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Stefanini, A. Circular Economic. Encyclopedia. Available online: https://encyclopedia.pub/entry/6069 (accessed on 16 November 2024).
Stefanini A. Circular Economic. Encyclopedia. Available at: https://encyclopedia.pub/entry/6069. Accessed November 16, 2024.
Stefanini, Alessandro. "Circular Economic" Encyclopedia, https://encyclopedia.pub/entry/6069 (accessed November 16, 2024).
Stefanini, A. (2021, January 04). Circular Economic. In Encyclopedia. https://encyclopedia.pub/entry/6069
Stefanini, Alessandro. "Circular Economic." Encyclopedia. Web. 04 January, 2021.
Circular Economic
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This entry is adapted from the peer-reviewed paper 10.3390/su122410672

The circular economy (CE) is arising as a novel economic system that is restorative by design. In light of its capability to boost sustainable economic development and to cope with environmental challenges, it has recently attracted increasing attention from academics, practitioners, policymakers, and intergovernmental organizations. 

circular economy drivers Critical Success Factor

1. Introduction

The circular economy (CE) is emerging as a novel approach to boost sustainable economic development and cope with environmental challenges and has recently attracted increasing consideration in discussions on industrial development [1][2][3].

The traditional and still dominant linear economic model based on extracting-producing-using-discarding materials and energies is unsustainable [1][4]. Although it has been followed throughout the history of humanity, the linear economic model started to assert itself strongly during the industrial revolution in the 18th century, which ignored the environmental limits and the long-term damages caused to the whole world. On the contrary, the CE represents a cyclical and regenerative economic model of production and consumption, which involves reusing, repairing, sharing, refurbishing and recycling existing materials and products for as long as possible [5][6].

Since the growing attention paid to the environmental problem and a more sustainable economic development, the CE concept and its application have attracted increasing attention from practitioners, academics, policymakers and intergovernmental organizations [6][7][8][9][10]. Accordingly, a significant number of studies have focused on the concepts defining the CE [11] and on explaining the relationship between sustainable development and CE [12].

In attempts to contribute to this change of model paradigm, a considerable number of scholars have started to explore which drivers may lead the implementations of CE initiatives by business organizations [13][14]. The improved awareness and understanding of CE drivers, in fact, may help business organizations in evaluating CE programs and governments/public authorities in providing the right incentives and legislation.

Similarly, numerous studies have been aimed at Critical Success Factors (CSFs), which may pave the way for the implementations of CE initiatives (e.g., Rizos et al., 2016; Sandvik et al., 2019) [15][16]. Such factors are the elements—e.g., company capabilities, legislation, financial funding, stakeholder awareness—which enable the implementation of CE business models and are critical in CE projects [17][18][19][20][21]. CSFs strongly influence the degree of initiation, continuation, and success of CE actions and their study may contribute a lot to the “CE transition”, which is progressively undertaken by business organizations. This makes the investigation of CFSs a very relevant and current topic from both an academic and a practical perspective [22][23] .

Recognizing the importance of both CSFs and drivers concerning the CE initiatives (e.g., Tura et al., 2019; Russel et al., 2020) [24][25], several researchers have begun their investigation. However, the literature in this field appears to be quite fragmented, with most contributions focusing on CSFs or drivers of CE in a particular economic sector and/or business function (e.g., Adams et al. 2017; Agyemang et al. 2019; Notteboom et al. 2020; Garmulewicz et al. 2018; Centobelli et al., 2020) [26][27][28][29][30] or from a specific perspective (e.g., Khan et al., 2020; Kumar and Putnam, 2008) [31][32]. Despite the high number of interesting studies, to the best of our knowledge, the literature lacks a wide-ranging, systematic, and updated identification and classification of the main drivers and CSFs, which appears increasingly necessary to facilitate future scientific works and their classification, to support practical implementations, and to drive policymakers in their CE agenda.

2. Drivers

The analysis of the 55 journal papers enabled the identification of 14 drivers for CE initiatives (Table 1): Legal and regulatory environmental framework; Support; Potential for improving cost efficiency, profitability, revenue streams, and competitiveness; Potential for new business development and innovation; Environmental concerns; Strategical concerns; Skills and capabilities for CE; Global pressure; Opportunity for job creation; Consumers’ awareness; Communication and collaboration; Supply configuration; Technology for Rs; Information and Communication Technologies. Table 1 describes the drivers and reports the contributions that help to identify them.

Furthermore, to organize and cluster the CE drivers, they were classified in 7 dimensions: Institutional; Economic; Environmental; Organizational; Social; Supply Chain; Technological. These seven dimensions seem to be accepted in the literature, as reported by [24].

Table 1. The drivers of circular economy (CE) initiatives.

Dimension

Driver

Reference

Institutional

Legal and regulatory environmental framework: policies, laws, directives, regulations, standard requirements set by institutions, including extra costs for environmental pollution and waste (inefficient consumption taxes), regulations on landfill and end-of-life.

