CIRCULAR BUSINESS MODELSFOR THE BUILT ENVIRONMENTELLEN MACARTHUR FOUNDATIONThe Ellen MacArthur Foundation was created in 2010 to accelerate the transition to a circular economy. The Foundation’s work
across five areas: insight and analysis, business and government, education and training, systemic initiatives, and communication.
The Foundation collaborates with its Global Partners (Cisco, Danone, Google, H&M, Intesa Sanpaolo, Nike, Philips, Renault, Unilever)and its CE100 network (Corporates, Universities, Emerging Innovators, Governments & Cities, and Affiliate organisations), to build
capacity, explore collaboration opportunities, and to develop circular business initiatives.

CONTENTS
1Introduction................................................................................................................................................................1

1.1

Forward from the Ellen MacArthur Foundation.............................................................................................................3

2

Circular economy: an opportunity for the construction industry..................................................................................5

2.1

Construction industry today........................................................................................................................................7

2.2

Benefits of moving to a circular economy.....................................................................................................................9

2.3

Value proposition.......................................................................................................................................................103

Implications for the construction ecosystem..............................................................................................................11

3.1

Current building development cycle ..........................................................................................................................13

3.2

Building ecosystem....................................................................................................................................................15

4

Circular business models............................................................................................................................................19

4.1

Circular business models in the current value chain....................................................................................................21

4.2

Business models.........................................................................................................................................................23

5

A new value chain......................................................................................................................................................33

5.1

Opportunities and challenges across a circular value chain ........................................................................................35

6

Conclusions...............................................................................................................................................................41

6.1

Summary...................................................................................................................................................................43

CE100
The Circular Economy 100 is a pre-competitive innovation programme established to enable organisations to develop newopportunities and realise their circular economy ambitions faster. It brings together corporates, governments and cities, academic
institutions, emerging innovators and affiliates in a unique multi-stakeholder platform. Specially developed programme elements
help members learn, build capacity, network and collaborate with key organisations around the circular economy.

CO.PROJECT
Co.Projects are opportunities for formal collaboration between CE100 members. They are driven by members, for members andtheir focus can range from research initiatives to pilots to toolkits. Co.Projects leverage the CE100 network with the aim of exploring
opportunities and overcoming challenges which are commonly and collectively faced by organisations making the transition to acircular economy, and which organisations may not be able to address in isolation.

ACKNOWLEDGEMENTS
Authors:
Guglielmo Carra, Arup
Nitesh Magdani, BAM
Contributors:
Carol Lemmens, Richard Boyd, Kristian Steele,
Michael Peasland (Arup)
Jesse Putzel, Sander Holm, Julia Messenger,
Kris Karslake (BAM)
Stuart Whitman, Miranda Schnitger,
Casper Jorna (The Ellen MacArthur Foundation)

Thanks to:
ABN AMRO, Mark van Rijt
ArcelorMittal, Dr. Alan Knight
Armstrong, Jeremy Sumeray
Desso, Elodie Jupin
IBM, Jad Oseyran
Imperial College London, M.Sc. Environmental
Technology students, care of Dr Mike Tennant   
Niaga, Lukas Hoex
Philips Lighting, Anton Brummelhuis
Rockwool, Mirella Vitale
UK Green Building Council, Julie Hirigoyen

Front cover image: ‘Circular Building’, London Design Festival 2016, R&D project designed and developed by Arup,
BAM, Frener & Reifer and The Built Environment Trust

1

INTRODUCTION

To instil confidence and reduce the uncertainty surrounding
Circular Business Models (CBMs) within the built environment
sector, this report explores ways CBMs provide added
benefits throughout the value chain. By highlighting thevalue proposition to all stakeholders, it is intended that morecompanies will see the benefit of contributing to a built
environment based on a circular economy.
However, CBMs cannot be achieved without intervention, as
in today’s economy there are numerous examples of where it
is currently perceived as more cost effective and convenient
to dispose of resources after their first use rather than re-use
them. By taking a systemic view across the whole life cycle ofassets, using new technologies and applying advance design
approaches, additional value could be created. This value will
demonstrate an economic business case for adopting CBMs, aswell as providing wider global benefits (financial, socialand environmental).
Funders, owners and occupiers will be fundamental to drivinga ‘circular built environment’, by choosing to adopt alternative
development strategies, ownerships structures and operations
models. However architects, designers, engineers, suppliers,
contractors and facilities managers will have a crucial role increating circular solutions to facilitate a move to CBMs.

Image: ‘Circular Building’, London Design Festival 2016, R&D project designed and developed by Arup, BAM, Frener & Reifer and The Built
Environment Trust. Photo credit: Autex, providers of detachable acoustic fabric made from recycled bottles.
1

The content of this report is applicable to the built environment
as a whole, but many of the examples cited focus oncommercial building developments. The general principles
are the same for other project types, i.e. infrastructure / PPP,
although the use periods, ownership models and supply chaininteractions differ accordingly.

The built environment offers
a huge opportunity for businesses,
governments and cities to play aleading role in realising circular
economy without having to wait
for the transformation of thewhole system. Tangible examples
that develop in this space canact as a catalyst for a shift in how
our cities and urban areas operate
in the future.
Casper Jorna, CE100 Programme Lead,
The Ellen MacArthur Foundation
21.1

FORWARD FROM THE ELLEN MACARTHUR FOUNDATION70%

OF BUILDINGS THATWILL STAND IN 2030
ARE YET TO BE
BUILT IN INDIA (6)Due to their density and network effects, cities have an enormous potential
to decouple high-quality lifestyles from material consumption and negative
externalities. These challenges and opportunities will only grow: by 2050, 66%of the global population is expected to live in urban areas, up from 54% in 2014 (1).
It is perhaps no surprise that the global construction industry is the largest  
consumer of resources and raw materials of any sector. Fast growing cities have
CITIES CONSUME
a tremendous opportunity to take advantage of system-level ideas thatharness digital technologies to help share vehicles and buildings, trackmaterials and increase access to services. Mature cities also have
OF GLOBALPRIMARY ENERGY (3)plenty of scope to improve resource outcomes: 60–65% ofEuropean office space, for instance, is under-utilised evenduring working hours (2). Applying circular economy
principles to the design of urban infrastructure canbe foundational to providing cities with inclusive
CITIES ARE RESPONSIBLE FOR
economies that work in the long term.
(4)

75%

700 - 900

When discussing the value proposition of
circular economy, there is potential for mostparties to benefit. However in practice, sofar, the client or end user seems the highest
benefactor. There are examples of a few large
manufacturers or suppliers that have clearly
developed their business models by selling
performance contracts e.g. Phillips pay-perlux model. The following years will see arise in the number of smaller organisations
bringing new business models to market.
Designers, contractors and suppliers will needto consider longer term relationships, whilst
the demolition landscape is set to radicallytransform, with maximising material/asset
value becoming a key deciding factor.

