【summary】
Circular economy is an economic model that emphasizes "make, use, collect, and reuse" rather than "make, use, and throw away."
The conventional linear economy has grown on the premise of mass production, mass consumption, and mass disposal. On the other hand, a circular economy aims to use resources and products for as long as possible and reduce waste and resource inputs through repair, reuse, resale, remanufacturing, recycling, etc.
It is attracting attention worldwide as a countermeasure to environmental problems and resource shortages, and the transition to a circular economy has become a policy theme in Japan as well. In the investment world, recycling, resource recovery, recycled materials, repair/reuse, sharing, and waste disposal are seen as long-term themes.
However, just because a company is connected to the circular economy does not necessarily mean it will be profitable. You need to look at recovery costs, quality control, capital investment, regulatory compliance, customer demand, and price competition.
This article is a general learning article that outlines how the circular economy works and its impact on investment. It is not a recommendation to buy or sell specific financial products or individual stocks. Stocks, investment trusts, ETFs, etc. are subject to risks such as price fluctuations, loss of principal, liquidity, exchange rates, interest rates, credit, policy changes, and changes in theme popularity.
What is circular economy?
Circular economy is an economic system that reuses resources as much as possible without discarding them.
In traditional economies, one-way flows were common:
資源採掘
↓
製造
↓
消費
↓
廃棄This is a linear economy.
In a circular economy, instead of just throwing away used products and materials, they are collected, repaired, reused, remanufactured and, if necessary, recycled.
資源
↓
製造
↓
利用
↓
回収
↓
再利用・修理・再製造
↓
再び利用The point is not just recycling.
A circular economy also includes designing products to last longer, making them easier to repair, putting them into second-hand distribution, collecting parts, and turning products into services that can be used rather than owned.
Why circular economy is attracting attention
Behind this are issues of resources, waste, climate change, and supply chains.
Limited resources
Earth's resources are not infinite.
With population growth and economic growth, demand for the following resources is likely to increase.
- Metal resources
- Water resources
- Energy resources
- wood
- Rare metal
- Food and agricultural resources
A model that simply extracts, uses, and throws away resources is vulnerable to increases in resource prices and supply shortages.
For companies, profit margins decline as raw material procurement costs rise. If you cannot pass on the price, even if sales increase, it will be difficult to make a profit.
Waste problem
A large amount of waste is generated in the world.
In particular, the following types of waste are likely to become social issues.
- plastic waste
- Electronic waste
- Food loss
- Clothing disposal
- Construction waste
More waste means more costs to incinerate, landfill, sort, transport, and maintain treatment facilities. There are also issues with marine pollution and harmful substances.
A circular economy is the idea of not only viewing waste as something to be disposed of last, but also changing the design to make it difficult to generate waste in the first place.
Climate change countermeasures
The processes of resource extraction, manufacturing, transportation, and disposal use energy and emit greenhouse gases such as CO2.
By using products for a long time and promoting reuse and remanufacturing, new resource input and manufacturing burden may be reduced.
However, collection and recycling also require energy. It is not simply a matter of saying that the environmental impact is always low because it is a circular economy.
The key is to look at the entire product lifecycle.
原材料
↓
製造
↓
輸送
↓
利用
↓
回収
↓
再利用・廃棄All this questions how to reduce resource inputs, energy, waste and costs.
Strengthening the supply chain
If you rely heavily on resources overseas, procurement may become unstable due to geopolitical risks, export restrictions, logistics disruptions, and natural disasters.
If resources can be recovered from used products and reused within the country or region, it will be easier to stabilize a portion of resource procurement.
Japanese policy also emphasizes circular economy from the perspective of dealing with resource constraints and economic security.
