Organizations face stricter regulations, geopolitical uncertainty and the effects of climate change. This begs the question: how do you deal more efficiently with materials and waste streams-the choices you do have influence over? Circularity seems to be the answer-but what does that mean financially? What are the costs and most importantly, what are the benefits? In this blog, we take a closer look at this issue.
The insights in this blog are based on our research by an independent research firm, among more than 500 Dutch and Belgian companies. We investigated which challenges they encounter and which opportunities they see around the financial side of circularity.
When it comes to circularity, many companies first think of costs - as our research shows. Therefore, we start with the question: what costs are involved in circularity?
Circular operations: these costs are involved
Our research shows that nearly 1 in 5 companies sees circular business operations as a cost without direct revenue. One-third indicate that financial support or incentives would help them take circular steps faster.
Why do companies automatically associate circular steps with additional costs? What makes circular business a financial challenge? We list the main costs. Do you read along?
Organizational costs
Because circular choices affect multiple departments, moving to circular operations requires good coordination. It also requires investments in time, knowledge and capacity. In practice, this means, for example:
- Processes sometimes have to be redesigned, for example by adjusting procurement criteria or setting up work processes in such a way that waste separation and material reuse become easier. It does not always have to be big: even small adjustments can provide more control over your waste streams. Consider placing waste bins in the production environment, supplemented with clear visual instructions. This can directly improve separation quality and lead to less residual waste.
- Employees in some cases need to be trained in new practices, such as how to properly separate waste and select or purchase materials that meet circular or sustainable requirements. This initially requires clear instructions. But once the working methods are clear, this quickly becomes part of daily work. Consider, for example, selecting suppliers who can be shown to use recycled materials.
- In some cases, systems must be modified to record information about waste streams, processing and reuse. This is not only useful for internal guidance, but in many cases also mandatory - for example, under the CSRD.
Operational costs
Circular operations not only require organizational changes, but also involve operational costs. Costs that often pay for themselves in the longer term. Better separation, for example, leads to less residual waste - and thus lower processing costs. Monitoring helps to identify waste more quickly and set up production processes more efficiently. In this way, operational adjustments contribute to both ecological and financial gains.
Cost price increase
Circular operations can also affect the cost price of products or services. Consider using reusable packaging or producing locally to reduce transportation-which can increase costs. Our research shows that many companies pass on some of the costs of circular measures in their final product. Especially in price-sensitive sectors, such as retail or the food industry.
For example, local production - intended to reduce transportation and carbon emissions - can entail higher labor costs.
What does circularity deliver?
Our research shows that more than a third of the organizations surveyed do not yet have a concrete picture of the returns. And that's a shame. Because companies working on circularity are already seeing returns from their circular activities, or see it as a strategic investment in the future. This makes it increasingly clear that sustainability and economic value are not mutually exclusive, but can actually reinforce each other.
But what exactly are the returns? We have listed this below, including examples from practice. We distinguish between the short and long term.
By short term we mean benefits that become visible within a few months to a year, such as less residual waste, circular procurement and the reuse of materials.
Long-term benefits are more strategic. Think of a shorter return on investment, less dependence on scarce raw materials thanks to regional closed loops and strengthening your market position. These effects often only become visible over time.
Circular procurement leads to efficient use of materials (short-term benefit)
By purchasing circularly, you consciously choose materials that are easy to recycle or reuse. Think, for example, of packaging made of one type of material or parts that are easy to disassemble. This prevents materials from ending up in residual waste-which would otherwise lead to additional costs for processing and incineration.
Sometimes people think, "But we don't throw away our products ourselves, so what do we gain from lower processing costs?" Yet circular purchasing does pay off. Not only because you avoid waste within your own processes, but also because you use raw materials more efficiently and get ahead of future obligations.
The demand for products that are easier to separate, reuse or recycle is increasing - due to legislation such as CSRD and extended producer responsibility (UPV). Circular procurement responds directly to this: you choose materials and suppliers that meet these requirements. By anticipating this, you avoid future risks such as rising waste disposal costs and insufficient preparation for new reporting requirements.
Resource efficiency (short-term benefit)
The efficient use of raw materials results in immediate financial and ecological savings. A good example comes from one of our partners in the food industry, where a large amount of rejected chips arose daily at a product location. These chips, often rejected due to packaging errors, or deviations in shape, were still in the original packaging and went straight into the container as residual waste.
This presented several challenges: the packaged chips took up a lot of space, so the
container quickly filled up and had to be emptied often. In addition, chips and packaging could not be separated from each other, making reuse impossible.
Together with Milgro, we looked at how this stream could be retained as raw material. The solution: a shredder that reduces the chips at the source and separates them from the packaging material. The result? The chips can now be safely sold as animal feed-meaning raw materials are not lost. Moreover, because the chips have been reduced in size, more of them fit in the same container. That means: less transport - and therefore lower transport costs - and less CO2 emissions.
Stronger market position (long-term advantage)
Besides direct benefits, working in a circular way also helps on a strategic level. Customers, consumers and supply chain partners increasingly demand sustainability as a condition-not only in consumer choices, but also in tenders and business partnerships.
Companies doing circular business actively respond to this. By being transparent about the origin, composition and destination of your materials, you show that you have a grip on the circular processes and take responsibility. In the long run, this also yields indirect financial benefits:
- In tenders , sustainable criteria are increasingly taken into account. A circular approach can make the difference in winning new contracts.
- It strengthens your brand or reputation. Customers are more likely to choose organizations that demonstrably fulfill their sustainability ambitions.
- Within the chain, it strengthens cooperation. Suppliers and customers look for reliable partners who move along in the direction of transparency, reuse and circularity.
In short: working circularly helps to remain relevant in a changing market.
Prepared for laws and regulations (long-term benefit)
The requirements around sustainability are becoming increasingly stringent. New laws, guidelines and reporting requirements mean that companies need to be able to demonstrate their environmental performance more and more, such as in the CSRD. Companies that are already committed to circular operations are better prepared for changes. In addition, it reduces risks. Not complying with regulations can lead to fines, reputational damage or loss of clients who make sustainability a hard requirement.
Milgro's vision
Do circularity and finance go hand in hand? At Milgro, we believe so.
Our research shows: the circular economy has the potential to generate some $4.5 trillion in additional economic value worldwide by 2030.
Circular business requires different choices - which may initially feel like investment. But in a market where sustainability is becoming increasingly important, it turns out to be precisely the companies that get moving now that will reap the benefits later. And that pays off - financially, ecologically and strategically.
At Milgro we call this: profitable sustainability. We offer our clients the most profitable solution for waste and residual streams, on the way to a world free of waste. This approach results in less waste, lower costs and a lower environmental impact.
Wondering what profitable sustainability can do for your organization? Schedule a no-obligation meeting and discover the possibilities for your organization.
Want to learn more about the research findings?
Download the research report: one for the Netherlands and one for Belgium. This gives you immediate insight into developments relevant to your market.
Ready to get started? Download our practical action plan.