MILLION m2
COMMERCIAL
AND RESIDENTIALSPACE MUST BE
BUILT EVERY YEARIN INDIA (7)70%

OF GLOBAL CO2 EMISSIONS

BY

2025

THE PREDICTEDURBAN POPULATION
OF CHINA IS
1 BILLION... (8)...WHICH WILLLIVE IN

221

CITIES WITH
OVER 1 MILLIONINHABITANTS... (8)...AND IN
CITIES CONSUME

75%

OF THE WORLD’SPRODUCTION
OF NATURALRESOURCES (5)323

MEGACITIES WITH
POPULATION OVER
5 MILLION (8)42CIRCULAR ECONOMY:AN OPPORTUNITY FOR THE
CONSTRUCTION INDUSTRY

The circular economy presents existing businesses with
opportunities and risks. Work undertaken by the McKinsey
Centre for Business and Environment in 2015 identified apotential boost of €1.8 trillion to the EU economy by 2030 (9).
At the same time, disruptive innovators are adopting new
business models using circular economy principles andtransforming established markets with incredible speed.
The application of circular economy to the constructionindustry requires a systems-thinking approach, one which
gives an understanding of the whole building lifecycle and theconstruction value chain, or in other words, understanding thewider context in which development takes place. Only oncethe value chain is fully understood can the opportunities of thecircular economy be realised.

We live in a world of 7.5 billion
people, all seeking a good qualityof life. This challenge, coupled withclimate change, means our longterm prosperity depends on creating
sustainable lifestyles for everyone. We
need materials that can be used time
and time again. Steel is that product,
and the continuous invention of newsteels means that it has a key role toplay in the future.
Image: Biocomposite materials used for creating building construction systems in the BioBuild project. ARUP & GXN Innovation.
5

Dr Alan Knight, ArcelorMittal
6

2.1

CONSTRUCTION INDUSTRY TODAY

The construction industry
produces waste materials that arehighly recyclable. Landfill taxes
and other financial incentives
have increased the amount ofconstruction, demolition andexcavation waste that is recycled
and recovered.

CONSTRUCTION,
DEMOLITION AND
EXCAVATION WASTE
ACCOUNTS FOR
APPROXIMATELYTHE CONSTRUCTION
AND OPERATION OF
THE BUILT ENVIRONMENTCONSUMES

25-30%OF ALL WASTE ARISING(13)
IN THE EU

60%
OF ALL MATERIALSIN THE UK

GLOBAL CONSTRUCTIONOUTPUT ESTIMATED
TO GROW BY

(10)

85%

TO $15.5 TRILLIONWORLDWIDE(12)EUROPEANS NEEDBETWEEN

2&3

In the UK more than 90% ofConstruction and Demolition waste
was diverted from landfill in 2014 (11)7PLANETS’ WORTH
OF RESOURCES TOSUSTAIN THEIR CURRENTLIFESTYLES (14)The circular economy means much more thanlow grade recycling and energy recovery.
Therefore there are still challenges for theconstruction industry to adopt more circular
economic business models.
8

2.2

BENEFITS OF MOVING TO A CIRCULAR ECONOMY

The circular economy will help businesses save on
raw material cost as well as waste management
costs, in line with the EU Waste Framework Directive.
In light of rising landfill tax rates in the UK, reducing
the volume of waste going to landfill would result in
substantial financial benefits for businesses.
There will be little or no waste to landfill andenvironments will be enriched by biological nutrients
reintroduced into the biosphere through composting
and bio-digesters.
Growth will be de-coupled from resource extraction
due to closed loops of technical components andincrease of sustainable renewable materials. Fewer
resources will be extracted thus reducing the impact
on the climate.

...IN RESOURCE EFFICIENCYIS WORTH AS MUCH AS

1%€23 billion
FOR BUSINESS (16)additional value will be created through the operation, with
benefits for the asset value and waste production - as outlined
below.

Enabling factors
DesignInformation

Collaboration

Deconstruction
Reassembly
Future flexibility

Cost / condition
Resource productivity
Life cycle data
Ownership
Warranty
Traceability

Share incentivisation
Transparency
Innovation → new products
Longer term business models vsshort term

200,000

JOBS BY 2030. THIS COULD
DOUBLE WITH MORE
CHANGE FROM CURRENT
BUSINESS MODELS (17)Expected outcomesA CHANGE OF SOCIETALMINDSETIS FUNDAMENTAL FOR THE
CIRCULAR ECONOMY TO
FLOURISH

9

VALUE PROPOSITION

To maximise the value from a circular economy there are several
enabling factors which will be needed. Generally these fall into
3 categories - design, information and collaboration. As a result

By adopting circular economy business models,the focus will shift to sourcing sustainably,
maintaining material productivity over the lifecycleof developments, and reducing losses of nonrenewable materials. This will produce financial,social and environmental benefits.
The market for a circular economy is growing andit is estimated that over the next 10 years, this will
boost economic growth by up to 4% (15).

2.3

Operation

Asset

Waste

Performance over ownership
Better utilisation
More consumer choices

Materials and products kept at
highest value for longer
Maintenance and replacement certainty
Total cost benefits

Material security
Waste reductions over life cycle in use
Open and closed loop solutions

10

3

IMPLICATIONS FOR THE
CONSTRUCTION ECOSYSTEMAt present, there are inefficiencies in construction businessmodels, increasing costs at all stages of the commercial
development cycle.
MANUFACTURE
The global economy is spending 30% more natural resources
than it can actually afford (18).
UTILISATION
During their service life, buildings and the built environment
assets are not used to their full potential, e.g. it is estimated that
office buildings are only used up to 65% of their capacity (19).
END OF LIFE
The true value of these assets are not always considered becauseof the cost of maintaining plant, systems, interior finishes, fitout, etc. are often not borne by the same clients. This presentsa challenge and an opportunity for the industry to appreciate a
product’s value in relation to a circular business model (CBM).

