Aiming for a circular economy

The ‘circular economy’ is gaining momentum as a concept in both academic and policy circles, and circular business models have been linked to significant economic benefits. The circular economy has been described as an industrial economy that relies on the restorative capacity of natural resources and aims to minimise – if not eliminate – waste, utilise renewable sources of energy and phase out the use of harmful substances.288 The circular economy involves a distinction and careful management of two different types of materials within a closed-loop economy:1 materials of biological origin which can return to the biosphere as feedstock (called biological nutrients, e.g. forest products) and technical materials which cannot.289 Such an economy goes beyond the ‘end of pipe’ approaches of the linear economy) and seeks transformational changes across the breadth of the value chain in order to retain both types of materials in the ‘circular economy loop’ and preserve their value for as long as possible.290

The concept of the circular economy reflects the recognition that systems of production and consumption by MSMEs need to be transformed fundamentally to achieve the 2030 agenda and Paris Agreement goals. This is because Asia-Pacific economic growth depends on uninterrupted flow of natural resources and materials, including water, timber, metals, minerals and energy carriers of MSMEs, with imports providing substantial proportion of these materials in many countries. Increasing, this dependency could be a source of vulnerability.291 Uncertain and unstable prices can also disrupt the operations and profit margins of MSMEs, forcing companies to lay off people, defer investment or stop providing goods and services.

Creating a circular economy for MSMEs can help to address many economic, environmental and social challenges. Unlike the traditional linear take-make -consume-dispose approach, a circular economy at MSME either on the value chain or at cluster level seeks to respect planetary boundaries through increasing the share of recyclable resources while reducing the consumption of raw materials and energy and at the same time cutting emissions and material loss. Approaches such as eco-design and sharing, reusing, repairing, refurbishing and recycling existing products and materials will play a significant role in maintaining the utility of products, components and materials and retaining their local value.


288 Ellen MacArthur Foundation (2012), “Towards the Circular Economy. Economic and business rationale for an accelerated transition”, Cowes: Ellen MacArthur Foundation.

289 Ellen MacArthur Foundation (2013), “Towards the Circular Economy. Opportunities for the consumer goods sector”, Cowes: Ellen MacArthur Foundation.

290 World Economic Forum, Ellen MacArthur Foundation and McKinsey & Company (2014), “Towards the Circular Economy: Accelerating the scale-up across global supply chains”, Geneva: World Economic Forum.

291 Rizos V., Behrens A., Kafyeke T., Hirschnitz-Garbers M., Ioannou A. The circular economy: Barriers and Opportunities for SMEs (small and medium-sized enterprises) 2015.