Differences from linear economy
To understand the circular economy, it is easy to understand how it differs from the linear economy.
| Item | Linear Economy | Circular Economy |
|---|---|---|
| Basic structure | Make, use, throw away | Make, use, collect, reuse |
| Resource use | One-way | Circular use |
| Corporate Ideas | Increasing Sales Volume | Emphasis on Product Life and Resource Efficiency |
| Waste | Easily increases | Aiming to reduce |
| Value creation | Focus on new sales | Including repair, resale, remanufacturing, and servicing |
| Main issues | Resource constraints, disposal, environmental impact | Recovery costs, quality control, profitability |
The linear economy is a model in which a company's sales tend to increase as consumers replace their products.
In a circular economy, selling a product is not the end. We consider the long-term use of value, including collection, repair, resale, parts use, and recycling.
Three basic principles of circular economy
The idea of a circular economy is sometimes described by the Ellen MacArthur Foundation and others in terms of three principles.
1. Designed to eliminate waste and pollution
In a circular economy, instead of treating waste after it has been generated, we design it so that it is less wasteful in the first place.
For example, a design like this:
- Products that are easy to disassemble *Easy to repair product *Product with easy to replace parts
- Products that are easy to use recycled materials *Products with reduced harmful substances
The important thing here is to think from the design stage.
It may be too late to think about how to recycle something after it is made. Products that contain a complex mixture of materials, cannot be disassembled with adhesive, or whose parts cannot be replaced will be difficult to reuse after collection.
2. Long-term circulation of products and resources
It is also important to preserve the value of products and materials for as long as possible.
Specifically, there are the following methods:
- Reuse
- Repair
- Refurbished (remaintenance)
- Remanufacturing
- Used sales
- Parts collection
- Material recycling
In a circular economy, the emphasis is on continuing to use products with as much value as possible, rather than immediately returning them to raw materials.
For example, you may be able to retain more value by repairing and selling a smartphone that is still usable than by melting it down to make materials. If it can be reused as a part, it may be more valuable than material recycling.
3. Regenerate natural capital
The circular economy is not just about industrial products.
It also involves changing economic activity in a way that regenerates rather than damages natural capital.
For example, consider the following.
- Use renewable resources appropriately
- Focus on soil and forest restoration
- Reduce impact on biodiversity
- Compost food waste
- Recycle biomass resources
Renewable energies such as solar and wind power are also relevant when considering resource input and environmental impact.
However, not all renewable energy and biomaterials are circular. It is necessary to look at equipment, materials, land use, and even treatment at the time of disposal.
Examples of familiar circular economy
Circular economy is not a distant policy term. It also exists in daily life.
Recycling
We collect used resources and use them again as raw materials.
Examples include aluminum cans, plastic bottles, waste paper, and metal parts.
However, recycling involves costs for sorting, collection, cleaning, and reprocessing. Quality may also decrease. That's why it's important to make things easy to recycle from the design stage.
Flea market apps and second-hand distribution
This is a system in which products that are no longer needed can be used by another person.
Clothing, home appliances, furniture, books, smartphones, etc. can extend their lifespans by using second-hand distribution.
For consumers, it has the advantage of being cheaper. For companies, while it competes with new sales, it also presents new revenue opportunities such as certified pre-owned, warranties, refurbishment, and fee income.
Car sharing
This is a model where you don't own a car, but only use it when you need it.
The idea is to increase the utilization efficiency of each device by having multiple people use assets with low utilization rates.
However, there are also costs such as vehicle maintenance costs, parking, cleaning, app management, and user etiquette. If the occupancy rate is low, it will be difficult for the business to survive.
Subscription and service
This is a model that does not sell products, but instead provides functions and usage experiences as services.
For example, there are efforts to shift ownership from ownership to usage in printers, workwear, furniture, industrial machinery, lighting, etc.
While it becomes easier for companies to collect and maintain products, it becomes important to manage inventory, maintenance, collection, churn rates, and asset efficiency.
Repair/Refurbish
We repair and maintain broken or old items and make them usable again.
Smartphones, PCs, home appliances, automobile parts, industrial machinery, etc. are areas where the repair and refurbishment market is likely to expand.