Image: ABN AMRO circular pavilion, Amsterdam. Architect: CIE; Contractor: BAM.  Image provided by CIE.
11

The circular economy when applied to a building development
cycle will address these inefficiencies. Arup has investigated thedevelopment cycle for a commercial building to understandwhere circular economy principles will have the biggest
impact(20). Value is added by increasing the ability of assets to
respond flexibly to market conditions, increasing asset use,diversifying income streams and maximising the residual
value of a building’s materials. Challenges and opportunities
exist in meeting initial research and development costs,
financing business model transitions and fostering sufficientcollaboration between industry actors to achieve and share thepotential system-level benefits.

In my view the most important
catalyst for sustainable construction
has to be the measurement,
management and disclosure ofenvironmental and social impacts
throughout the entire supply
chain. This should encourage
more innovative procurement andcontractual models that encourage
circular design practices, and a whole
life cost approach to design andbuilding practices.
Julie Hirigoyen, UK Green Building Council
12

3.1

CURRENT BUILDING DEVELOPMENT CYCLE

The current building development cycle creates loss of value
and externalities at each stage. To reduce this inefficiency, eachstakeholder within the value chain needs to interrogate theirproduct / role and consider how they could create further value
instead of waste.
The design often cannot
account for changes touser requirements in thebuilding

Components are cut
and assembled on site,
creating waste

Construction
Contractors

Information about how the built
asset is assembled is not retainedin the most useful format,
considering maintenance and endof life scenarios

High value of material islost at demolition because
components cannot bedisassembled

Demolition
Demolition contractor
Recycling facilities

Components are built
and often cannot be fully
disassembled

Materials are normally
down-cycled, reducing
their value

Waste is inadvertently
designed into the building
Manufacturers only
guarantee performanceat point of sale

Manufacture
Manufacturers
DesignArchitects
Engineers

Waste materials areoften hard to segregate

Landfill / recycling
Recycling

Virgin materials arenormally used, rather
than materials with highrecycled content

Briefing
ClientLogistics
Suppliers

Clients rarely consider the
residual value of the building

13

It is currently difficult
to return materials to
manufacturers

Logistic companies do nottrack where products havebeen installed

Asset owners do not haveenough information toeasily reuse or repurpose
their assets effectively

Use
Tenants
OwnersDevelopers
Facility managers
Investors

Buildings are often underutilised. Leases do notoffer sufficient flexibility

Building is not adaptablefor different uses

14

3.2

BUILDING ECOSYSTEM

Stakeholders throughout the building ecosystem will all playa role in the transition to the circular economy - these include
investors, tenants and government.
3.2.1 INDUSTRY COLLABORATION
The potential for the circular economy to change the ecosystem
and value chain around the design, construction, operation,
renewal and repurposing of buildings is high. In practical terms,
it requires designers and investors to take a longer-term view,
focusing on the lifecycle of a building and carefully mapping
the past, present and future use of materials and components
within the wider economic ecosystem.
To do that, suitable material databases – as already used in
the automotive and aerospace sectors – need to be created tostore the information required to facilitate reuse as well as todemonstrate residual value of materials at the building’s end oflife. This requires high levels of collaboration and informationexchange, as well as tools and incentives that allow investors
to receive a financial return on the residual value of buildings at
the end of life.
New tools and platforms will support the change; theconstruction industry is already using Building Information
Modelling or BIM, which combines people, processes andtechnology, to drive efficiency and improve performance.

15

HOT-DESKING, FLEXIBLEWORKING AND MOBILETECHNOLOGY WILL REDUCE
THE TOTAL NUMBER OF
DESKS NEEDEDDIGITALISATION OF
INFORMATION AND
THE MOVE TOWARDS A
PAPERLESS OFFICE WILLREDUCE THE NEED FOR
OFFICE STORAGE

3.2.2 A NEW ROLE FOR INVESTORSAs stated in the Growth Within report(9), the transition to
circular models would involve considerable investments;
research and development, asset investments, stranded
investments, subsidy payments to promote market
penetration of new products and public expenditure for
digital infrastructure.
Current financing models use past performance to predict
future results. This approach is based on the assumption thatexisting systems are fit for purpose and does not recognise
the investment required to prepare for a more circular way ofworking. Business leaders looking to adopt circular economy
business models need investors who use different approaches
to assess value and risk.
Some investors are already preparing to adopt a different
approach. Banks such as ABN AMRO, ING, Rabobank and Intesa
Sanpaolo are actively looking into how they can exploit thisopportunity, while venture capital and private equity firms,
such as Ecomachines Ventures, ArcTern Ventures and Circularity
Capital, are working with circular start-ups and existing
businesses to create the next generation of high-growth,
low-impact companies.
3.2.3 CHANGING TENANT REQUIREMENTS
A circular building will be occupied very differently to theequivalent building of today. Exactly how these changes impact
tenancy agreements needs to be explored, with input fromtenants, agents and building owners.

FUTURE

CURRENTCHANGING PATTERNS OF
WORK AND GROWINGPRESSURE ON LAND FOR
HOUSING MAY MEAN
THAT OUR COMMERCIAL
BUILDINGS WILL BE
VERY DIFFERENT IN THE
FUTURE AND WILL NEEDTO FLEX WITH DEMAND.
COMMERCIAL BUILDINGSWILL BE ABLE TO PROVIDESPACE FOR OTHER USERS E.G.
HOUSING OR CARE, THUS
BRINGING NEW ‘TENANT’TYPES AS WORKINGCULTURES AND NEEDS
CHANGERATHER THAN RENTINGFLOORSPACE, TENANTS
WILL RENT WORKSPACE,ALLOWING THEIROVERHEADS TO FLEXIBLYRESPOND TO CHANGING
BUSINESS NEEDSDIFFERENT USERS TO
USE THE SAME SPACEAT DIFFERENT TIMES OF
THE DAY, FULFILLING ITSCAPACITY

Office spacefor lease

£

£

WORK

16

3.2.4 GOVERNMENT POLICY
The circular economy is becoming of increasing importanceto governance groups, with the European Union developinga circular economy action plan for the recovery of valuable
resources and more efficient  waste management to improvethe environmental performance of buildings (21).

