The circular economy in 2026 and beyond

The circular economy could be poised for rapid expansion with multiple trends set to boost the sector.

Manufacturers and distributors have been gradually increasing their use of these practices over the last few years. But experts agree there is huge potential to develop them further, supported by changes in the legal and business landscape.

This article looks at the main trends likely to impact the circular economy in manufacturing and distribution in 2026, and delves into how firms can take advantage of the opportunities.

Here’s what we discuss:

Economic benefits of the circular economy

Rather than the linear approach of making, using and discarding products, the circular model designs out waste and pollution by reusing, repairing, refurbishing, and recycling materials.

Business is increasingly recognising the benefits of circular practices.

Between 2023 and 2024, investment deal values in this sector grew 60%, according to BDO’s report Circular Economy Trends Report 2025.

The variety and maturity of business models attracting attention is also increasing, the report says.

With interest rates falling, investment in the circular economy could be set to accelerate further in 2026.

Research by research by UK charity WRAP and OC&C Strategy Consultants found that, since 2020, circular industries have grown 3.1% faster than linear industries, and circular-native businesses have grown up to twice as fast. The advantages include:

• Cutting costs, for example, on raw materials, energy use and disposal.
• Increasing competitive differentiation, and consumer and brand loyalty, by appealing to environmentally conscious customers, and increasing transparency and customer lifetime value.
• Adding revenue streams with new types of products or services.

David Stewart, engineering director, research & innovation at the High Speed Sustainable Manufacturing Institute (HSSMI), says the economic opportunity of recovering an expensive asset is now the overwhelming driver of circular models:

“Where there is a good business case to repurpose, remanufacture, recondition or recycle, businesses have flourished and adoption will remain strong,” he says. “In the battery industry for example, there have been many new ventures over the past three years to remanufacture battery packs or recycle them back to basic materials to incorporate into new cells.”

Material scarcity: A fundamental circular economy driver

In many countries, the growing financial incentive is also driven by the fact that China controls much of the global supply and or processing power for many critical raw materials.

This includes:

• Neodymium supply for electric motors.
• Gallium supply for semi-conductors.
• Nickel, manganese and cobalt refining and processing for batteries.

“Western continents like North America and Europe are largely at the mercy of Beijing’s controls on export of these materials,” adds Stewart. “Without enough domestic access, we rely on circular systems to collect, recover and consume these materials.”

To counter this, he predicts new recycling facilities for processing important materials, such as rare-earth elements, will launch across Europe.

Advanced sorting and dismantling technologies will also evolve to address the issue.

ERP and digital passports push adoption of the circular economy

In the UK, extended producer responsibility (EPR) legislation is set to drive more circular practice.

Previously, taxpayers footed the bill for the disposal and recycling of packaging.

But from FY26, producers pay a flat fee to help pay for these processes. From FY27, these payments will be based on recyclability, providing a huge incentive to make their packaging more circular.

In the UK, the government has established a Circular Economy Taskforce with a view to setting strategy in the near future. It is catching up with the EU, which already has multiple regulations promoting reuse and recycling.

One of the most important initiatives in 2026 will be phasing in digital product passports (DPP), starting with high environmental impact items such as batteries, textiles, electronics, and furniture.

For example, passports for many batteries will be required from February 2027.

A DPP is a scannable, dynamic profile that follows a product throughout its lifecycle, from raw material to resale. It reveals critical data such as material origins, manufacturing processes, energy use and emissions, durability, and repair or disposal options.

This will help firms track lifetime performance and improve reuse or recycling.

The EC is expected to produce a registry of passport requirements for specific product groups by mid-2026, with full deployment expected by 2030.

Innovation keeps pushing circular models

The transition to cloud-based systems will continue to drive circular economy adoption by supporting innovations such as remote condition monitoring, DPPs, and IIoT connections.

Increased storage access and processing power will drive new online platforms enabling product sharing, resale and refurbishment.

IIoT connectivity will continue to grow, allowing for timely maintenance and repairs. Building on this, predictive maintenance uses IIoT sensors combined with AI to track equipment and product conditions.

This enables intervention just before a failure occurs, extending product lifespan.

Digital twins take this even further by creating dynamic virtual models of physical items, updated with live data. For instance, a digital twin of a remote industrial pump can track use patterns, service history, and component wear after purchase to optimise the timing of repair, lengthening the product’s life.

