From jewelry to food waste, companies focus on the circular economy

From jewelry and clothes to food waste, a growing number of sectors are focusing on operating as part of a “circular economy,” aiming to waste less — and reap the financial benefits in the process.

The rising cost of raw materials and a move to reduce carbon emissions could mean working in this way becomes “critical,” according to Goldman Sachs, which said the global economy could benefit to the tune of up to $4.5 trillion by 2030.

In simple terms, the circular economy refers to the process of reusing, repairing or recycling products while keeping waste to a minimum. It represents a move away from the linear model of “take-make-waste,” according to the Ellen MacArthur Foundation, a charity that researches and promotes the circular economy.

“The circular economy is not about making small, incremental changes to our current system — it’s about completely transforming the way the entire system works,” said the foundation’s Executive Lead Reniera O’Donnell, in an email to CNBC.

“A circular economy follows three principles all driven by design — eliminate waste and pollution; circulate products and materials at their highest value, and regenerate nature,” she added.

For example, Chinese company Deartree buys and refurbishes used office furniture and then sells or rents it to companies such as Microsoft, Tencent and Starbucks. Dutch company De Clique, meanwhile, collects food waste such as coffee grounds and sells them to companies who make them into new products.

Even cities are aiming to become “fully circular,” with Glasgow pledging to do so by 2045 and Amsterdam by 2050.

Working in this way can mean a shift in mindset. U.S. jewelry company Sonalore says it is “shaking up” the industry by operating an unusual business model: it will buy its pieces back from customers when they no longer want them, guaranteeing to pay the market price for gold minus a 15% fee.

For Nidhi Singhvi, the company’s co-founder and CEO, this kind of model works best for high-value products — think luxury watches or cars. “Successful business models in a circular economy depend on three components: valuable underlying assets, transparent pricing or [a] fair price set by demand and supply forces, and efficient mechanisms for resale,” she told CNBC by email.

Singhvi, who lives in California, said young people there “care deeply about sustainability.” “They dig deeper and ask questions about sourcing and supply chain, and weigh the environmental impact of what they buy,” she said.

Added to this, millennials are less wealthy than their parents and therefore think “more like investors” when shopping, considering the resale value of clothes and accessories, Singhvi said. Indeed, the market for secondhand apparel is set to reach $350 billion globally by 2028, up from $264 billion this year and growing three times faster than the clothing market overall, according to a report by fashion resale website ThredUp.

Finding companies to invest in that are operating in this new way can be tricky because of a lack of disclosures related to the circular economy, according to Goldman Sachs. The bank published an expanded list of “Adopters and Enables of Circular Economy solutions” in 2024, adding around 150 global companies to the list which now totals 875, due to a “notable increase” in such disclosures.

Its “Top Circular Enablers” — companies that align circular business models with revenue — outperformed the wider MSCI ACWI Index of large and mid-sized companies between 2021 and July 2024, the bank said.

Singapore-based manufacturer SMC Corporation, which makes industrial equipment and focuses on products that reduce emissions and raw materials, is on Goldman’s list of buy-rated “High Quality” circular economy companies. Also on the list is Chinese firm Lenovo, while its “Top Scoring overall Circular Enablers” included U.S. firm Waste Management and French company Veolia.

“A Circular Economy is critical to solving for a Low Carbon economy and Biodiversity loss, which is increasingly being recognised by investors, corporates, and politicians,” Goldman’s analysts stated.

Indeed, several European Union regulations mandate that circularity is included in product design and the EU has action plans targeting things like plastics, textiles and food waste.

Food waste is a “market failure” and an “environmental failure,” according to the U.N. Environment Programme’s 2024 Food Waste Index Report, with 1 billion meals wasted globally each day. Meanwhile, more than 700 million people were impacted by hunger every day, according to the U.N.’s report.

The Ellen MacArthur Foundation’s Big Food Redesign Challenge aims to tackle this issue. The group is set to announce details of food products that have been made in line with circular economy principles, taking things like biodiversity and water usage into account in their production.

“Currently, the way our food is designed means we bend nature to produce food but we can make different design decisions so that food can be designed for nature to thrive,” O’Donnell said.

It’s a topic that has been close to food security specialist Matthew Tan’s heart for more than two decades. “If you’ve seen what the poor earth has undergone, okay, over the last 100 years, you will agree with me that if we don’t start looking into that circularity of economy and the way we do the farming, it’s not going to look really, really bright,” Tan told CNBC by video call.

Tan is involved in several Singapore-based agriculture technology companies aiming to produce food sustainably, including KosmodeHealth, which extracts protein from spent barley grains to make noodles.

In Singapore, the government is expanding its requirements for sustainability disclosures, with the Singapore Stock Exchange mandating that the financial, agriculture and energy industries report on their climate policies and targets from 2024. This year, the construction and transportation sectors are also included.

Tan said investors are asking more questions about climate disclosures, adding that he expects a “shift” in the money market towards sustainability.

“The value of bonds, especially those relating to sustainability, they’re going to take front stage. It’s going to become more and more important,” Tan said.

For jewelry entrepreneur Singhvi, circular models can be applied to multiple industries. “Here is what excites me as a founder: we already know these models work. The real challenge and opportunity is bringing this thinking to traditionally opaque industries through technology and transparency,” she said.