By Prof. Kristjan Jespersen and Kate Jennifer Ting
The urgent need to address the environmental and economic challenges posed by the traditional “take-make-dispose” economic model has never been clearer. Global resource depletion, waste generation, and biodiversity loss demand a transformative shift in how societies and businesses operate. The circular economy (CE) presents a promising alternative, aiming to minimize waste, optimize resource use, and extend product lifecycles. However, transitioning to this model is complex and requires innovative solutions. Digital technologies emerge as pivotal enablers in driving this transition, providing tools that can facilitate the implementation of circular strategies across industries.
At the heart of the transformation is the integration of digital tools—such as the Internet of Things (IoT), artificial intelligence (AI), and blockchain—into circular business models. These technologies enable companies to innovate across product design, manufacturing, usage, and end-of-life stages, ensuring materials are reused, recycled, or repurposed rather than discarded. Understanding how businesses adopt and implement these technologies offers valuable insights into the potential and limitations of digital-enabled circularity.
Understanding the Landscape: Methodological Insights
To explore the intersection of digital technologies and the circular economy, research was conducted with Danish companies actively collaborating with technology and consultancy providers. An interpretivist and exploratory approach was employed, incorporating qualitative and quantitative methods. Semi-structured interviews provided a detailed understanding of the drivers, challenges, and impacts of digital technology on CE implementation.
The analysis was guided by frameworks such as the 9R strategies (Refuse, Rethink, Reduce, Reuse, etc.) and Product Life Cycle (PLC) stages, offering a structured lens to evaluate digital interventions. These frameworks enabled the identification of patterns and best practices, while theoretical perspectives such as the Natural Resource-Based View (NRBV) and Organizational Information Processing Theory (OIPT) provided deeper context on resource utilization and information management.
Key Findings
1. Bridging Awareness and Action
The study revealed that Danish companies exhibit varying levels of awareness and adoption of circular strategies. While recycling and remanufacturing are commonly implemented, strategies like rethinking and reducing—critical for early-stage interventions—are less prevalent. Awareness is highest in sectors with strong regulatory frameworks and consumer demand for sustainability, highlighting the role of external pressures in driving adoption.
2. Digital Technologies as the Game Changer
Digital technologies were found to be instrumental in supporting CE strategies across all stages of the product lifecycle. Key examples include:
- IoT: Enabled real-time tracking of materials, improving logistics and facilitating reuse and remanufacturing efforts.
- AI: Optimized resource allocation through predictive analytics, enhancing operational efficiency and decision-making.
- Blockchain: Enhanced transparency and traceability within supply chains, ensuring compliance with CE principles and reducing inefficiencies.
- Digital Product Passports (DPPs): Provided critical data on product composition and lifecycle, aiding recycling, repair, and remanufacturing effort and therefore supports a wide array of circular strategies across several product lifecycle stages.
These technologies demonstrate significant potential in addressing key challenges related to circular economy (CE) implementation, such as material traceability, data fragmentation, and the creation of collaborative ecosystems. The table below summarizes the most common applications of digital capabilities found in enabling circular strategies:
3. Drivers and Challenges
The study identified several drivers that encourage the adoption of digital-enabled CE models:
- Regulatory frameworks: Policies such as the EU’s Circular Economy Action Plan and Corporate Sustainability Reporting Directive incentivize businesses to embrace sustainability.
- Consumer demand: Increasingly, customers value and prefer sustainable products, pushing companies to innovate.
- Internal motivations: Cost savings, risk mitigation, and brand differentiation also play a role.
However, several barriers hinder progress:
- High implementation costs: The initial investments required for digital infrastructure, particularly for SMEs, remain a significant hurdle.
- Cultural resistance: Organizational inertia and lack of awareness often impede the transition to CE models.
- Fragmented data systems: Siloed and non-interoperable digital platforms limit the seamless integration of CE strategies.
4. Innovating Business Models
The research highlighted how digital technologies are enabling the shift to innovative business models such as Product-as-a-Service (PaaS). These models emphasize extending product lifecycles through rental, repair, and refurbishment services, reducing waste and creating new revenue streams. For example, take-back systems supported by IoT and blockchain have become effective tools for ensuring products re-enter the value chain.
Companies adopting these models report enhanced customer engagement, streamlined operations, and alignment with sustainability goals. However, scaling these efforts requires significant collaboration across value chains and alignment with broader regulatory and market trends.
Implications and Future Directions
The findings underscore the critical role of digital tools in advancing CE goals but also highlight the systemic challenges that need to be addressed. Collaborative ecosystems—spanning suppliers, technology providers, and regulators—are essential for achieving seamless integration of circular strategies. Building trust, transparency, and interoperability within these ecosystems is key.
Moreover, fostering a cultural shift within organizations is crucial. Leadership must prioritize sustainability as a strategic objective, embedding CE principles into core business practices. Investing in talent and fostering a data-driven culture are equally important for leveraging the full potential of digital technologies.
Scaling these efforts will also require targeted support for smaller enterprises, which often lack the financial and technical resources to implement CE strategies. Policymakers can play a pivotal role by providing incentives, reducing barriers to technology adoption, and fostering public-private partnerships.
Conclusion: Turning Potential into Reality
The integration of digital technologies into circular economy strategies offers a path toward sustainable and resilient business practices. By addressing existing barriers and fostering innovation, companies can transition from linear to circular models, achieving both environmental and economic benefits. The experiences of Danish companies provide a valuable roadmap for others, illustrating the transformative potential of digital-enabled circularity. As the urgency for sustainable solutions grows, the EU stands as a model for leading this global transformation.
About the Authors:
Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.