Government policy has a role to playin easing or restricting the transition
to the circular economy. Policies
around taxation of consumption,legal structures, industrial strategy
and building code regulation need tobe reconsidered. For example, in theUK, new construction is exempt from
VAT, while retrofit is not, adding a 20%
cost burden that could discourage
refurbishment projects. However,taxation in Europe is starting tochange, in Sweden, the government
introduced a lower rate of VAT for
repairs on items.

17

Two Danish Government agencies
were involved in creating a policy
toolkit that describes a step-by-stepmethod for embarking on the circular
economy transition and demonstrates
its application through a local casestudy (22).

3.2.5 FUTURE INNOVATIONS
New technology will play a significant role in moving thebuilt environment towards the circular economy. Building
Information Modelling (BIM) is already wide spread throughout
the construction industry and has helped to reduced waste in
the construction process through the easier management of
information from different stakeholders. With the evolution of
new technology including digital platforms, product passports,
3D printers and tagging sensors it is clear that future innovation
will alter the building lifecycle process.

Businesses that engage withgovernment at local, regional andnational level will influence how
policies are changed to support
the circular economy. The Dutch
government has been a leader informing partnerships with businessto realise a circular economy. In
2014, they developed a specificcircular economy programme – theRealisation of Acceleration of a Circular
Economy (RACE). Using design todevelop new products and inspire
new business models was central to
RACE’s approach.

DIGITAL PLATFORMS
Digital platforms offer an opportunity for stakeholders in theconstruction industry to collaborate both in the short and longterm. There are already numerous websites which allow users tosell and purchase surplus materials from construction projects.
However there is opportunity for a platform to be used to
track and advertise materials which are currently “locked” inbuildings. Then when the building comes to end of life thesematerials could be purchased by another development, thus
enabling circularity for the building materials and components.
PRODUCT PASSPORTS
To enable digital platforms to work successfully, certain
information about materials and components will need tobe made available. Product passports allow products to havetraceability and retain electronic information which cantranslate to their residual value at end of life. An example ofwork in this area is the “Buildings As Material Banks” (BAMB)
consortium which is working to develop and expand thematerial passport concept(23).
3D PRINTING
New technology such as 3D printing may alter the way
buildings are constructed and materials are purchased. Insteadof traditional purchases for small items, contractors may

download plans for certain components which will then be
printed on site. As material research advances, new materials
may be used for printing.
TAGGING SENSORSWith the development of smart cities, information will bereadily available about the status of components in the built
environment, which can facilitate timely refurbishment.
This in turn may alter the way contracts are formed as has been
demonstrated with the A12 motorway in the Netherlands. Here
there is guaranteed payment for the number of lanes open at
any given time, which has encouraged the contractor to use
sensors in the asphalt to monitor the state of the lanes, and toensure high standards of material and construction have beenachieved from the outset.

Construction industry models
are being reshaped in the context of
the Circular Economy, reinventing
the business models of the existing
conventional players and introducing
new actors such as ‘urban miners’.
This is largely enabled by intelligent
insights from integration of therelevant data.
Jad Oseyran, IBM
18

4

CIRCULAR BUSINESS MODELS

To support the transition to the circular economy, governance,
regulations and business models will play a crucial role.
More importantly circular business models (CBMs) would
allow the retention of an asset at its highest value over timeand support enhancement of natural capital. Different CBMs
will be required at different stages of a lifecycle of an asset
and may work independently or collaboratively. Successful
implementation of these business models will require action
from designers, suppliers, service providers, contractors andend-of-life companies by sharing materials, systems, energy, as
well as information and services.
New business models would allow:• Greater control of resource streams through the value
chain so the added value can be identified and captured.
• Innovation through the supply chain so new entities
can be generated such as business in waste handling,refurbishment and reverse logistics.
• Enhanced collaboration within the supply chain
amongst all actors.
• Creation of services that capture valuable
products / resources

Image: Brummen Town Hall. Client: Municipality of Brummen; Architect: Rau; Contractor: BAM
19

The ROCKWOOL Group isdedicated to driving a sustainablebusiness model in part by changing
the industrial approach of ‘take, make,dispose’ to a more circular approach,where products are recycled, upcycled
and reused.
Mirella Vitale, Rockwool
20

LIFETIME EXTENSION

4.1

CIRCULAR BUSINESS MODELS IN THE CURRENT VALUE CHAIN

In this case, the aim is to extend theservice life of products, components
and systems through engineeringsolutions including easy disassembly
and reassembly, repair, maintenanceand/or upgrade.

TRACKING FACILITYCIRCULAR USE

CIRCULAR DESIGNThis model aims to provide services
to facilitate the tracking of materials,
components and parts of a system sothat they can be marketed and tradedin secondary raw materials markets.

CIRCULAR RECOVERYThis diagram demonstrates that there are multiple circularbusiness models (CBMs) which can be grouped into three
categories: design, use and recovery - these relate to the stage ofthe building lifecycle when they will be engaged.

SUPPORT LIFECYCLESELL AND BUY-BACK
In this case, a product is sold on thebasis that it will be purchased backafter a period of time.
MAINTAIN AND
IMPROVE

Consumables, spare parts and addons to support the lifecycle of longlasting products.

PRODUCT AS A SERVICEThis CBM aims at delivering
performance rather than products
and the ownership of the product isretained by the service provider. The
primary revenue stream comes frompayment for performance delivered.
This applies most obviously tomechanical plant, lighting, and fit
out, but can potentially be extended
to all parts of a building andinfrastructure.

SHARING PLATFORMSPRODUCT AND PROCESS DESIGNThis business model generates anincreased utilisation rate of products
or systems by enabling or offering
shared use, access or ownership. At
the same time it enhances off-site
design and the use of collaborative
production facilities.

RESELL

These business models aim at providing planning and design forcomponents, systems and ultimately the full asset in order toimprove its service life. This includes specific solutions to improve
how the asset is maintained, repaired, upgraded and refurbishedor remanufactured.
SHARINGA strategic plan of process through the value chain is required
for this business model to increase the reuse potential andrecyclability of products, by-products and waste streams.

