Time to seize the business opportunities of the circular economy 

This blog post has been co-authored with Michael Hanf, Sustainable Business Lead at VTT.

Circular economy is one of the key drivers for mitigating climate change, and meeting global climate targets requires addressing the 45% of emissions tied to material production, as the Ellen MacArthur Foundation has highlighted. However, it seems like Finnish companies have not yet truly realized its business potential, which is concerning. The need for circular solutions is strong and growing.

Businesses are increasingly recognizing the benefits of circularity but there’s still a lot of potential to unlock. A recent study conducted by VTT in cooperation with Cradelent and RISE, The Nordic Circular Economy Outlook¹, found that 88% of companies in the Nordics have integrated circularity into their strategy, with 70% expecting competitors to enhance circular capabilities.

Stainless steel producer Outokumpu exemplifies this approach, reaching 95% recycling rate in its production, reducing its carbon footprint, and dependency on virgin raw materials. Outokumpu has been able to reach up to 75% lower carbon footprint than its global competitors, creating business benefits and value for its customers from sustainability.

However, despite progress, several bottlenecks hinder a fully realized circular economy. According to The Nordic Circular Economy Outlook study, The Circular Business Index for Nordic public companies stand at just 21%, signaling substantial room for growth. The index indicates the scope of circular activities in companies.

Many companies feel stuck in traditional linear models, waiting for customer demand before making changes, according to the Outlook study. However, businesses that proactively adopt circular business models gain a significant first-mover advantage, positioning themselves as industry leaders while benefiting from early efficiencies, innovation, and strengthened brand reputation. According to a recent study by Bain&Company, more than 70% of manufacturing executives believe that circular business solutions will boost their revenue by 2027 and 65% of businesses expect circular solutions to improve their resilience.²

We see that there are three major strategies that companies should adopt to become the first-movers and reap the benefits of circularity for their business. Firstly, circularity should be a procurement priority. Businesses and public organizations need to establish clear guidelines and incentives to prioritize materials and products that enable longevity, reuse and recyclability, ensuring circularity begins at the sourcing stage.

While much still needs to be done on the broader sustainability agenda, incl. decarbonization and electrification, the steel industry has been at the forefront of efficient material usage. A targeted circularity effort that must expand to other industries. As estimated in Outokumpu’s recent white paper on the future of steel³, approximately 85% of end-of-life steel is being collected for recycling globally, as compared to for example plastics and concrete where the recyclability rates are 9% and 5% respectively.

Businesses should collaborate more widely across their value chains.

Ecosystems fostering collaboration, such as Outokumpu’s partnership with its scrap suppliers such as Cronimet, demonstrate the potential of circular business models, yet these remain isolated cases.

Lastly, leveraging business model innovation needs to become a priority. While there is research collaboration for sustainable circular solutions as outlined in a recent whitepaper by VTT⁴, European companies invest less in research and development, limiting their ability to pioneer circular solutions or improve efficiency. Infrastructure gaps further slow progress, e.g. in collection and processing capacity and efficiency, as the European Commission has identified a 27-billion-euro investment gap for the circular economy.⁵ Increased investment in R&D is necessary to develop new materials, recycling technologies, and digital tools that enhance efficiency.

Strong ecosystems and innovation needed

While the steel industry faces significant environmental challenges, including being responsible for around 7% of global energy sector CO₂ emissions, it has demonstrated how circularity can be embedded into business models through strong ecosystems, innovation, and industry-wide commitment. Steel is one of the most recycled materials globally, and circular practices within the sector, such as scrap-based production, offer important pathways to reduce its environmental footprint. To unlock full circular economy potential, policymakers, businesses, and consumers must collaborate to overcome systemic barriers, accelerate decarbonization, and support innovation in low-carbon technologies.

About the co-author

Michael Hanf is a seasoned strategy and sustainability professional with a passion for driving systemic change towards a more sustainable future. With over 25 years of international experience across consulting, entrepreneurship, and applied research, he currently leads sustainable business initiatives at VTT Technical Research Centre of Finland, one of Europe’s leading research institutions.

¹ Nordic Circular Economy Outlook 2024