[5][14][23][24][27][33][34][35][36][37]

Support: tax cuts, refund policies, funding, low-interest loans, subsidies policies, incentives (e.g., for developing new solutions for waste collection, for cleaner production, for repairing or renovating products instead of purchasing new ones).

[5][10][14][24][34][35][36][38]

Economic

Potential for improving cost efficiency, profitability, revenue streams, and competitiveness: transportation cost savings, resources’ efficient use and recover (Rs, rare materials included), rising resource demand, higher resources cost, cost reduction and higher profitability from circular use of resources, profitability / firm performance / competitiveness, access to funding, response to competition, reducing dependency from raw materials import, volatility of resources’ price.

[5][10][13][14][23][24][27][36][37][38][39][40][41][42][43][44][45]

Potential for new business development and innovation: new value creation, accessing green, niche or new markets.

[13][14][27][28][39][40][41][42]

 

Environmental

Environmental concerns: climate change and global warming, overconsumption of energy and resources, scarcity of resources, environmental safety, resource constraints.

[10][13][23][24][27][36][38][39][45]

Organizational

Strategical concerns: brand reputation and social responsibility, business resiliency, ISO 14001 certification, corporate strategy for CE and sustainability, change to a sustainable and competitive business model, quality of circular products, potential for differentiation and strengthening.

[5][14][23][24][27][28][39][42][44][46]

Skills and capabilities for CE: training and education for CE, development of skills and capabilities for CE, employee involvement and motivation towards CE and sustainability.

[14][24][25][39][46]

Social

Global pressure: pressure towards greening and healthier practices from community, competitors, society.

[10][14][23][24][27][28][38][45][47]

Opportunity for job creation

[23][24][41][45][47]

Consumers’ awareness: environmental awareness, shifting of consumer preferences (e.g., from ownership of assets to service models and to sustainable products).

[5][10][14][23][48][28][36][38][45]

Supply Chain

Communication and collaboration: environmental collaboration with customers / suppliers, collaboration or partnership with stakeholders (organizations, NGOs, government) within the SC, communication practices and knowledge sharing, potential for reducing supply dependence and avoiding high and volatile prices, interconnection capacity (geographical proximity, affinity of company management to work in an interconnected manner).

[5][10][14][24][26][27][38][39][40][43]

Supply configuration: SC integration, management of reverse network, supply market structure.

[5][13][14][24][39][40]

Technological

Technology for Rs

[5][13][14][24][36][37][38][43][47]

Information and Communication Technologies

[13][24][37][47]

The list of drivers here presented can answer the question “Which factors may encourage an organization to undertake CE actions?”.

As demonstrated by the review results, many elements with different natures may push business organizations to embark on CE initiatives. The most important drivers appear to be the Institutional and the economic ones [14], although the social ones are growing in importance. In particular, consumers’ awareness and global pressure seem to play a very important role in CE projects (e.g., Moktadir et al., 2018; Salim et al., 2019; Jia et al., 2020; Notteboom et al., 2020) [10][28][38][45]. For instance, [38] showed the high relevance of customer awareness for two leather-processing companies in Bangladesh. The study also discovered that this factor is more important for large-scale companies than smaller ones.

Institutional interventions from governments and other regulatory bodies heavily affect the economic choices of organizations and can really stimulate CE innovations, as well as other actions in the sustainable direction [24][35][49][50]. For this reason, institutional support and the legal and regulatory environmental framework may be the real keys to a strong future advancement of CE in the economic world, questioning the linear economic model. For example, [35] show the importance of a proper environmental legislation for municipal waste management companies, underlining how EU legislation —though appropriate public economic incentives—can be one of the major differences between the development level reached by companies in Slovenia and Serbia. While confirming the relevance of an adequate legislation, [10] remarked the preeminent importance of the institutional financial support for implementing a circular business model in the textile industry.

However, the effects of CE drivers can also highly depend on the specific context involved, e.g., the business sector, the country, and the type of organizations [23]. Although the scientific literature is quite rich, more in-depth investigations of the effects of CE drivers in different business environments are desirable. For example, different aspects can urge companies to apply CE logics in the commodity markets (e.g., paper, iron, and plastic) and in highly specialized markets (e.g., precision electronics, planes, and industrial machines). Likewise, the drivers pushing organizations toward CE initiatives may be very dissimilar between developed countries and underdeveloped ones.

3. Critical Success Factors

The analysis of the 55 journal papers also allowed the identification 13 CSFs for CE initiatives (Table 2): IS and ICT; Rs Technology; Financial support; Financial and economic sustainability; Legal and regulatory environmental framework; Public awareness; Support; CE-oriented business model; Company culture; CE-oriented knowledge and information management; CE-oriented environmental strategy; Coordination and collaboration; Consumer awareness. Table 2 describes each CSF and reports the contributions that help to identify each of them.