DESIGNPROCURE
MATERIALS

MAKE

LOGISTICS

SELL AND
MARKETIN USEEnd of life
landfill

REMANUFACTURE
CIRCULAR SUPPLIESREVERSELOGISTICS

RECYCLED MATERIAL
BECOMES RESOURCECIRCULAR SUPPLIES
These business models focus on thedevelopment of new materials to enhancerenewable energy, bio-based, less resourceintensive or fully recyclable materials.
21

RECAPTURE MATERIAL SUPPLIERS
Recaptured materials, components and parts of a system
are sold to be used instead of virgin or recycled materials.
For example cement replacement in concrete.

RECYCLING FACILITY
This model focuses on transforming waste into
raw materials. Additionally, revenue can becreated through pioneering work in recycling
technologies.

REFURBISH AND MAINTAINRECOVERY PROVIDER
Provides take-back systems andcollection services to recover useful
resources from disposed products orby-products.

Used parts and components are
refurbished and maintained so thatthey can be sold.
22

4.2

BUSINESS MODELS

Expected impact from a social, technical and financial standpoint for the over-arching business model types:

Circular design

CIRCULAR DESIGN MODELSCIRCULAR USE MODELSCIRCULAR RECOVERY MODELS

SocialSocialSocialFinancial

Technical

High technical impact
Medium / high financial impact
Low social impact

Financial

Technical

Medium / low technical impact
High financial impact  Medium social impact

It is likely that for a circular economy to function these different
types of CBM will need to interact and work together. For
example, in the case of a light fitting, the ‘product as a service’
circular use business model means the lighting manufacturer
retains ownership of the fittings, and is incentivised to upgrade
the fittings over time to maintain maximum efficiency. This inturn should benefit the user as there should be no decline in lux
levels and they benefit from up-to-date technology. However,the full circular benefit is only realised if the business model
has allowed for product and process design change, so that thelight fittings are demountable and upgradable to reduce theuse of virgin resources.

Financial

Development and planning phase of a built asset

Opportunity

Technical

Medium / high technical impact
High financial impact  Medium social impact

For example, a business which bases their CBM on refurbishingand maintaining their products may need to partner with a‘tracking facility’ provider so they can monitor and record
where their products have been installed, and then work with alogistics company to ensure the expired products are returned.
Technology will be used to retain data on materials locked inbuilt assets (i.e. Building Information Modelling or BIM).
At each stage of a development life cycle there areopportunities and challenges which need to be addressed.
Different stakeholders will be involved in providing thesolutions or may need to work collaboratively together.

Products, systems and the entire built
structures are designed to last longer with ahigher residual value. Therefore they shall beeasier to maintain, repair, upgrade, refurbish,
remanufacture or recycle with respect totraditional ones.

Challenges
There are technological, market andoperational risks. These include a lack ofdata for the product performance as well
as a degree of uncertainty on the operationalcosts of the asset.

Additionally, new materials can be developedand sourced, particularly bio-based, that areless resource intensive or fully recyclable. In
the same context, new processes are being
developed to increase the reuse potential andrecyclability of construction and industrial
products, by-products, and waste streams.

Market risks are associated with customer
acceptance of reused / recycled products.
Product obsolescence is often part of the design
as customers want the newest model withina short time frame; therefore products aredesigned with short lifespans. There will need
to be a change of mindset to move away frombusiness models based on this principle.

There is an opportunity for designers to engage
with potential partners who may have interestin the development (or parts of) post initial use.
This may link with the ‘use’ and ‘recovery’ CBMs
to ensure the benefit of the design is realised.

Larger upfront investments, in respect totraditional linear models, will be needed toreduce the need for raw materials,
improve the product performance and increase
the residual value at the end of life.

No company will work alone in a built environment based ona circular economy and businesses have the opportunity to
expand the services they offer or collaborate with others tomaximise value.
23

24

Circular use

Circular recovery

Operational phase of an asset

End of the products service life

Opportunity
These models aim at keeping control over anasset and retaining its value.
Product-to-service models allow a change frommanufacturing a product to a number of newopportunities, such as providing leasing andsharing services. Additionally, they include
extending the service life of products andcomponents, providing services to facilitate thetracing, marketing and trade of secondary raw
materials. This generates new opportunities
for companies to both expand the client basethrough customer loyalty and to increase thelong term revenues through additional services
such as maintenance, repair, and replacement ofparts and components.

25

Challenges
Assets need to be viewed with a great focus
on Operational Expenditures (OpEx) insteadof Capital Expenditures (CapEx), which will
have obvious consequences on the operating
capital and potential implications on taxation.
As opposed to a higher ROI - associated to thewillingness of customers to pay more for an
asset that offers higher performance - circular
use models would require companies to operatewith lower cash flows due to a longer time for
returning from the initial investment. The result
is the need for either investors or financiers to bewilling to expose themselves to higher loans.
However, financial institutions do not
traditionally have sufficiently fine tools to pricethe risk adequately, which can result in highinterest rates or even refusal to grant loans. The
risks increase as there are uncertainties related
to the future residual value of an asset due tomarket price fluctuation of raw materials, aswell as uncertainties of customers demand andabsence of suitable legal structures.

Opportunity
Revenue is generated by transforming existingproducts into new ones adding value, reducing
costs, or reducing waste. The developmentof a platform to enhance reverse logistics isessential in this specific case.

Challenges
These models rely on material reuse / recycling
being more cost / time effective than extracting
virgin material.
Often the cost and challenge of reverse
logistics prevents recaptured materials frombeing reused.
Although there are fewer financial constraints
for these models, the regulatory frameworkin construction might represent an obstacle.
Regulation around waste management, productperformance and health and safety all create
barriers to recapturing materials. Engagementwith regulators will play an important part in
the development of these CBMs.

