Circular Economy 2.0: 5 Business Models Defining the Next Green Wave
Sustainable Innovation for the Future
Five circular business models are defining the next green wave, offering both profitability and sustainability for forward-thinking organizations. This article showcases these next-generation circular business models that align profitability with sustainability. Through in-depth analysis and real-world cases from IKEA and Patagonia, you'll gain actionable frameworks to implement these models and drive both environmental and financial performance.
For sustainability executives and impact investors, these five models offer actionable roadmaps to balance ESG commitments with robust revenue growth. Each model has been proven through real-world implementation by industry leaders, demonstrating that circular approaches can deliver both environmental benefits and strong financial returns.
The Circular Economy Ecosystem
5 Key Circular Business Models
Product-as-a-Service
This model shifts the value proposition from product ownership to access and performance, reducing material use and supporting long-term customer relationships. Companies retain ownership of products, taking responsibility for maintenance and end-of-life recovery while customers pay for the service or performance.
Key Example:
Michelin's tyre-as-a-service model retains tyre ownership, maintains performance, and refurbishes used tyres—extending lifecycle and optimizing resource use. Customers pay based on miles driven rather than purchasing the tyres outright.
Benefits:
- Predictable revenue streams through subscription models
- Reduced total material consumption
- Stronger customer relationships and loyalty
- Incentivizes durable, repairable product design
Resource Recovery Models
These models focus on capturing and repurposing end-of-life materials, turning waste streams into valuable feedstocks. By recovering embedded value in products and materials, companies can create new revenue streams while reducing environmental impact.
Key Examples:
Veolia converts industrial by-products into raw materials for cement and chemicals, unlocking new revenue while reducing landfill dependency.
Redwood Materials recovers up to 95% of lithium, cobalt, and nickel from EV batteries, fueling a circular battery economy.
Benefits:
- Creates new revenue streams from waste materials
- Reduces dependency on virgin resource extraction
- Lowers disposal costs and environmental impact
- Builds resilience against supply chain disruptions
Sharing Platforms Evolution
Digital marketplaces and peer-to-peer models maximize underutilized assets, lowering barriers to entry for circular services and engaging broader audiences. These platforms enable higher utilization rates of products, reducing the total number of items needed to meet consumer demand.
Key Example:
Patagonia's Worn Wear resale platform allows customers to trade in and purchase used gear, reducing new-goods demand and expanding global reach within two years. The program generates approximately $5 million in annual revenue while extending product lifecycles.
Benefits:
- Increases asset utilization rates
- Creates new revenue streams from existing products
- Builds community and brand loyalty
- Reduces overall resource consumption
Circular Supply Chains
These models integrate recycled and renewable inputs upstream, ensuring raw materials remain within productive loops. By designing products with circularity in mind from the start, companies can ensure materials maintain their value throughout multiple lifecycles.
Key Example:
IKEA's Circular Design principles emphasize standardization and adaptability, using renewable or recycled materials for nearly half its climate footprint. Their Buy-Back Program expanded to make over 2,700 products eligible for resale in FY24, demonstrating scalable circular services across almost all U.S. stores.
Benefits:
- Reduces dependency on volatile raw material markets
- Lowers environmental impact across the value chain
- Builds resilience against supply disruptions
- Creates opportunities for supplier collaboration
Product Life Extension & Remanufacturing
These models prioritize repair, refurbishment, and remanufacturing to prolong product lifespans, reducing waste and strengthening customer loyalty. By designing products for durability and repairability, companies can extract more value from each unit produced.
Key Example:
Patagonia's Ironclad Guarantee repair service and Worn Wear repair tours have not only kept garments in use longer but also provided critical design feedback to improve product durability. This approach has strengthened customer loyalty and reduced the environmental impact of their products.
Benefits:
- Increases customer loyalty and lifetime value
- Creates new revenue streams through repair services
- Reduces waste and environmental impact
- Provides valuable product design feedback
Circular Business Model Canvas
Use this template to map out your organization's circular business model. Each section helps you identify key components needed to implement a successful circular approach.
Key Partners
Who are your essential partners for:
- Material recovery
- Reverse logistics
- Remanufacturing
- Resale channels
Key Activities
What activities are critical for:
- Circular design
- Take-back programs
- Refurbishment
- Customer education
Value Propositions
What value do you deliver through:
- Extended product life
- Lower total cost of ownership
- Reduced environmental impact
- Enhanced performance
Customer Relationships
How do you maintain relationships via:
- Ongoing service contracts
- Repair communities
- Take-back incentives
- Loyalty programs
Revenue Streams
How do you generate revenue through:
- Service subscriptions
- Resale of refurbished products
- Recovered material sales
- Repair services
Key Resources
What resources do you need for:
- Reverse logistics infrastructure
- Remanufacturing facilities
- Digital platforms
- Circular design expertise
Case Studies
IKEA: Scaling Circular Design and Buy-Back Programs
Products eligible for buy-back and resale
Climate footprint from renewable/recycled materials
U.S. stores with circular services by FY24
IKEA has embedded circular principles throughout its business model, from product design to end-of-life recovery. Their Circular Design principles emphasize standardization, adaptability, and the use of renewable or recycled materials.
The Buy-Back & Resell program allows customers to return used IKEA furniture in exchange for store credit. The returned items are then resold in the As-Is section, giving products a second life and reducing waste. By the end of fiscal year 2024, over 2,700 products were eligible for this program.
This approach has not only reduced IKEA's environmental impact but also created new revenue streams and strengthened customer loyalty. The program demonstrates that circular business models can be scaled effectively across large retail operations.
Patagonia: Building a Global Resale and Repair Ecosystem
Annual revenue from Worn Wear
Global expansion timeframe
Annual repairs performed
Patagonia has built a comprehensive circular business model centered around product durability, repair, and resale. Their Worn Wear program allows customers to trade in used Patagonia gear for store credit, which is then cleaned, repaired, and resold.
Under Nellie Cohen's leadership, the program expanded globally to Europe, Asia-Pacific, and Latin America within just two years. This rapid scaling demonstrates the commercial viability and global appeal of circular business models.
The Ironclad Guarantee repair service complements the resale program by extending product lifespans through repair rather than replacement. This approach has not only reduced waste but also strengthened customer loyalty and provided valuable feedback for improving product design.
Circular Economy Readiness Assessment
Take this quick assessment to gauge your organization's readiness to implement circular business models.
Is Your Organization Ready for Circular Economy?
Answer 5 quick questions to assess your readiness and identify opportunities.
Ready to Implement Circular Business Models in Your Organization?
Request your Circular Business Model Blueprint from North Valley Solutions to identify the optimal models for your organization, develop implementation roadmaps, and unlock new value streams.
Expert Contributors
Dr. Ellen MacArthur
Founder, Ellen MacArthur Foundation
A pioneer in circular economy thinking and implementation, Dr. MacArthur's foundation has helped shape global understanding of circular business models.
Nellie Cohen
Architect of Patagonia's Worn Wear Program
Cohen led the development and global expansion of Patagonia's groundbreaking resale platform, demonstrating the commercial viability of circular retail models.
Related Resources
About the Author
NVS Sustainability Team
Circular Economy Practice
Our Sustainability Team specializes in helping organizations design and implement circular business models that deliver both environmental impact and financial returns.
In This Article
Circular Performance Metrics
Key metrics to track when implementing circular business models:
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