovation in the waste-processing segment of the value chain, including technologies and processes for effective collection, sorting, and recycling of waste into new raw materials. In some segments, like post-consumer plastic waste, direct recovery of products can be challenging. Plastics enter the waste management stream and need sorting and processing before they can be reused. Charpak addressed this in the U.K. by partnering with city councils, waste management providers, and reprocessors to establish a local circular plastics loop. Under the Cambridgeshire and Peterborough Waste Partnership (RECAP) program, household plastic waste is collected, sorted, cleaned, and sent to be reprocessed into new materials, which Charpak then sources.

Rype Office grappled with uncertainty in its supply of used furniture, which typically depended on office clearance events. To mitigate this, it established take-back channels in partnership with building retrofitters and offered its customers leasing and buy-back options. For situations where remanufactured furniture is insufficient to meet client demands, Rype Office recommends new pieces that are easily remanufactured over multiple uses, further ensuring future supply.

Maximize Product Use

In many cases, consumers may not feel the need to own a product. Companies can sell access rather than ownership; sharing, renting, and service-based approaches can replace product sales. These models boost circularity by increasing asset utilization and aligning incentives to encourage customers to use less, use longer, and use again. The use-differently approach also can broaden access to products that might otherwise be out of reach for some consumers.

Service-based models come in different forms, such as very short-term rentals of cars (Zipcar) or designer clothing (Rent the Runway), or peer-to-peer platforms like Hello Tractor, which enables farmers to rent idle equipment to other small-scale farmers who can use the machinery to improve crop yields. Another model is providing products-as-a-service, where providers retain ownership and customers pay based on usage. Lighting multinational Signify offers a pay-per-lux service: The company will install, maintain, and decommission lighting equipment, including reuse, repair, and recycling.

Design services based on customer jobs-to-be-done. Identifying the customer’s goals can inspire innovative circular models. 7 As Signify illustrates, customers want reliable and efficient lighting, and a “lighting as a service” model both circumvents the complexities of managing assets and reduces capital expenditure on equipment. Similarly, many city dwellers prefer to not own a car, but they occasionally need transport with more flexibility, convenience, and range than a bike, bus, or train. This idea underpins shared mobility models like Zipcar — rather than multiple households owning cars that are infrequently used, customers can access shared cars on demand.

The use-differently approach also can broaden access to products that might otherwise be out of reach for some consumers.

Leverage digital platforms. Hello Tractor’s sharing model illustrates how data, connectivity, and digital platforms can enable sharing, rental, and service models to monitor and optimize assets and connect supply and demand. Hello Tractor’s mobile app connects small farmers with tractor owners to schedule and manage bookings and payments. The company also helps tractor owners outfit their equipment with low-cost internet of things devices to track location, fuel levels, tractor operations, and maintenance needs. That data can support new services such as route optimization for tractor owners and help them to better manage their equipment assets. Importantly, Hello Tractor understands that access to tech is uneven among small farmers, so it also engages local booking agents to help with bookings and aggregate local demand.

Align incentives. Service design critically hinges on aligning incentives between the service provider and the customer around economic, functional, and sustainability factors. To achieve circularity goals, providers and customers must actually use items responsibly and efficiently.

Signify’s lighting-as-a-service contracts include delivery of performance metrics for lighting quality and energy efficiency. Customers are concerned with only the reliability and performance of lighting. Extending the use of equipment and materials through monitoring, durable design, reuse, repair, refurbishment, and recycling saves costs for the provider. A service-based model also facilitates closed-loop reverse logistics systems, as the provider retains control and chain of custody of the assets.

Minimize Resource Use

Figuring out how to use less of any resource should always be a priority when conservation is the objective. With this goal, organizations can think broadly about how they can minimize the use of energy, materials, and water in operations.

Focus on efficiency. Look for practices and technologies that optimize resource use while minimizing waste. Lean manufacturing principles, for instance, can significantly reduce material waste and energy consumption. Designers can experiment with ways to deliver the same value using fewer materials. Additionally, integrating energy-efficient technologies in operations, such as LED lighting or optimized heating and cooling systems, can reduce the environmental footprint significantly.

Efficiency optimization can also be applied to capacity utilization of assets. Shared resources, like coworking spaces or shared manufacturing facilities, can optimize space and equipment use. Designing buildings for reconfigurability can enable flexibility for multiple uses. In logistics, fleet optimization ensures full vehicle loads, reducing the number of trips and thus lowering emissions and costs. Similarly, demand-responsive services like cloud computing can adapt supply efficiently to meet actual demand, avoiding excess capacity.

