This report explores different ways to understand the relation between business model innovation and a circular economy. The aim is to provide guidance for companies, intrapreneurs in companies and organisations working with circular economy. And, to provide a structure to understand very different approaches and their outcomes.1 First, let us acknowledge that the relationship between business model innovation and circular economy is complex and rapidly changing, as both “business model innovation” and “circular economy” can be interpreted in multiple ways and are evolving fast. On the one hand it is obvious that we need to move away from linear material flows in society towards more circular flows. On the other hand, it is also obvious that the way some unsustainable companies, from fast fashion companies to car companies, are using the incremental interpretations of the concept circular economy is diverting the conversation away from their unsustainable business models. What these unsustainable companies call circular economy is often takeback systems that are incremental improvements of fundamentally unsustainable business models. This is problematic, as it undermines the idea of circular economy as a meaningful tool for sustainability. Even more problematic is the fact that this PR driven work often result in situations when media, conferences and even policy makers and researchers ignore smaller companies with truly sustainable business models invisible. Even measures and initiatives that many companies and governments call circular have been exposed as unsustainable when China, who used to be the global dumping ground for “recycled” plastic, banned import of plastic waste.2 But the same problem has existed for a long time where so called “recycling” schemes is about gathering waste in the rich countries and then export it to poor countries. E-waste to Africa is probably the most discussed problem.3

In parallel, there is a growing group of companies that are looking into new business models that are sustainable on a global scale and where the focus is on resource efficiency and circular flows that would be sustainable in an equitable world with 9-11 billion people. These companies are often small and with no PR budget. Many consultants, journalists, academics and policy makers use PR budgets from the companies with the unsustainable business models for different initiatives. This is probably why we tend to see fossil fuel companies, fast food companies, fast fashion companies and others with fundamentally unsustainable business models in media and on conference stages presented as “sustainability leaders”. The combination of different approaches by companies to sustainability and different interpretations of a circular economy have resulted in a situation when very different solutions are being promoted under flag of “circular economy”. The solutions range from trying to brand incremental recycling improvements of existing products as significant, to a rethinking of how society is organised to ensure a just transition towards a sustainable economic system with a Half-Earth4 vision. During the industrial era most of the focus has been on adding technologies to address problems without fundamentally changing the way solutions are provided. With the fourth industrial revolution this has changed, and all sectors are now experiencing different levels of disruptions. Solutions in the music industry used to focus on how the physical medium (e.g. CDs) could improve, but digitalisation allowed music to be provided in fundamentally new ways that did not even require a physical medium. Currently, similar tensions can be seen in many areas. For example, much of the focus in the area of mobility is still on improving the main physical medium for mobility (e.g. cars) and how they can be recycled. However, the ways in which cars can be used are fundamentally changing (through sharing and automatization). Even more disruptive is that much of the physical needs of mobility can be eliminated through digitalisation (teleworking, 3d printing, smart city planning, etc.). What an appropriate focus is, what tools that should be used, what expertise that is needed, and what time-horizon that is appropriate is now longer as clear as it used to be. The current complexity makes it important to clarify what kind of innovation that is promoted and for what. In order to capture different levels of technology innovations and different levels of business model innovation an innovation matrix can be used, see image 1 below. Such a matrix also helps to identify different combinations of technology- and business model innovation.