The information can also inform product design, making products easier to disassemble, repair, and recycle—such as by minimising adhesives or incorporating modular components that are adaptable for reuse.

These are just a few of the many ways AI is expected to contribute to the circular value chain, with others ranging from hypersensitive sorting of materials in recycling to automated disassembly, predictive waste flow, and generative circular design.

Yet another innovation to watch is chemical processing techniques—such as pyrolysis, and photocatalytic and enzymatic recycling—which can convert plastic waste into valuable chemicals or fuels.

The obstacles remaining for circular economy adoption

Despite all these advancements, manufacturers will face many challenges in progressing circular practices in 2026.

Products are still not designed for circularity. For example, many batteries and devices are filled with glue, making them quick and easy to assemble but a nightmare to disassemble.

And manufacturers still face trade-offs with other business imperatives such as short-term revenue gain, speed to market, or lack of access to skills.

“Companies with new technologies and or tight budgets often focus on getting the product to market quickly, in volume and performing robustly,” says Stewart. “They don’t deny circular economics are important, they’re just too busy, and it becomes an afterthought. But it’s too late when you’ve already locked in the design. Manufacturers need to work more closely with designers to integrate disassembly options early in the process.”

Case study: Why refurbished phones are booming thanks to the circular economy

In Europe, Vodafone predicts refurbished mobile phones will grow from 309m in 2023, to 431m phones by 2027.

It’s part of a rapidly advancing global circular devices market that is set to exceed £150 billion by 2027, according to mobile operator organisation GSMA.

Steven Athwal, founder and CEO of The Big Phone Store, which has a strong focus on refurbished phones, says distributors and manufacturers are increasingly committing to refitting and reusing their products.

“Consumer demand for greener choices continues to grow, regulation is tightening, and customers are more inclined to enter the circular economy,” he says. “Scarcity of raw materials also makes refurbishment more financially appealing.”

Steven expects that tighter global rules on how e-waste is handled, reported and recycled—such as the UK Extended Producer Responsibility (EPR) scheme—will make manufacturers more accountable for product life cycles.

Governments could also increase rewards, such as tax incentives for refurbished goods. Or they could follow France’s lead in mandating the use of such goods—20% of IT devices bought by French organisations must be refurbished by law, with a target of 40% by 2040.

Steven also foresees more companies leasing so they can focus on reuse and reissue. And he predicts large companies will embed refurbishment into their business models, to gain control over their product life cycle.

However, as with other industries, phone manufacturers and distributors still face many challenges in product creation.

“Phones are designed to look great, but not to be opened, making them expensive and slow to fix,” he says. “We can overcome this with design standards that favour repairs and more research into modular parts. The other challenge is that customers are worried about warranties, software updates, safety, and the lifespan of refurbished devices. We have to promote quality control, extended warranties and transparent grading to gain their trust.”

Steven says a cultural shift is also needed for both companies and the public to move away from their obsession with new things.

A 5-step action plan for increasing circular practices

Here are some next steps for moving into the circular economy, or increasing your presence there:

• Increasing the amount you recycle is a good start. But consider a more holistic strategy that embeds circular principles—such as durability, modular designs and swappable parts—at the core of your product design and service.
• Promote a culture of long-term value. Think of every device as a long-term asset, not just a unit shipped. For example, consider generating value through leasing, repairs, and refurbishments.
• Investigate the latest developments in IoT, predictive maintenance, and digital twin technology to support a more circular model.
• Look at how AI is transforming production and distribution in areas such as real-time inventory monitoring and demand forecasting to reduce waste, or enhanced reverse logistics for more efficient returns and repairs.
• Get deeper insights and visibility on your entire manufacturing operations to make better decisions about waste. Consider integrating your ERP, third-party logistics (3PL) and warehouse management for greater efficiency.

Final thoughts

The shift towards a circular economy continues, and is no less vital to business effectiveness and efficiency than it ever was. It is the ultimate secret trick that the C-suite needs to know about.

For CFOs, this means rethinking how value is created and captured through financial performance, long-term resilience, compliance, and brand integrity.

Sage X3 is a new era of ERP that provides the backbone for that kind of visibility and control.

It allows finance leaders to integrate sustainability metrics into the same system that manages costs, inventory, and profitability.

By connecting data across the value chain, CFOs can model the financial impact of circular initiatives, identify efficiencies, and make decisions grounded in both sustainability and solid business logic.