26

50%

90%
CASE STUDY:NIAGA CARPET

Reduction of energy
consumption and no use of watercompared to traditional carpets

100%

Reduced time for installation of
the carpet, thus generating asignificant cost reduction

Percentage recyclable
without losing volume andmaterials quality

Benefits to stakeholders in this CBM
MANUFACTURER
Carpet manufacture has been re-imagined by Niaga. According
to Niaga (the word ‘again’ spelled backwards) adding more
and more complex combinations of materials to everyday
products will not solve today’s product performance, health andenvironmental challenges. That’s why they developed a carpet
production technology to make carpets out of one material
only, or two materials bound together with an adhesive that candecouple on demand. This allows carpet producing companies
to sell or lease carpets that can be 100% recycled to new carpets
after use.
The core of the Niaga product design philosophy is to workwith a drastically simplified set of known and pure materials. In
effect, carpet producers cannot choose the cheapest possible
material for different parts, like latex for glue, or bitumen forbacking. This additional cost has to come with some financial
benefits to make it work in the market place. These benefits
present themselves over the full value chain, so they materialise
differently in different countries. The product is being trialled in
BAM’s offices in Bunnik in the Netherlands, where the businesscase will be evaluated.

27

The innovation challenge of fullrecyclability resulted in a productthat also performs better. For
everyone in the supply chain it offers
something that has the same lookand feel but is easier to handle, safer,and future proof.

•

LINEAR MODEL••

Lukas Hoex, Niaga

ASSET OWNER

OPERATOR

USER

Consumes
approximately
0.7 l water per m2
of carpet
Uses virginmaterial therefore
impacting on
raw materials
availability•

Faces a costly andtime consuming
installation•

Faces costfor disposalof traditional
carpets•

Uses carpetsfor longer thantheir design life
span

Saves in energy
cost as well as
less use of natural
resources. Uses
recycled material
with the same
performance ofvirgin one•

Reducesinstallation timeand reduced cost•

Allows flexibility
for the asset to
be upgradedon demand.
Additionallyconsumer getsa significant
discount on their
new purchase•

Benefits of fullcustomisationaccording totenants needs.
Additionallysafer
environment
due to reduced
VOCs

CIRCULAR MODEL

28

100%

60%
CASE STUDY:
ABN AMRO PAVILION

Good design and collaboration
result in up to 60% residual value
at end of first life

Higher ROI for asset owners
rather than considering only
disposal cost

50%
BAM’s real estate evaluation
methodology has evidenced
products with >50% residual
values after initial use

Benefits to stakeholders in this CBM
DESIGNER
The Circular Pavilion in Amsterdam creates an accessible
entrance to the existing head office of the ABN AMRO bankand contains conference and catering facilities. ABN AMRO
developed the building together with BAM, Architects CIE
and co-makers and consultants. The circular pavilion of ABN
AMRO is engineered with the aim that all ‘lights are green’ tocontinue to (re)use the materials in the future. The building isalmost completely remountable. A lot of elements consist ofvirgin material, which have been selected for low environmental
impact. There are reused components integrated into thebuilding and interior design, e.g. Inner walls, doors, cables andfire hose reels, and also old jeans, collected from ABN AMRO
employees, which have been used to produce acoustic ceilings.
Design and production are no longer considered separately fromeach other. It is a process in itself to select the best co-creatorsand partners. This collaborative approach leads to a better
utilisation of expertise.

The value proposition for the
ABN pavilion is that we want toexperiment with the circular economy
how it works in the built environment
and learn from the challenges we run
into. The real impact is created bysharing these lessons and inspiring
our clients to start with the circular
economy.

29

Facilitates design/ procurement
packages toincrease ROI•

Produces system
made to fulfill a
specific function
and for finite
service life•

Contributes tothe depreciationof the asset•

Has accessto an asset
that provides
reducedperformanceover time•

Plans foradaptability
upgradability andreuse
Incorporates a realestate evaluation
matrix to makekey decisions•

Jointly withco-makers thinks
about residual
value, as apercentage ofthe original
materials cost•

Invests toincrease theresidual value ofthe asset in the
future; increasing
employeeproductivity;
valuing space
flexibility and  
adaptability•

Actively
participates inthe design andconstruction
phases.
Higheroperational
certainty•

CIRCULAR MODEL

USER

•

LINEAR MODELMark van Rijt, ABN AMROASSET OWNER

SUPPLIER

•

30

€

CASE STUDY:ARMSTRONG TILES

250£/
tonne

12 Months

Reduced cost for manufacturing
due to saving in virgin materials
and energy

Saving for disposal costs whenceilings are diverted from landfill

Value of the ceiling is recoveredin 1 year

Benefits to stakeholders in this CBM

As early as 2006 Armstrong Ceilings took their first steps
toward circular design principles by implementing an end-oflife take-back programme for their own mineral ceiling tiles.
Across Europe Armstrong has now taken back over 500,000m2
of old ceilings, including those of their competitors, andglobally they have recycled over fifteen million square metres.
But implementing a take-back programme was not sufficient.
Armstrong ensured that their products use materials thatare safe, healthy and endlessly reusable as well as adopting
manufacturing processes that minimised resource consumption
including energy and water.
The next steps for the company are to ensure the developmentof new products and services that have a positive impact
on buildings that can be verified to provide positive healthand environmental impacts, retain residual value and can bemeaningfully recycled.

Circular Economy thinking isabout a vision and a new businessmodel; one that challenges us toinnovate and design better products
and systems. At Armstrong Ceilings
we decided to ‘learn by doing’ andthe knowledge and experience
gained along the way has opened
up new possibilities and commercial
opportunities that has allowed us tomove away from the traditional take,
make, dispose business model.
Jeremy Sumeray, Armstrong World
Industries Ltd.

31

MANUFACTURER

OPERATOR•

Manufacturesusing highembodied energy
virgin materials  •Installs low
value productswith significant
depreciation overtime•

Uses a productaccepting
reduced value
through time•

Takes back old
ceilings as soon
as it becomesobsoleterealising novalue when
disposing•

Reducesmanufacturingcosts due to use ofrecycled products
Creates lasting
relationships withthe asset owners
and users
Reduces products
manufacturingcosts due to use ofrecycled products
materials•

Installs productswith better
environmental
profiles, possibly
selling assets at ahigher value•

Benefits ofa building
with a systemthat offers
opportunities
with performance
contracts aswell as material
recovery andreuse at endof life•

Can take backthe ceiling andloop it back into
a new cycle

LINEAR MODEL•

CIRCULAR MODELUSER

DEVELOPER

•

32

5

A NEW VALUE CHAIN

Image: Philips Circular Lighting contract with Schiphol Airport - performance based contract
33

A new kind of value chain is required for stakeholders in theconstruction industry to transition to the circular economy.
Traditional business models do not often favour collaboration
throughout the value chain because businesses act
independently of each other, rarely considering the aims ofothers in the value chain. Such a complex value chain generally
has a staged approach where products and services are theinventory of one company and the receivable of another.
Therefore the risks and strengths of a company should beviewed collectively with its value chain.

