Supply chain shocks and resource constraints have led many companies to develop circular business models. While these models first emerged to boost sustainability, leadership teams are finding that they can improve resilience, increase revenue, and lower costs.

A recent Bain and World Economic Forum survey of 420 global manufacturing leaders revealed that 97% of businesses that implement circular solutions do so for a broad set of reasons beyond sustainability, including profitability and competitive advantage. More than 70% expect circular business solutions to increase their revenue by 2027, and nearly two-thirds believe that these strategies will improve operational resilience. More than 50% anticipate cost savings even when accounting for high upfront investments (see Figure 1).

Figure 1

A circular business model keeps materials and products in circulation for as long as possible, slowing resource consumption. The three key types of circular solutions are recycling resources, increasing product lifespans, and sharing capacity. These strategies go far beyond reducing waste: They enable businesses to reimagine how they create, deliver, and capture value.

But the shift from a traditional linear business model to a circular one is challenging. Leadership teams must rethink core business processes, from product design and sourcing to sales models and customer relationships. Some 65% of businesses cite financial concerns, particularly high upfront investments, as a key barrier to implementing circular models. Sixty percent say that organizational hurdles, including gaps in capabilities and shareholder engagement, are obstacles. And 60% say that the lack of regulatory alignment and limited access to recycled materials can slow or deter implementation. These are the main obstacles to scaling circular models.

Despite these concerns, a growing number of multinationals have launched multiple circular solutions. A quarter of the respondents to our survey have scaled all three types of circular solutions. An additional 20% have scaled at least two types of solutions. And companies that have tapped all three report higher economic value than those that are only using one or two.  In short, the experience curve applies to circular models as much as to linear models.

Companies with successful circular business models follow a few key guidelines. They first identify the key sources of value in a circular value chain (such as recyclable materials or predictive maintenance data) and then determine how to gain preferential access to them. At the same time, they recognize how circularity is likely to alter the industry’s profit pools and competitive advantage. Timing is important. These leaders determine when circular products will become cost competitive and seek to lower production costs to accelerate consumer adoption. They also create partnerships to gain access to materials and information.

The power of circular feedstocks

One of the most direct ways that businesses create circular value is by replacing virgin materials with circular feedstocks such as recycled metals, plastics, or bio-based alternatives. This shift not only reduces environmental impact but also strengthens supply chain resilience, a critical factor in industries facing material shortages and price volatility. This circularity approach works well for most manufactured goods companies and especially for products with short lifespans. Recycling to reduce virgin material use exceeds 50% in industries with strong customer and regulatory pressure such as chemicals and packaging.

Hydro, a global aluminum producer, has made aluminum recycling the cornerstone of its circular strategy. Recycling aluminum requires just 5% of the energy needed to produce primary aluminum, drastically cutting emissions while lowering costs.

To ensure a consistent supply of high-quality recycled aluminum, the company invested in advanced sorting technologies and long-term partnerships. Hydro’s proprietary HySort technology enables precise separation of post-consumer scrap, producing alloys tailored to meet the specific needs of its customers, including Porsche and Mercedes-Benz. Industry partnerships give Hydro early access to scrap and enable the codevelopment of materials. By embedding circularity into product design and partnering with automakers, Hydro helps reduce its customers’ carbon footprints while building a strong market for its low-carbon aluminum.

Hydro’s recycled aluminum products command premium prices, and demand for recycled aluminum is expected to grow at an annual 5.4% rate, which is double the rate for virgin aluminum. To meet this rising demand, the company is scaling its efforts significantly. By 2030, it aims to process up to 1,200 kilotons of post-consumer scrap annually, a move that could generate up to $750 million in EBITDA, depending on market conditions. Scaling up comes with challenges, however, including the rising cost of scrap and substantial investments in advanced sorting and processing facilities. Hydro opened a $150 million greenfield recycler in 2023 and approved a $200 million investment into another in 2024.

Hydro’s efforts demonstrate the potential of circular feedstocks to create economic value while reducing carbon footprints. The company’s recycled aluminum currently has an average carbon footprint of just 1.9 kilograms of carbon dioxide equivalent per kilogram of aluminum—eight times lower than the industry average for primary aluminum. As more businesses prioritize low-carbon materials, companies that invest in high-quality circular feedstocks will gain a competitive edge in an increasingly resource-constrained world.