In a circular economy, value lies not only in the ability to sell new products, but also in the ability to keep them used.
How will companies change?
In a circular economy, companies' business models will also change.
The traditional sell-out model is fairly simple.
製造
↓
販売
↓
終了In a circular model, the relationship with the company continues after the sale.
製造
↓
販売・利用
↓
回収
↓
修理
↓
再販売・再利用This change presents both opportunities and burdens for companies.
The opportunity is to have longer customer touch points. It is possible to generate recurring revenue through repair, maintenance, resale, parts supply, subscription services, collection services, etc.
The burden is more things to manage. Collection networks, inventory, quality assurance, product history, repair systems, quality of recycled materials, and regulatory compliance are required.
Investors would like to see not only whether a company is working on a circular approach, but also whether those efforts are improving profit margins and cash flow.
Relationship with investment
The circular economy is also an important long-term theme for investors.
Areas of interest include:
- Recycling technology *Waste treatment
- Recycled material
- Resource recovery
- Repair/Reuse
- Used distribution
- Sharing service
- Energy saving equipment
- Renewable energy
- Environmentally friendly design
With the spread of ESG investment and sustainable investment, companies related to the circular economy are attracting more attention.
However, it is dangerous to judge based on theme alone.
The circular economy is a socially necessary theme, but whether it is a good investment target is another matter. Capital investment is too heavy, recovery costs are high, quality of recycled materials is unstable, customers do not pay high prices, and competition is fierce. In such cases, even if sales increase, it will be difficult to make a profit.
Investors would like to check the following points:
| Points to see | Things to check |
|---|---|
| Technical capabilities | Do you have strengths in collection, separation, recycling, and quality control? |
| Profitability | Is not only sales improving but also profit margin |
| Collection cost | Is the cost of collecting resources too high |
| Customer demand | Will customers choose reclaimed materials or repair services |
| Regulatory compliance | Do you have a system that can respond to policy changes |
| Capital investment | Will cash be returned for the investment amount |
| Competitive advantage | Are there barriers to entry and customer base |
In the end, it comes down to sales, profits, and cash.
Even if the theme of a circular economy is strong, companies with low profit margins and heavy capital investment should be viewed carefully. On the other hand, companies with collection networks, technology, and customer bases that can turn resource price and regulatory changes into business opportunities are more likely to attract attention over the long term.
Difference from interest economy
An interest economy is one in which people's time and attention has value.
人々の時間
↓
利用習慣
↓
広告・課金・データ活用
↓
価値創出On the other hand, circular economy focuses on the circulation of goods and resources.
資源
↓
利用
↓
回収
↓
再利用Interest economy is a way of thinking that looks at the "flow of people's attention," and circular economy is a way of thinking that looks at the "flow of resources."
| Concept | Resources being viewed | Main issues |
|---|---|---|
| Interest economy | Time, attention, usage habits | Advertising, billing, dwell time, ARPU |
| Linear Economy | Natural Resources, Products, and Waste | Mass Production, Mass Consumption, and Mass Disposal |
| Circular economy | Recovered resources, product lifespan, reuse | Repair, resale, remanufacturing, recycling |
Both are lenses for understanding the modern economy, but they look at different things.
Points that beginners tend to misunderstand
Is recycling the only circular economy?
No.
Recycling is important and part of a circular economy.
The essence lies in the overall mechanism for reducing waste. We consider everything from product design, repair, reuse, second-hand sales, parts recovery, services, and resource recovery.
Is it the same as environmental activities?
The circular economy is closely related to environmental protection, but it is much more than that.
It is also an economic strategy to use resources efficiently, reduce disposal costs, reduce supply risks, and create new business models.
For companies, this is not only an issue of environmental protection, but also of competitiveness and profitability.
Is it just expensive?
A circular economy has costs.
This is because collection, separation, repair, quality control, capital investment, data management, and regulatory compliance are required.