The entire value chain need
to work together for mutual gain.
Products need to be designed with
future uses in mind and all membersof the value chain need to workwith different business models, andlevels of incentivisation, to give theclient longer term benefit and higher
residual value of their asset. So far,
we haven’t seen a single solution,
but have experimented with several
design procurement routes andcontractual arrangements – eachsolution needs to be tailored toits situation!
Nitesh Magdani, Royal BAM Group
34

5.1

OPPORTUNITIES AND CHALLENGESACROSS A CIRCULAR VALUE CHAIN

A circular value chain requires all
stakeholders to contribute towards an
outcome that achieves the best value
for all parties, using components thatretain the highest value throughout
the lifecycle and minimises losses fromthe system. Developing integrated
value chains could give companies acompetitive advantage in the future.
To realise such a step change in the value chain, it is necessary to
reduce the unfamiliarity of the stakeholders with the concepts
behind the circular economy.
Working with the value chain can reduce the risk of disputes
and errors during construction, as well as the use of working
capital. Additionally, it allows suppliers to stay close to the client
by meeting future expectations and enables developers to stayclose to innovation. A number of business models, as discussed in
Chapter 4, support this principle by proposing approaches basedon leasing, reuse, repurposing and upgrading.

Suppliers and manufacturers have an opportunity torecover materials at the end of a product’s life, allowing
for a second source of income, through reselling or
repurposing. Retaining ownership provides both
long-term revenue asset security, protection fromrising commodity prices and material scarcity andopportunity to further engage with customers.

Designers will need
to work closely withproduct manufacturers
and suppliers to ensurebuilding design allows
for disassembly andadaptability.
INVESTORSCurrent valuation methods assume annuities arecontinuous and do not account for potential gaps incontracts (e.g. time lag between tenants). Banks therefore
have to be aware that there is a risk of building space being
unoccupied for some time, which reduces the value ofthe asset. However, circular design models allow for space
to adapt quickly to the demands of new tenants, thereby
minimising the period of vacancy. Increased adaptability
will allow the asset to be fully utilised, improving the valueof the space.

Manufacturers /suppliers

Contractors
Designers

Material extraction

ASSET HOLDERS / DEVELOPERS
Building users and facility managers will benefit from more
efficient, productive and adaptive spaces. The developers
and asset managers will see increased value in their assets
due to these features. The client should be involved
throughout the process.

35

Recyclers /reuse banks

Demolition companies will see an opportunity
to change their business models to becomematerial reuse providers, potentially teaming up
with material extractors / producers  to ensure a
constant supply of material.  

End user /facility managers

Contractors will need to ensure users, facility
managers and developers implement the circularsolutions throughout the building lifecycle.

36

5.2.1. INVESTORS

Bankers and other investors may need persuading to switchfrom traditional buy-sell models to longer term investments.  
Compared to linear models there will be a longer time
gap between the acquisition of the asset and the revenue
derived from it. This may mean investors will make additional
requirements or require higher compensation to offset the lackof data regarding operational and maintenance costs whichmakes setting contract prices risky. Technology needed toclose the loop may not be developed enough either, further
increasing the risk. Construction companies often ask banks to
put material assets, such as iron used in the shell of the building,on their balance sheets and investors have to remain waryof the possibility that a substitute may enter the market anddepreciate the long-term value of the asset.
Financial institutions are not ready for the step change whichis required for a circular approach. However, parameters
traditionally used for performing due diligence on real estate
assets already consider relevant issues such as quality of theconstruction, residual value, aesthetics of an asset, increased
comfort for users as well as potential increased productivity forworkers in the case of an office.

37

Additionally, the model is currently working according to
the fiscal position of single stakeholders in the linear value
chain. Changing to circular value chains would imply assessing
multiple positions before approving a financial operation.
Consequentially, an improved IT system with potential
increased interest rates to compensate the additional work is
required. Since the model will rely on assessing the financial
position of each and every stakeholder and mutual contractual
positions, limited risks are foreseen in respect to traditionalmodels.

5.2.2. ASSET HOLDERS AND DEVELOPERS

5.2.3. DESIGNERS

Two of the big issues associated with Circular Business Models
are risks and uncertainty. Setting contract prices related tothe operation and maintenance of a building is extremely
hard to do. This is even more complex when considering thelong lifespan of buildings. However, a number of attractive
opportunities exist.

The role of designers in the circular economy is likely to become
even more relevant in respect to the traditional value chain.
They might become a facilitator that integrates competencies
and mutual benefits across the different stakeholders.
Designers have the opportunity to plan and assess circularity
throughout an assets lifecycle by developing innovative andfunctional solutions.

Leasing models allow companies to put certain assets in
Operational Expenditures (OpEx) rather than in Capital
Investments (CapEx). This generally results in smootheroperational expenditure and important tax deductions, as
operating costs do not qualify as capital assets and therefore
do not depreciate over time.
Leasing models also avoid large upfront expenditure and cash
may be freed up, allowing customers to redirect their funds toother investments.
In the field of technology, customers already prefer not to invest
in products that are likely to be surpassed in a matter of years.
As a result, many companies are shifting their IT spending fromtheir CapEx to their OpEx, giving them more flexibility andensuring availability of systems that are always up to date.

This includes assessing the land so that it retains the highest
value as well as to ensure that it is used at its optimal
condition, providing social returns to the local communityand environmental benefits. Conducting rigorous Life Cycle
Assessment would be the first step to address this.
Design should be incorporated at an earlier stage with otherdisciplines to ensure that the product is designed for longevity,
flexibility, reuse and deconstruction. Designers should discuss
the future strategy of the building with local authorities and theasset owners to ensure reconfiguration is possible by using a
modular approach allowing for easy disassembly and assemblyof components.

38

5.2.4. MANUFACTURERS AND SUPPLIERS

5.2.5. CONTRACTORS

5.2.6.

Challenges in this case relate to the lack of transparency in the
supply chain. In a circular value chain, the content of products
needs to be known to allow for reuse, recovery and recycling.

