Financial returns of implementing a circular economy: A firm’s perspective

Abstract

Economic growth is considered to be desirable for all countries. However, the limited resources on our planet present a problem with the infinite resource assumption of infinite growth economic models. The circular economy concept seeks to reduces these problems by unbundling resource limitation from economic growth through the reduce, reuse, and recycle approach. This concept has been strongly adopted globally using a top-down approach. An example of this is when the Chinese government enacted a circular economy law. In other countries, however, that are driven by the private sector, the implementation has stagnated due to a perception that firms will have lower return from implementing a circular economy production system. Little research exists to confirm if their perceptions are correct or not. This paper, therefore, aims to fill this gap by studying the financial benefit/cost of implementing a circular economy from a firm’s perspective. A system dynamics method has been used in this study because no public firm was found in Thailand that claimed that they have fully implemented a circular economy concept. The system dynamics approach enables this data limitation to be overcome as this methodology allows us to examine the impact of a circular economy based on a theoretical analysis. In addition, this method shows results using graphs which are easy to understand and analyze. The results of the study show that firms that implement a circular economy concept will have better performance than firms that do not. Firms implementing a circular economy approach will have a higher profit due to an increase in revenue and also lower costs in the long term. Higher revenues come from selling products at a higher price. Even though the price increases have a negative eect on the demand, the eect is minimal and it takes a long period for this eect to happen.