To the best of our knowledge, dimensions which classify CSFs of CE had not been identified in the scientific literature. Thus, we elicited through this review the dimensions in which to classify CSFs. Five dimensions were established: Technological; Economic and Financial; Institutional; Strategic; External. The identification of CE dimensions for organizing the CSFs, as reported in Table 2, should be considered a contribution of this work.

Table 2. The critical success factors (CSFs) of CE initiatives.

Dimension

Critical Success Factor

Reference

Technological

IS and ICT: includes all digital ICT technologies, digital intelligence, networks, etc.

[20][22][25][33][51][52][53][54][55][56]

Rs Technology: technological product and process innovations to enable and/or improve the Rs.

[16][26][29][31][32][42][45][54][55][56][57][58][59]

Economic and financial

Financial support: possibility to access (internal or external) funding sources.

[25][31][42][60][61][62]

Financial and economic sustainability: consistency between revenue gains/cost savings and necessary investments.

[15][18][20][25][26][27][63]

Institutional

Legal and regulatory environmental framework: national policies; laws and regulations; administrative enforcement and supervision capacity; other environmental limits (e.g., landfill practices).

[24][25][31][32][41][45][47][57][59][61][62][64]

Public awareness: increased public awareness about CE, sustainability paradigm, and the risk of pollution for environment (safety and health risks).

[25][26][33][34][42][45][57][61][64]

Support: economic support (e.g., loans, subsidies, tax cuts, incentives), legislative support from public institutions and other bureaucratic bodies.

[18][25][26][33][42][45][55][59][60]

Strategic

CE-oriented business model: includes standardization and warranties for recycled products; greater marketing of upcycled products; development of higher value secondary market; redistributed manufacturing; green purchasing; environmental management system; best practice case studies.

[22][26][32][45][55][56][57][59][60][62][65][66][67][68]

Company culture: includes trust and openness, sustainability awareness, environmental culture.

[15][18][20][24][69][70][71]

CE-oriented knowledge and information management: four phases of Knowledge Management, individual and organizational know how, education, skills, knowledge on environmental consequences, knowledge on Rs, internal coordination and collaboration, information on other industries, feasibility studies to analyze potential synergies, market knowledge, know how on sustainable technologies.

[15][18][24][25][59][60][61][62][64][69][70][72][73]

CE-oriented environmental strategy: corporate social responsibility; CE-oriented vision; policies for CE practices; commitment and support; green image.

[15][18][24][27][31][32][55][59][61][66][71]

External

Coordination and collaboration: collaboration and coordination with external stakeholders (e.g., suppliers, customers, NGOs, regulators, producers, dismantlers, recyclers, and so on) by networking, information and knowledge sharing (e.g., on components and disassembly procedures), conjoint development of products and capabilities, collaboration on CE targets for Rs, SC redesign, distributed responsibility for CE implementation across SC.

[15][16][18][20][25][33][42][54][55][56][59][61][73][74][75][76]

Consumer awareness: awareness of the consumers on CE and sustainability, including their perception towards CE and used products.

[31][32][59][60][71]

The list of CSFs here presented can answer the questions “Which are the enabling factors of CE initiatives?” and “Which capabilities/conditions may support the implementation of CE business models?”.

Many factors with different natures may enable business organizations to succeed in CE initiatives. The most important aspect seems to be the strategic one, as CE interventions usually require a strong and long-term strategy for completing the CE transition [15][18][77][78]. For example, the investigation of 61 shows the importance of a long-term strategies, in particular a CE-oriented business model, for the French companies in the electric vehicle battery field. Based on the role in the supply chain, companies should apply different business models, which determine their development and market success. In parallel to a strong long-term strategy adopted by the company managers, the awareness of consumers may also play a fundamental role in the success of CE implementations. [59], for example, showed this element, alongside others, in the wood cascading market.

The empirical case studies examined in this work also underline the very significant role played by public institutions in the CE implementations (e.g., Bathia and Kumar Srivastava, 2019; Yu et al., 2014) [14][57]. In particular, two aspect were highly relevant: the economic support—e.g., public subsided loans, non-repayable subsidies, tax cuts, and economic incentives—which public institutions may provide, and the national/regional laws and administrative authorizations, which sometimes can make the implementations of CE initiatives very tricky. Proper institutional interventions, through laws and funds, may create the conditions suitable for enabling numerous CE initiatives, increasing their percentage of success. Without this group of factors, it is difficult for business organizations to succeed in CE action, though some positive experiences are reported [64]. For instance, [57] displayed the importance of institutional support for the development of CE initiatives in North American manufacturing organizations, revealing also the very relevant effects of different state legislations/support in the USA.

As well as for the CE drivers, the CSFs are contingent to the specific context involved, such as the business sector, the country, and the type of organizations [66]. Therefore, a more in-depth examination of CSFs in different business settings is desirable, paying particular attention to the differences between developed and developing countries, given the importance of institutional backing. The products and materials involved also play a very significant role in determining which CSFs have the most impact on the CE initiatives.

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Subjects: Economics
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Alessandro Stefanini
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