Increasingly contractors take responsibility for performance due
to requirements such as Government Soft Landings for publicbuildings (in the UK) and client guarantees that developments
perform as intended.  This provides opportunity for engagementwith end users, to ensure benefits from circular solutions are
realised and develop knowledge about how users operatebuildings in reality.

Commercial buildings and their occupiers are a significant
source of waste generation; through the use of the building,and from the impact of the materials used in fit-out, alteration
and refurbishment. Circular models will reduce the quantityof waste being produced, helping  both owners and occupiers
reduce their environmental footprint as well as providing an
up-to-date working / living environment.

The role of demolition contractors is likely to change ina circular economy, with increasing focus on becoming‘disassembly experts’ to release materials which will beotherwise locked in the building.  There may be morecollaboration between them and material extractors /producers to ensure there is sufficient quantities of material for
resell, whether it is recycled or virgin.

The contractor is at the heart of key decisions and procurement
options over the asset lifecycle and will have opportunity to
procure circular materials. New technologies such as ‘productpassports’ and data embedded into virtual construction models
are needed to give assurance of the legality and quality ofthese materials.

A circular economy approach should allow for the upgrade ofsystems and plant over time ensuring the latest technology isin use to maximise the operating efficiency of the building andoccupant comfort. This is valid for a large number of aspects
including lighting, acoustic of plants and HVAC systems.

This change in primary function will bring a series of challenges
such as ensuring there is the skills and knowledge to realise thefull value of the materials. Engagement with the manufacturers/ suppliers  will be crucial to understand how individual
products should be disassembled as well as providing these
actors with an alternative supply of material.

Product passports may provide an answer to the need for
improved transparency. Currently, most suppliers are reluctant
to reveal sensitive data that might reduce their competitive
advantage in the market. Knowledge gateways / guardians, as
currently used by the Cradle to Cradle certification process
may resolve this.

Contractors already use prefabrication and virtual models toincrease efficiency, reduce time and cost spent on site. Further
advancements in digital tools will require close collaboration
between value chain members, which the contractor could coordinate. This may assist contractors to achieve targets for zero
construction waste and potentially reduce  health and safety risks
on sites, using automated or human-assisted machines.

39

END USERS AND FACILITY MANAGERS

5.2.7.

MATERIAL EXTRACTION / RECYCLERS / DEMOLITIONAt the same time, productivity should be boosted byintegrating intelligent platforms that improve the integrationof functions with the building and its components. Increasing
productivity is a key aspect to augment the value of a building
and in turn should have an impact on its financial performance,
making it attractive to investors.
This is also applicable to infrastructure e.g. relocation of bridges
at the Olympic park in London.
40

6

CONCLUSIONSThe complexity of the external environment still works tothe advantage of the current linear model. Looking at theconstruction industry in particular, inherent contradictions
pose challenges for the adoption of CBMs. To overcome thesecontradictions, the value chain needs to take the following
points into consideration:
•
•
•
•
•
•

Long term thinking
Design for deconstruction
Innovate
Flexibility vs durability
Utilise new models of production and consumption
Collaborate

The built environment is hugely
complex with many interconnected
and interdependent systems. We
know that to apply the principles ofcircular production and operation will
result in a more prosperous, liveable
and sustainable society, but it will
require a radical rethinking of every
aspect of the built environment’s
production. Circularity changes thevery environment in which we live,
work and invest.
Image: Desso Essenza Lino range, C2C Gold certified
41

Carol Lemmens, Arup
42

6.1

SUMMARY
DESIGN FOR DECONSTRUCTION

The industry needs to rethink design - from designing components
for maintenance, reuse or recovery to designing spaces with anasset’s reuse potential in mind. Along with design for deconstruction
the social value of circular assets should also be considered early
within the design.

COLLABORATEFLEXIBILITY VS DURABILITY

Even if old materials can be reused or recycled in a flexible design,
the maintenance work involved and the logistic processes use
energy and resources. This poses a dilemma between the flexibilityof a building and its durability.
Durable buildings are built to last, whereas flexible buildings in acircular economy would allow for disassembly and reuse. Striking abalance between these two elements will be crucial.

LONG TERM THINKING IS REQUIREDThe construction industry works in silos, with each stakeholder pursuing theirown interests rather than working collaboratively. For example, in a speculativebuilding scenario, the developer tends to aim to sell the building as quickly as
possible, which may deter them from investing in high quality materials anddesigning for longevity. If, however, the developer were to maintain ownershipof the material in the building, there would be a greater incentive to consider
the longer term. To enable this new forms of contracts and partnerships are
required. The reverse is generally true for infrastructure projects, whereby theclient generally holds on to the asset for long periods of time.
There is not currently legislation that stipulates lifespan standards for a building.
Regulation supporting the longevity of buildings would be an importantmeasure to tackle resource constraints and rising population trends.

43

INNOVATE

Solutions will develop within the value chain once requirements forcircular economy become commonplace. Contracts and the way weprocure will undoubtedly change as we learn to incentivise the value
chain.
With increased demand from government and client for circularrequirements, innovation needs to be built into the construction
process, which historically has preferred the use of tried and tested
techniques, rather than utilising new technology. Pilot projects will
help to overcome potential skepticism and provide some learning tofurther develop the business case.

Information sharing and collaboration throughout the lifecycle ofa development will be the key for pockets of innovation aroundcircular design, construction and maintenance to become standardpractice. This will only be achieved with co-operation throughout
the value chain enabling circular economy business models toflourish in the built environment, enhancing the value of assets.

UTILISE NEW MODELS OF PRODUCTION
AND CONSUMPTION

Ideally as little material as possible is used to optimise cost efficiency
and to keep resource extraction and pollution to a minimum.
However, looking at the realities of the construction process, asignificant amount of material delivered to construction sites
are wasted. This waste of material could be avoided considering
prefabrication. A circular economy requires changes throughout
value chains, from product design to new business and market
models, from new ways of turning waste into a resource to newmodes of consumer behaviour. A more circular economy requires
changes throughout value chains, from product design to new
business and market models, from new ways of turning waste into a
resource to new modes of consumer behaviour.

44

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Design of report: BAM
Copyright: ARUP & BAM
Printed on 100% recycled paper
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