However, if well designed, they can also reduce raw material costs, longer customer contact points, resale revenue, and disposal costs.
What is important is to look not only at whether it is good for the environment, but also at whether it is economically viable.
Is ESG investment safe?
It doesn't necessarily mean you feel safe.
While ESG and circular economy tend to be long-term themes, investment returns are influenced by corporate performance, stock price levels, interest rates, policies, competitive environment, and supply and demand.
If you buy based on theme popularity alone, you may end up losing money if your expectations are too high.
Checklist for investors
When looking at companies related to circular economy, it will be easier to organize them if you look at them in the following order.
どの資源を循環させているか
↓
回収と再利用の技術があるか
↓
顧客がその価値にお金を払うか
↓
利益率とキャッシュフローは改善しているか
↓
長期成長余地があるかIf you want to look at it more practically, you can use the following questions:
- Are there enough resources to be collected?
- Is the collection cost too high?
- Is the quality of recycled materials and products stable?
- Is it more price competitive than new products?
- Are regulatory changes a tailwind or a burden?
- Is the profit commensurate with the capital investment? *Are you relying too much on subsidies and policy support?
- Can you maintain profit margins even if competition increases?
Circular economy is a beautiful theme. However, when it comes to investing, just having a pretty theme is not enough. We will see if it turns into a business.
Relationship with the 10 principles of economics
Circular economy is also related to the 10 principles of economics.
The following four are particularly closely related.
| Principle | Relationship with circular economy |
|---|---|
| Trade-off | Seeing the balance between low-cost mass production and resource circulation |
| Opportunity cost | Consider the value of resources lost by throwing them away |
| Incentives | Regulation, subsidies, prices, and payback systems change behavior |
| Productivity | Generating more value from limited resources |
For example, designing a product to be easier to repair may increase its initial cost. However, in the long run, it can reduce waste and generate revenue through parts replacement and maintenance.
There's a trade-off here.
In addition, whether consumers cooperate with collection efforts depends on incentives. As the convenience of point redemption, deposit systems, trade-ins, and collection points changes, people's behavior will also change.
Circular economy is a theme similar to economics itself, which considers how to use limited resources.
summary
Circular economy is an economic model that aims to repeatedly use resources and minimize waste.
The traditional flow was a one-way model as follows.
作る
↓
使う
↓
捨てるA circular economy creates the following cycles:
作る
↓
使う
↓
回収
↓
再利用The purpose is to address resource issues, waste issues, climate change, and supply chain instability.
For investors, the circular economy is also an important long-term theme for the coming decades. However, it is dangerous to make investment decisions based solely on the theme.
What you need to look at is whether it can be recovered, whether it can be reused, whether customers will pay for it, whether there will be any profit left over, and whether cash will be returned.
The circular economy is as much about resource efficiency, corporate competitiveness and profit models as it is about the environment.
Source/Reference materials
This article is an educational article that summarizes general ideas regarding circular economy, circular economy, and ESG investment. Institutions, policies and investment environments may change, so please check official information for details.
- Ellen MacArthur Foundation "Circular economy principles", Ellen MacArthur Foundation official page
- Ministry of Economy, Trade and Industry “We have formulated a growth-oriented resource-independent economy strategy”, Ministry of Economy, Trade and Industry official page
- Ministry of Economy, Trade and Industry, Hokkaido Bureau of Economy, Trade and Industry “Circular Economy”, [Official page of the Hokkaido Bureau of Economy, Trade and Industry, Ministry of Economy, Trade and Industry] (https://www.hkd.meti.go.jp/information/recycle/ce.htm)
- Ministry of the Environment "White Paper on the Environment, Recycling-based Society, and Biodiversity 2020", Ministry of the Environment official page
- Ministry of the Environment “Recycling-based society/3R related”, Ministry of the Environment official page
- J-FLEC/Investment Time “What are the risks of stock investment?” J-FLEC official page
- Confirmation date: 2026-06-09