The principles of circular economy

Published on: April 18, 2023 Author: Gene Ho

A practical way of defining circular economy is that it is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. To make it simple, circular economy is about sharing, renting, mending, borrowing, redesigning and recycling. It is the new way of doing things, instead of the old “wear and tear” behavior.

#1 Resource intelligent economic model. This is a fundamental concept of circular economy. It enhances natural capital and creates the necessary conditions for the regeneration of natural systems. Circular economy is resource intelligent and regenerative & takes notice of the nature’s capacity. Operations within planet’s boundaries.

#2 Extension of the life of products and materials. This means that circular economy aims to extend the useful life of the products and materials by creating the loops of the materials and products. They are kept in use endlessly in biological or technical cycles. The goal is achieved through the active reuse, repair and re-manufacturing of the products and materials utilized in the economy. Materials are safe & non-toxic.

#3 Minimization of waste and pollution. This is important both in production and when using the products. Value of products, components and materials is maintained and increased through refinement.

#4 All energy is renewable and is used efficiently.

#5 Solutions are systemic and based on the good planning of life-cycles, ecosystems and multi-purpose usage patterns.

#6 Resources and well-being are equally divided for all4

More about the circular economy

In a circular economy, businesses build and rebuild overall health and well-being of the planet and people. The concept recognizes the importance of the economy needing to work effectively at all scales – for large and small businesses, for organisations and individuals, globally and locally.

Transitioning to a circular economy does not only amount to adjustments aimed at reducing the negative impacts of the linear economy. Rather, it represents a systemic shift that builds long-term resilience, generates business and economic opportunities, and provides environmental and societal benefits.

In sifting to the circular economy business it is also important to understand the concept of closed loops. Closed-loop recycling is the process by which a product or material can be used and then turned into a new product (or converted back to raw material) without losing its properties. Closed loop minimizes the harms to the environment and reduces the need to use new natural resources. Ideal closed-loop systems produce no waste.

For making the closed loops possible the companies need to review and make changes to all their operations like logistics, sorting, warehousing, energy supply sourcing, marketing and management in order to make the change. According to Ellen Mac Arthur Foundation, the Circular Economy system framework is divided into two parts, biological cycles and technical cycles. It is very important that the businesses and consumers  understand the difference of these processes, to enable “zero waste”.

Reverse logistics is defined as the process of moving goods beyond their typical final destination for purposes like re-use, capturing value, or proper disposal. This can include all recycling, reclamation of raw materials, refurbishment, and reselling of items that have been stocked again.7  In supply chain networks, materials flow from suppliers through to end customers and back to being re-processed. This is important to make the closed loops function.

Picture source: Shippr – MediumLinks to an external site.


The “Butterfly-model” differentiates the biological and technological cycles

  • In biological cycles the nature-based and bio-degradable raw materials circulate. For example food and other natural materials (such as cotton or wood) are planned to feed back into the system through processes like composting and anaerobic digestion. These cycles regenerate living systems, such as soil, which provide renewable resources for the economy.
  • Technical cycles cover materials produced by the humans, harmful materials like e.g. technology, metals etc. These materials can be recovered and restored into new products/components  through strategies like reuse, repair, re-manufacture or (in the last resort) recycling.
  • In technical cycles materials are created by people in the industrial processes. Original materials are also derived from the nature, but they are processed so that the new materials cannot be returned safely to the nature anymore. These produced materials  should be circulated, processed and re-used in a way that the need for using new original materials decreases into minimal. For example scarce mineral resources like metals can be collected from electronics and re-used in the new products. The goal for these cycles is 100% reuse. These materials altogether should be kept totally separate from the nature’s cycles. An example of this is keeping the plastic in a closed cycle because the effects of micro-plastic is hazardous to the environment. 5

Ellen Mac Arthur Foundation. The explanation about Butterfly Diagram. An outline of a circular economy.2017.

Practical examples of how circular economy cycles can be taken into account in the product development:

Circular Economy: definition & examples | Sustainability Environment

Life Cycle Model

Life-cycle Model helps companies to analyse current products and services and future opportunities. In the beginning of the development process the company should view and evaluate step by step all the core processes, customers and usage and evaluate what should be changed. The circular economy business can be worked in each part of the company’s value chain which is described in the picture below. Life cycle model is often associated with the so-called life cycle assessment (LCA) which is explained in a later chapter.

Below there are some examples of questions in this value chain to be asked regarding the process of the full evaluation of the current business. Please click the info-button (i) to read the details.

Further reading:

Besides the above text read the general definitions of circular economy at the Ellen Macarthur page What Is the circular economy? ( to an external site. You can find some really interesting videos there,too.

What Is the circular economy? ( to an external site.

Ellen-MacArthur-Foundation-Towards-the-Circular-Economy-vol.1.pdf Download Ellen-MacArthur-Foundation-Towards-the-Circular-Economy-vol.1.pdfEllen-MacArthur-Foundation-Towards-the-Circular-Economy-vol.1.pdfDownload Ellen-MacArthur-Foundation-Towards-the-Circular-Economy-vol.1.pdf

Building Blocks Of A Circular Economy – Circular Economy Design & Circular Economy Business Models ( to an external site.

Textiles in Europe’s circular economy — European Environment Agency ( to an external site.

Indicators for the circular economy business | Statistics FinlandLinks to an external site.

The circular economy – SitraLinks to an external site.


1  What is a Circular Economy? | Ellen MacArthur FoundationLinks to an external site.

2  The Global Goals for Sustainable Development  The Global GoalsLinks to an external site.

3  Wikipedia 14.6.2021

4  Circular Economy – UK, USA, Europe, Asia & South America – The Ellen MacArthur FoundationLinks to an external site. and Ethica Kiertotalousopas.

5  Ellen Macarthur Foundation. Rethink the future. Towards the circular Economy.

6 Ecodesign Guide. Ethica. www.ethica.fiLinks to an external site.

Reverse logistics? #12. Reverse logistics is becoming an… | by Shippr | MediumLinks to an external site.