What is the Circular Economy?

The Circular Economy describes the ongoing paradigm shift from linear economies, that rely on disposing used resources and consumption of virgin resources, to a system wherein materials maintain an inherent value at all stages of product life-cycle. Real efficiency however, comes when systems thinking is applied in a local context. The circular economy is a term that has gained a great deal of popularity among both businesses and governments over the last few years. As with other popular terms, with its growth in usage, the number of ways in which the term is defined have proliferated. There is no single group with the undisputed authority to define what the circular economy means exactly. While some consensus is developing among the different players working in the field, there can still be a lack of clarity about what “circular” actually means in practice.


The transition from our current linear economy to a circular economy is one of today’s greatest challenges, but also one of its greatest opportunities. There is huge economic potential here – Ellen MacArthur Foundation’s landmark “Circular Economy in India” report suggests that in India alone, circular economy practices could add a staggering 40 lakh crore annually to India’s GDP by 2050.


The world’s most recognised management consultancy firm McKinsey & Company are heavily involved in the development the Circular Economy, having financed the creation of the Ellen MacArthur Foundation to explore how to develop solutions for the financial forecast and providing all the major financial reporting supported.


Many groups define the circular economy in terms of the types of activities and concepts associated with it: The use of new business models, like leasing, collaboration across supply chains, using waste as a resource, etc. However, these types of characterisations ultimately don’t tell us what the circular economy actually is, because they don’t describe its end state: What will the world actually look like when it is “circular”?



Without answering this fundamental question, we lack a common understanding of what we’re actually trying to achieve, which makes it impossible to measure progress in any meaningful way. If we’re designing a product, for example, and have only limited resources, which we can either invest in more expensive, certified, renewable materials or in the up-front costs needed to set up a product leasing scheme, which will produce the more “circular” result? If we take the activity-based definitions of a circular economy, which suggest that making use of any of these practices makes something circular, then we don’t get much insight on what choice to make. And in fact we know that simply choosing for renewable materials does not always result in less environmental impact or greater value delivery—nor does adopting a leasing scheme.



By Dr. Isabella Guerrini,

Co-Founder & Co-Director, Aurora Sustainability Consulting


Image credit: Ellen MacArthur Foundation

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