How can companies transition to circular business models? A range of strategies can support the circular economy in different ways. Companies can enable, create, close, or extend material loops. According to the IW study published in May 2022 Studie des Instituts der deutschen Wirtschaft, one quarter of manufacturing companies in Germany already pursue a single circular strategy. Another quarter follows a comprehensive circular approach that combines all strategies. Based on a survey of companies, the IW identified three circular strategies in practice:

1. Enabling or creating loops: The “Eco Jacket” developed by the PEPPERMINT Holding Group, for example, is designed so that textiles that can no longer be used at the end of their life can be returned to a biological cycle through composting. This is a practical example of “design for circularity.”
2. Closing loops: LANXESS, for instance, uses by-products generated during production as raw materials for other processes.
3. Extending loops: BSH, a manufacturer of household appliances, is refurbishing old washing machines as part of a pilot project in Austria, giving the products a longer service life.

One thing is clear: some German companies have already embarked on the journey toward circularity and are leading by example. However, more than one third of industrial companies have yet to tap into the potential of the circular economy. Adriana Neligan, co-author of the IW study, emphasizes that a circular economy approach covering the entire product life cycle offers not only environmental benefits but, above all, significant economic opportunities.

The study shows that companies pursuing at least one circular strategy are more successful than non-circular competitors. Moreover, the number of companies reporting medium to high levels of success increases with the number of circular strategies they implement. The study also finds that companies pursuing at least one circular strategy are better able to keep sight of overarching objectives such as reducing greenhouse gas emissions, preventing waste, and lowering production costs.

Must-Do: Implement at Least One Circular Strategy

At present, many companies still focus primarily on optimizing energy and resource efficiency. However, truly new circular business opportunities require disruptive innovation. But how can such innovation emerge within a company?

According to the IW, it must start with the product itself. Disruptive innovation means fundamentally rethinking product design, production processes, and the services associated with them. In light of this, it is hardly surprising that research and development activities are more deeply embedded in companies pursuing at least one circular strategy.

Must-Do: Start with the Product

At the same time, many external factors influence the success of circular business models, including political framework conditions, market structures, suppliers, and customers. Dr. Sarah Fluchs, co-author of the IW study, stresses that a comprehensive transformation toward a circular economy cannot be achieved by industry alone. Every participant along the value chain must understand and embrace the underlying objectives if material loops are to be fully closed. Networking and collaboration are especially important when it comes to disruptive innovation.

Must-Do: Break Out of Industry Silos and Connect with Other Stakeholders

The intersection of digitalization and the circular economy is receiving increasing attention. This is reflected, among other things, in the European Commission’s plans to introduce a Digital Product Passport. Several studies also indicate that small and medium-sized enterprises still have some catching up to do when it comes to digitalization.

Why does this matter for the transition to a circular economy? Digital data allows companies to monitor the implementation of their strategies and creates transparency about where further improvements are needed. Digital technologies also often open up new possibilities for production processes and business models. Beyond these benefits, digitalization facilitates connectivity in an increasingly global economy, and such connectivity is very much in line with the principles of the circular economy.

Must-Do: Accelerate Digitalization

At specialty chemicals company LANXESS, the circular economy has a long tradition. Numerous facilities within chemical parks, including those operated by competitors, use by-products generated in production as raw materials for other processes. Waste heat from one plant is used to power other operations.

Beyond process optimization, LANXESS is increasingly incorporating sustainable raw materials generated outside chemical parks. For example, a new type of ion exchange resin used in drinking water treatment is no longer based on fossil-derived acrylonitrile but on tall oil, a tree resin that is generated as a by-product of pulp production.

The company aims to achieve climate neutrality across its entire value chain by 2050. One of the key levers for achieving this goal is chemical recycling. This involves breaking down plastic waste, for example, into its basic chemical building blocks, which can then be used to manufacture new, high-quality products. LANXESS is actively researching chemical recycling technologies.

According to the company, political action is needed if chemical recycling is to be scaled up successfully. This includes rewarding greenhouse gas savings achieved through the use of secondary raw materials, providing stronger support for business models that offer durable products, and ensuring a sufficient supply of renewable electricity at competitive prices. These are important steps toward building a resource-efficient society for the future.