Circular Economy and Product-as-a-Service under the umbrella of Sustainability Strategy
When assessing the Circular Economy perspective, we start from Cost Pressure to Strategic Advantage in Business
In 2026, the circular economy is no longer framed as an environmental aspiration or a recycling exercise. It has become a strategic business response to rising production costs, supply-chain instability, and increasing pressure on access to critical raw materials. Companies that continue to rely on linear “make–sell–discard” models face growing financial exposure, while those that adopt circular, design-led approaches are gaining cost control, resilience, and competitive differentiation. At the center of this shift lies the integration of circular economy principles with Product-as-a-Service (PaaS) business models.
The circular economy focuses on keeping products, components, and materials in use for as long as possible at their highest value. Unlike traditional sustainability approaches that intervene at the end of a product’s life, circularity starts at the design stage. Products are conceived to be durable, repairable, upgradable, and ultimately recoverable. This design logic directly influences business economics by changing how costs, risks, and revenues are distributed over time.
From a cost perspective, the circular economy plays a crucial role in improving business efficiency. First, it reduces dependency on virgin raw materials, whose prices are increasingly volatile due to geopolitical tensions, regulatory constraints, and supply shortages. By reusing materials through refurbishment, remanufacturing, or controlled recycling, companies lower procurement costs and reduce exposure to market shocks. Second, circular products have longer lifespans and require fewer full replacements, which decreases production frequency and stabilizes operational expenses. Third, waste-related costs — including disposal, compliance, and environmental liabilities — are significantly reduced when products are designed for recovery rather than disposal.
Beyond direct cost savings, circular economy models also improve financial predictability. When materials and assets remain under company control, businesses gain greater visibility over future costs and resource availability. This predictability is increasingly valuable to investors and decision-makers, particularly in capital-intensive industries where long-term planning is essential. It is also important to note that part of the key performances in this area shall be included in the Sustainability Report under the disclosure of ESRS E5 requirements.
How can Product-as-a-Service help the circular model of a business?
Product-as-a-Service models serve as practical enablers of this circular logic. Under PaaS, companies no longer sell products outright but instead provide access to functionality, performance, or availability. Ownership of the physical product remains with the provider, while customers pay through subscriptions, usage-based fees, or performance contracts. This shift fundamentally realigns incentives across design, operations, and finance.
“The circular economy represents a systemic shift that builds long-term resilience, generates business and economic opportunities, and provides environmental and societal benefits.”
— Ellen MacArthur Foundation (2015)
When a company retains ownership of its products, it becomes economically rational to design them for durability, ease of maintenance, and multiple life cycles. Poor-quality design that leads to early failure directly harms the provider’s margins. As a result, PaaS naturally drives design-led circularity: modular components, standardized parts, and efficient disassembly are no longer “nice to have” sustainability features, but core business requirements.
From the customer’s perspective, PaaS reduces upfront capital expenditure and converts it into predictable operational costs. This lowers barriers to adoption and accelerates purchasing decisions, particularly in sectors where capital budgets are constrained. From the provider’s perspective, PaaS generates recurring revenue, increases customer retention, and strengthens long-term relationships. Revenue is no longer dependent on pushing higher sales volumes, but on maintaining reliable performance over time.
Let’s give some examples of PaaS that worked very well within the time
The real value of PaaS becomes clear when examining companies that have successfully implemented it. Philips, through its Lighting-as-a-Service model, sells lighting performance rather than luminaires. Customers benefit from reduced energy consumption and guaranteed service levels, while Philips maintains control over lighting assets, enabling refurbishment and reuse of components. This approach has delivered higher margins than traditional product sales while significantly reducing material waste.
Rolls-Royce offers another well-known example through its “Power by the Hour” model in aviation. Airlines pay based on engine operating hours rather than purchasing engines outright. This model has transformed Rolls-Royce’s business from equipment sales to long-term service provision. Engines are designed for longevity, continuous monitoring, and remanufacturing, reducing both material use and operational failures. The result is a stable revenue base for the company and improved efficiency and reliability for customers.
In the construction sector, Hilti’s Tool-as-a-Service model demonstrates how circularity and PaaS can coexist in asset-heavy environments. Customers subscribe to tools that include maintenance and replacement, eliminating unexpected downtime and repair costs. Hilti benefits from centralized refurbishment, higher asset utilization, and long-term customer loyalty. Sustainability gains are achieved through extended tool lifespans and reduced material throughput.
These examples highlight a critical point: the sustainability benefits of PaaS are inseparable from its business benefits. Reduced waste, lower emissions, and better resource efficiency are not side effects — they are outcomes of a business model designed around asset control, performance optimization, and long-term value creation.
What companies need to implement for a workable circular system?
To successfully implement such models (PaaS), companies need a clear, realistic mid-term circular economy strategy aligned with their Sustainability Strategy. This begins with a thorough assessment of existing products, material flows, and cost structures. Understanding where value is lost — through waste, premature replacement, or inefficient use — provides the foundation for identifying circular opportunities. Here, they might need to implement Six Sigma model approaches. This Six Sigma evaluation process will present many opportunities for discussion.
The next step is to determine where circular models make economic sense. Not every product should become a service. Companies must focus on areas where assets are expensive, long-lived, maintenance-intensive, or strategically important. Based on this analysis, a limited number of circular initiatives should be selected and developed, rather than attempting a broad transformation all at once.
Product and operational redesign then become essential. Circular strategies fail when legacy product designs and linear logistics remain unchanged. Reverse logistics, refurbishment processes, digital asset tracking, and service-oriented pricing models must be developed in parallel. Pilot projects play a crucial role at this stage, allowing companies to test assumptions, refine pricing, and validate customer acceptance before scaling.
Finally, circularity must be embedded into core business processes. Performance indicators, incentive systems, and investment decisions need to reflect long-term value creation rather than short-term sales volume. When this integration is achieved, the circular economy ceases to be a sustainability initiative and becomes a core business strategy area.
While circular economy and Product-as-a-Service models represent a structural shift in how value is created, delivered, and retained in business, this approach can be part of a Sustainability Strategy umbrella. In an environment defined by cost pressure, resource constraints, and uncertainty, they offer companies a way to regain control over materials, assets, and customer relationships. Those who approach circularity as a design and business transformation rather than a compliance exercise will be better positioned to compete and grow in the decade ahead.