Design out waste. Naturally, using less begins with product or process design. Consider packaging: Significant efficiencies can be found here before looking at the product itself. U.K. supermarket retailers Tesco and Waitrose, for example, reduced plastic waste by removing plastic wrapping from some multipack food and beverage items. Food technology companies Mori and Apeel Sciences are developing edible coatings that extend the shelf life of produce, replacing plastic packaging. Bulky liquid products that contain a great deal of water, like cleaning or beauty products, can be reformulated as concentrate or tablets. This reduces product size and weight, which lowers the carbon impact of shipping and the cost and footprint of storage and delivery.

Tap data analytics. Insights afforded by digital tools are as important here as they are in other approaches. Advanced data analytics pinpoint ways to minimize resource consumption and waste production. Ikea reduced food waste by 54% in its in-store restaurants by using smart scales and AI to track and analyze food waste. Ikea also partnered with food platform Too Good to Go to further reduce food waste through selling its surplus at discounted prices.

Key Success Factors for Circularity

Numerous opportunities are available for companies to embed circularity into their products and operations. While approaches may vary, our research has found that successful initiatives pay attention to the following factors:

Strategic fit. The cornerstone of circular transformation is how it fits with your business strategy. Identify a model that aligns well with your company’s strategic positioning and brand ethos and leverages core strengths and values. A chosen model should enhance both sustainability and profitability. For example, a luxury brand should provide premium retail experiences for resale, repair, or refurbished offerings.

Committed leadership and circular mindset. Circularity transformation starts with leadership, mindset, and culture. The company’s leadership needs to champion and drive the circularity agenda and provide resources and training to the whole organization. A key lesson is that circularity must go beyond specific initiatives; it requires a mindset where everyone is constantly looking at waste as a valuable resource. Sugar processor British Sugar has turned almost every by-product stream from its beet sugar manufacturing process into inputs for new products, including biofuels and industrial and agricultural products, as well as a new business segment for animal feed.

Combined models. The four models — use less, use longer, use again, and use differently — are not mutually exclusive and should be combined to create viable circular offerings. For example, the Dutch MoD recycles items once they can no longer be repaired. A similar model could be applicable for electric vehicle batteries. With electric cars expected to account for more than two-thirds of global car sales by 2030, pressures will increase from mineral scarcity and electronic waste. A more circular approach could keep batteries in use in vehicles through repair and refurbishment (use longer). Once degraded, used batteries could be remanufactured into energy storage systems for renewable power grids (use differently), and finally recycled to recover materials to make new batteries (use again).

Compelling value proposition. Successful circular offerings must go beyond purely environmental benefits to also meet customer needs such as functionality, desirability, aesthetics, accessibility, and economics. Consider the end-to-end value chain design and trade-offs required to ensure customer acceptance of a circular offering. Rype Office recognized that corporate clients would not compromise on furniture quality and aesthetics for lower carbon options, so it provides interior design services to help clients integrate remanufactured pieces into existing office aesthetics. Hello Tractor’s network of local agents was in part based on user insight on ensuring accessibility and supporting the needs of small farmers.

Value-based collaborations and partnerships. Most companies will struggle to build circular capabilities by themselves. While organizations may embed circular requirements into green procurement criteria, challenges arise when suppliers cannot meet these demands in the short and medium term. A more effective approach may require co-innovation partnerships with suppliers, peers, and other partners. A prime example is Jaguar Land Rover’s RealCar project, where it worked with industrial, academic, and public-sector partners to develop aluminum recycled from postindustrial waste for use in its cars. This required innovation in material chemistry to develop aluminum grades with suitable performance, recyclability, and applicability. A critical key success factor was the approach to collaboration around shared goals for the entire value chain for recycled aluminum. 8

Related Articles

Journey of learning and iteration. The circularity transformation should be approached as a journey of learning and iteration. The winning circular models are often not obvious, emerging through experimentation and engagement with customers, suppliers, and other stakeholders. Explore what works and what doesn’t, and adapt strategies based on these findings. Equally important is understanding and managing trade-offs and unexpected consequences that arise. Starting with small-scale pilots allows companies to test ideas in a controlled environment, learn from these experiments, and then scale up successful initiatives, building capabilities over time.

The journey to circular economy models is complex. However, many brands may already have active markets for resale, repair, or refurbishment of their products, as well as potential partners in different sectors. Beyond meeting environmental goals, engaging in circular models offers businesses opportunities to control customer relationships and experiences, gain valuable market insights, and capture additional revenue.

About the Authors

Samsurin Welch is a research associate at the Circular Economy Centre at Cambridge Judge Business School, University of Cambridge, and senior associate at the University of Cambridge Institute for Sustainability Leadership. He is also cofounder and chief operating officer at HyveGeo. Khaled Soufani is a management practice professor of financial economics and policy, director of the Circular Economy Centre, and director of the Cambridge Executive MBA Program at Cambridge Judge Business School. He is also a fellow of Clare Hall.

