The Circularity Gap Report 2026published by Circle Economy and Deloitte, looks at circularity from an economic perspective. It does not focus on the environmental damage of the linear economy, but on the economic value that is lost each year and that could be avoided. It calls this loss the “Value Gap”.

This approach moves the sustainability debate into the realm of business: profitability, competitiveness, resilience and risk management.

Circularity is not synonymous with recycling. A company that merely recycles more is operating at the lowest level of value recovery. The real competitive differential is in product design and associated service models. Manufacturers that internalize this hierarchy ahead of their competitors will be better positioned in the face of looming regulatory pressure and the growing demands of their industrial customers.

_
The linear economy destroys value in a structural manner

The starting point is a realization that value loss is embedded in its very design. The model of extract, make and dispose generates structural losses at every stage of the life cycle of materials and products. It is a direct consequence of how products are designed, supply chains are organized and economic incentives are structured.

Much of the value that a company incorporates into its products (materials, energy, labor, technology, design) is destroyed before or after the product fulfills its function, and this destruction is largely avoidable.

_
Losses for the manufacturing industry

Of the different value loss mechanisms identified, two directly affect industrial equipment manufacturers.

• Losses during manufacturing. In the process of transforming raw materials into semi-finished or final products, value is lost through inefficiencies, defects and waste. In industrialized economies, material costs represent approximately half of the total industrial cost. Reducing these losses lowers direct costs, improves competitiveness and can enhance a company’s reputation with customers who are increasingly attentive to resource efficiency.
• Losses at the end of the useful lives of the assets. When a machine or industrial system is removed, most of the value it embodied – labor, energy, design and technology – is lost. Recycling recovers only the value of the raw material, which is the lowest possible level of recovery. The hierarchy from highest to lowest value retention is clear: repair and maintain, reuse components, remanufacture and, only at the end, recycle. This hierarchy has direct implications for how products should be designed.

_
The key mechanism: premature obsolescence

One of the main drivers of value loss is premature obsolescence: products and assets that are retired before they have reached the end of their useful technical life, not because of actual deterioration but because of design decisions, commercial pressures, regulatory changes or user behavior.

The straightforward answer is to design for durability and modularity: to create equipment that can be upgraded, repaired and adapted without replacing the whole. For a capital equipment manufacturer, this is not just a question of sustainability, it is a value proposition argument to its customers.

_
Avoidable depreciation as a business opportunity

The report pays special attention to the deterioration of machinery and infrastructure at a faster rate than necessary, due to lack of maintenance, inadequate use or obsolescence. It is estimated that between 25% and 50% of this depreciation could be avoided. This opens up two specific opportunities for manufacturers:

• Business models based on maintenance, overhaul and life extension of equipment: servitization, maintenance contracts, modular upgrades.
• The business case to customers: investing in equipment designed to last and be maintained has a direct and measurable economic return.

_
Recommendations for manufacturers

The recommendations are articulated along three lines.

• Build a holistic business case for circularity. Map inefficiencies in material use along the entire value chain, quantify the value of avoided waste and extended-life assets, and incorporate less tangible benefits such as resilience to supply disruptions and reduced regulatory risk. The goal is to demonstrate that circularity is not a cost but a source of financial, strategic and competitive value.
• Innovate and scale circular business models. Models such as product-as-a-service, material leasing and end-of-life take-back schemes. For capital equipment manufacturers, the most applicable are performance or availability contracts instead of pure sale of equipment, take-back of equipment for remanufacturing and modular upgrade programs.
• Collaborate along the value chain. Many circular opportunities are not accessible to a single company: they require coordination with customers and suppliers, and in some cases with other manufacturers in the same sector, to organize shared infrastructures for the collection, sorting and revaluation of materials and components.