Circular Economy: Meaning & impact for companies

Circular Economy refers to a future-oriented economic model that helps companies operate in a resource-efficient, climate-friendly, and compliant manner. In the face of global supply chains, increasing resource scarcity, and regulatory requirements such as the CSRD or the EU Taxonomy, the circular economy is gaining growing importance for industrial companies.

But what exactly does it mean?

Definition & core principles of the Circular Economy

The three core principles of the Circular Economy

1. Eliminating waste and pollution: From the very beginning of product and process design, efforts are made to minimize negative environmental impacts. The goal is to prevent waste from being generated in the first place.
2. Keeping products and materials in use: Instead of discarding raw materials after a short period of use, the Circular Economy emphasizes reuse, recycling, or remanufacturing – ensuring that materials remain in the value chain for as long as possible.
3. Regenerating natural systems: Circularity is not only about avoiding harm but also about restoring ecosystems – for example, through composting of biological materials or promoting sustainable land use practices.

Environmental and economic benefits of the Circular Economy

The circular economy delivers not only environmental improvements but also clear economic advantages – especially for companies in the manufacturing industry.

Environmental Benefits

• Reduction of CO₂ emissions: By extending product lifecycles, using resource-efficient design, and implementing recycling practices, the demand for primary raw materials decreases, leading to lower CO₂ emissions across the supply chain.
• Conservation of natural resources: Reusing and repurposing materials reduces the need for extracting new raw materials, helps preserve biodiversity, and eases the strain on sensitive ecosystems.
• Promotion of biodiversity: By minimizing environmental impact and supporting regenerative processes, the circular economy actively contributes to the protection of natural habitats.

Economic Benefits

• Cost savings: Reduced raw material purchases, lower disposal costs, and longer product lifespans lead to direct financial benefits for companies.
• Competitive advantage through innovation: Companies that develop circular business models—such as Product-as-a-Service or modular product design—can tap into new markets and attract diverse customer segments.
• Sustainability as a job engine: According to the EU Commission, the circular economy creates additional jobs, particularly in areas such as repair, maintenance, recycling, and digital infrastructure.

Policy frameworks & EU strategies

The importance of the circular economy is evident not only in business practices but also at the political level. The European Union, in particular, has recognized circularity as a key driver for the sustainable transformation of the economy.

EU Circular Economy action plan

A key instrument is the Circular Economy action plan of the European Commission, introduced in 2020 as part of the European Green Deal. Its goal is to make sustainable products the norm, prevent waste, and keep resources circulating within the economy. The plan particularly targets waste-intensive sectors such as electronics, textiles, construction, and packaging.

Specifically, the action plan includes, among other things:

• New requirements for durable, repairable, and recyclable products
• A "right to repair" for consumers
• Extended producer responsibility
• Digital product passports to improve the traceability of material flows

Link to other EU initiatives

The Circular Economy is closely linked to other key EU initiatives:

• The EU Taxonomy defines which economic activities are considered environmentally sustainable. Circular business models are regarded as particularly eligible for support under this framework.
• The CSRD (Corporate Sustainability Reporting Directive) requires companies to disclose their sustainability performance – including how they manage resources, waste, and reuse.
• Additional CO₂ reductions are being targeted as part of the "Fit for 55" package, including through the expansion of circular economy measures.

National regulations in Germany

In Germany, the Circular Economy Act forms the legal framework. It governs areas such as waste prevention, recycling, and producer responsibility. The law was recently revised in line with EU requirements to accelerate the transition toward a true circular economy.

Relevance of the Circular Economy for businesses

For manufacturing companies, the Circular Economy is becoming a strategic success factor – not only for sustainability, but also from a business perspective.

• Competitive advantages: Circular business models strengthen brand image, customer loyalty, and market differentiation – both in B2B and B2C.
• Regulatory compliance: Frameworks like the CSRD and EU Taxonomy demand resource efficiency, waste prevention, and life cycle transparency. The Circular Economy provides the right approach to meet these requirements.
• Resilience & risk reduction: Using secondary raw materials, establishing take-back systems, and building local circular loops reduce dependency on volatile raw material markets.
• Efficiency & cost savings: Lower material input, longer product use, and reduced disposal costs improve margins – while reducing the company’s carbon footprint.

Conclusion

The circular economy is more than just an environmental concept – it’s a sustainable business model. Companies that invest in circular processes today secure not only compliance and cost advantages but also strengthen their innovation capacity and brand reputation. The circular economy offers a concrete opportunity to align economic success with ecological responsibility – measurable, scalable, and compatible with key EU regulations such as the CSRD, EU Taxonomy, and the 2045 climate targets.

FAQ – Frequently Asked Questions about the Circular Economy

What is meant by Circular Economy?

‍The Circular Economy is an economic model aimed at using resources efficiently, avoiding waste, and keeping materials in circulation for as long as possible – through reuse, repair, refurbishment, and recycling.

What is the difference between a linear and a circular economy?

The linear economy follows the principle of "take – make – dispose". In contrast, the circular economy aims to close material and value loops and design products to be reusable or fully recyclable.

Why is the Circular Economy important?

It helps reduce CO₂ emissions, conserve resources, lower environmental impacts, and decrease dependency on raw material imports. At the same time, it strengthens innovation and competitiveness.

Which companies benefit most from the Circular Economy?

Manufacturing companies in sectors like mechanical engineering, automotive, packaging, electronics, or textiles benefit the most – through efficiency gains, new business models, and regulatory compliance (e.g. with CSRD or the EU Taxonomy).

What are examples of Circular Economy in practice?

Examples include IKEA’s second-hand store, Adidas’s recyclable shoes, or Decathlon’s repair services and used product offerings. Startups like HolyPoly also show how circularity works in practice.

How can a company implement the Circular Economy?

Through circular product design, take-back systems, product-as-a-service models, digital technologies (e.g. product passports), and sustainable supply chain planning. A long-term strategy and data-based accounting – for example with solutions from Tanso – are key.

Glossary & Further Resources

To better understand Circular Economy concepts and integrate them into business practice, it's helpful to explore key terms and sustainability reporting tools. Tanso's content provides a solid foundation for this.

• Carbon Accounting: The systematic recording and evaluation of greenhouse gas emissions along the value chain.
• Corporate Carbon Footprint (CCF): The total of a company’s direct and indirect CO₂ emissions.
• Product Carbon Footprint (PCF): The CO₂ emissions generated throughout a product’s entire life cycle.
• Decarbonization Levers: Strategies and actions to reduce CO₂ emissions, such as energy efficiency or material substitution.
• EU Taxonomy: An EU classification system for evaluating the environmental sustainability of economic activities.
• CSRD (Corporate Sustainability Reporting Directive): An EU directive requiring companies to provide comprehensive sustainability reporting.
• CBAM (Carbon Border Adjustment Mechanism): An EU carbon border adjustment system ensuring that imported goods bear the same CO₂ costs as those produced within the EU.
• VSME (Voluntary Sustainability Management and Evaluation): A voluntary sustainability standard designed for small and medium-sized enterprises (SMEs).
• Climate Risk Analysis: A process for identifying and assessing risks resulting from climate change.