1. Ellen MacArthur Foundation, “ Completing the Picture: How the Circular Economy Tackles Climate Change ,” 2019, www.ellenmacarthurfoundation.org.

2. K. Soufani and C. Loch, “ Circular Supply Chains Are More Sustainable. Why Are They So Rare? ” Harvard Business Review, June 15, 2021, https://hbr.org.

3. Adapted from M. Geissdoerfer, M.P.P. Pieroni, D.C.A. Pigosso, et al., “ Circular Business Models: A Review ,” Journal of Cleaner Production 277 (Dec. 20, 2020): 123741.

4. K. Soufani, T. Tse, M. Esposito, et al., “ Bridging the Circular Economy and Social Enterprise: The Dutch Ministry of Defence and Biga Groep ,” The European Business Review, March 18, 2018, www.europeanbusinessreview.com.

5. Circular Electronics Partnership, “Circular Electronics System Map: An Industry Blueprint for Action,” Sept. 22, 2022; and A. van Stijn, L.C.M. Eberhardt, B. Wouterszoon Jansen, et al., “ Environmental Design Guidelines for Circular Building Components Based on LCA and MFA: Lessons From the Circular Kitchen and Renovation Façade ,” Journal of Cleaner Production 357 (July 10, 2022): 131375.

6. M. Braungart and W. McDonough, “Cradle to Cradle” (New York: North Point Press, 2002).

7. S. Hankammer, S. Brenk, H. Fabry, et al., “ Towards Circular Business Models: Identifying Consumer Needs Based on the Jobs-to-Be-Done Theory ,” Journal of Cleaner Production 231 (Sept. 10, 2019): 341-358.

8. P. Cassell, I. Ellison, A. Pearson, et al., “ Collaboration for a Closed-Loop Value Chain: Transferable Learning Points From the REALCAR Project ,” PDF file (Cambridge, United Kingdom: University of Cambridge Institute for Sustainability Leadership, Jaguar Land Rover, and Novelis, January 2016), https://www.cisl.cam.ac.uk.

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• DOI: 10.1016/j.clscn.2024.100158
• Corpus ID: 270266104

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Circular Business Model Design : Business Opportunities from Retaining Value of Products and Materials

Author: Julia L.k. Nußholz ; Internationella Miljöinstitutet ; []

Keywords: TEKNIK OCH TEKNOLOGIER ; ENGINEERING AND TECHNOLOGY ; SAMHÄLLSVETENSKAP ; SOCIAL SCIENCES ; TEKNIK OCH TEKNOLOGIER ; SAMHÄLLSVETENSKAP ; ENGINEERING AND TECHNOLOGY ; SOCIAL SCIENCES ; Circular Economy ; business model innovation ; circular business model ; Resource efficiency ; Reuse ; Life cycle management ; Value creation ; sustainability assessment ; Circular business model tools ;

Abstract: Today our economy is largely based on linear material flows, and many products, such as electronics, furniture,building materials and textiles, are discarded even when they could still be used. Without urgent action, globalwaste is expected to increase by 70% by 2060 and global materials use is expected to more than double. We arestarting to realise that linear material flows are not only a loss of valuable products and materials, but are alsoinconsistent with ‘planetary boundaries’ and are a main cause of sustainability challenges. More than 50% of allgreenhouse gas emissions are estimated to derive from materials management in our economy.One proposed solution is a shift towards a circular economy, in which products are not discarded; instead, their embedded economic and environmental value is retained for as long as possible in a closed-loop system. This is achieved through, for example, reuse, repair and remanufacturing of products, or recycling. Many suggest that a circular economy also offers new business opportunities for companies.This thesis focuses on how companies can devise ‘circular’ business models (CBM) to capitalise on suchopportunities, focusing on CBMs that retain value embedded in products and materials. Based on pioneering companies that have devised CBMs for value retention, the thesis examines what value their business model creates for the environment, business, society, and customers, and how value is created. The thesis also explores how tools to help practitioners integrate circularity in their business model can be developed and improved.A key finding is that CBMs for value retention have significant potential to reduce environmental impact, may have a promising business case, could generate employment, and could produce additional customer value. However, value is not created by default. Recommendations to secure value creation along the various value dimensions are provided. To help practitioners integrate circularity in their business models, a structured overview of CBM innovation tools is presented and a CBM canvas for value retention proposed. A guideline shows how CBM toolscan be developed to more effectively support practitioners.Future research is needed to improve methodology for comparing financial and societal value creation by circular versus linear business models. Implications for value creation if CBM were upscaled need further investigation.Whether the financial value alone will be sufficient to incentivise businesses to shift towards CBMs within the short time window we have to address climate collapse remains doubtful, so research is needed on policy interventions that can help accelerate the transition.

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