Extending product lifespans

Another approach to circularity is extending product lifespans. By designing for longevity, offering repair and refurbishment services, and creating secondary markets for used goods, companies can reduce costs, increase resilience, and create new revenue streams. This strategy is well adapted to high-value, durable goods industries, such as machinery, automotive, or technology hardware, with products that often are customized and costly to replace.

Businesses can increase the lifespans of their products by designing for circularity, offering repair, refurbishment, or upgrade services, and promoting marketplaces for used goods. Designing for circularity is the most common lifespan extension strategy, according to our survey. Cisco, for example, has adopted 25 circular design principles for its product development process. One of its standout innovations is the modular design of the Catalyst IR1101 rugged router, which allows customers to upgrade or replace individual components as technology evolves. The design not only extends the router’s lifespan but also reduces waste and improves energy efficiency. Compared with previous generations, the updated design cuts idle power consumption by 45%. Improved customer retention is another advantage of this economic model. 

Rail transport companies also are developing lifespan extension strategies. Siemens Mobility created a circular strategy that spans the entire life cycle of its rolling stock. By using predictive maintenance, refurbishment, and advanced recycling techniques, the company has extended the operational life of its trains while significantly reducing material waste. Its AI-driven Railigent-X platform optimizes fleet performance and reduces maintenance costs by up to 15%. Additive manufacturing supports circularity by enabling on-demand production of spare parts, even for obsolete models. This approach has reduced material waste by 70% while ensuring 100% availability of critical components.

By integrating circularity into its business model, Siemens has reduced its reliance on raw materials and strengthened its competitive position. The company’s ability to offer sustainable rail solutions has helped it secure major tenders as customers increasingly prioritize circularity in procurement decisions.

Lifespan extension can reduce costs, but these business models are labor intensive and require high initial investments. They also transform traditional business cycles. Companies accustomed to annual product launches and frequent model updates (such as automotive and consumer products) need to adapt to longer cycles and rethink how they design, manufacture, and support their products over time. And as companies go circular, financial markets will need to evaluate them differently, focusing less on sales of new units and more on sales of used equipment and services (at higher margins). For businesses with the right capabilities, extending a product’s lifespan delivers new revenue streams, long-term cost savings, resilience, and customer loyalty benefits.

The capacity-sharing advantage

A third path to creating circular value involves rethinking ownership models. Instead of selling products outright, businesses can offer them as a service, providing customers with access to equipment rather than requiring full ownership. This approach works particularly well for expensive, infrequently used products—such as industrial machinery; heating, ventilation, air conditioning (HVAC), and refrigeration systems; and specialized tools.

Trane Technologies implemented this model by launching rental services for HVAC and refrigeration systems. Instead of requiring customers to invest in costly equipment, Trane allows them to rent units based on their needs, reducing capital expenditures and providing flexibility. It also offers older units for short-term rental instead of scrapping them, giving a second life to its assets. This model has fueled rapid growth in Trane’s rental business, particularly in Europe, the Middle East, and Africa, where demand for energy-efficient cooling solutions has surged by more than 10% annually over the past three years.

By keeping production design consistent and recovering valuable end-of-life components, Trane minimizes costs, creates new revenue streams, and bolsters resilience. The company’s circular business model also fosters strong supplier relationships and ensures stable production levels, even in volatile markets.

Capacity-sharing solutions that create recurring revenue streams provide increased financial stability compared with one-time product sales. Retaining asset ownership allows businesses to manage maintenance and upgrades more effectively, ensuring optimal performance and extending product lifespans. And companies that control the full life cycle of their products can recover valuable end-of-life materials, further strengthening their circular strategies.

While capacity-sharing presents structural challenges—particularly for businesses that have traditionally relied on one-time sales—it offers significant advantages, including revenue diversification, higher margins for services, customer retention, and resilience. As industries continue to shift toward service-based models, companies that adapt early will be well-positioned for long-term success.

A circular future

Linear models are reaching their limits. Shortages of raw materials and global disruptions are a growing risk. Circularity offers a path forward. Businesses that embrace circular strategies will enhance financial performance, strengthen competitiveness, and future-proof their operations—all while creating more sustainable outcomes.

The transition is not easy. Leaders are reimagining their business models and investing for the future. But our research offers reasons for optimism. A growing number of companies are demonstrating that the challenges of moving to circular business models can be overcome. Leadership teams that pioneer new circular solutions will not only thrive in a resource-constrained world but also create lasting economic and environmental value.