More value, less waste: The governance of the circular economy
The circular economy is no longer just an environmental policy. It is an economic strategy, a model for value creation, and a test of governance in the 21st century.
One of the most important tests of governance in the 21st century does not necessarily concern the amount a country produces, but rather how it manages its assets. For decades, success has been measured by growth rates, GDP, and consumption. However, in a world characterized by climate crises, geopolitical shocks, supply chain disruptions, raw material shortages, and increasing uncertainty, the question changes: how to generate more value from each unit of resource, and how to preserve it over time.
From here grows one of the most influential concepts in economic thinking for the coming years: the Circular Economy. Modern economics has been built for over two hundred years on a simple linear model: mining raw materials, manufacturing, consuming, and discarding. This model created unprecedented growth, but also enormous waste of resources, increasing dependence on raw material imports, damage to natural systems, ever-increasing economic costs, and high vulnerability to crises.
The circular economy offers a different model. Instead of the "take-make-dispose" approach, it seeks to design products and processes in advance so that waste generation is prevented or reduced as much as possible, product life is extended through repair, reuse, upgrading, and recycling, and raw materials remain in the economic cycle for as long as possible. At the same time, it seeks to restore and empower natural systems, based on the understanding that they are an economic asset, not just an environmental one. This concept, promoted by the Ellen MacArthur Foundation, has turned in recent years from an environmental ideology into a global economic strategy.
The world no longer treats the circular economy as an environmental policy. The European Commission has made it one of the pillars of Europe's competitiveness and industrial strategy. The Organisation for Economic Co-operation and Development (OECD) presents it as an engine for productivity, innovation, and growth. The World Economic Forum (WEF) sees it as a central component in strengthening economic resilience and strategic independence, while the UN Environment Programme Finance Initiative (UNEP FI) and the International Finance Corporation (IFC) are working to formulate tools to finance the transition to this model.
Leading countries are already acting accordingly. The Netherlands has set a goal to become a fully circular economy by 2050, where the use of new raw materials will be reduced to a minimum, products will be designed for prolonged use, and economic growth will be based on value creation rather than resource consumption. Finland was the first to formulate a national roadmap for a circular economy. France has enacted comprehensive legislation to reduce waste, and the UK is integrating principles of resource efficiency into its industrial and infrastructure policy. The common denominator is clear: a circular economy is an engine of competitiveness, economic security, and national resilience.
Israel also has strengths. The Ministry of Environmental Protection is promoting programs in the field, the Israel Innovation Authority is assisting in the development of technologies, and in areas such as water desalination, wastewater reclamation, advanced agriculture, and resource management technologies, Israel is among the world leaders. However, the picture is still partial. The circular economy has not yet become a cross-cutting policy connecting the government, the budget, regulation, the education system, industry, local government, and the financial system. As long as it is perceived mainly as an environmental issue, Israel is not realizing the enormous economic potential inherent in it.
This is exactly where governance comes in. A circular economy is not primarily about waste; it is about asset management. A government manages the country's balance sheet of assets: human capital, natural capital, infrastructure, knowledge, data, innovation, social capital, public trust, and the quality of institutions. Quality governance is not measured only by the ability to distribute budgets or increase GDP, but by the ability to enhance these assets, extract more value from them, and pass them on in better condition to future generations.
This is also the reason why a circular economy is an engine for creating measurable economic value. It increases productivity through more efficient use of resources, reduces production costs, reduces dependence on raw material imports, strengthens supply chains, extends asset life, encourages innovation, creates new jobs, and increases attractiveness for investment.
These findings are not based only on a conceptual idea. In recent years, a significant body of research has developed that examines the link between a circular economy and the creation of business and financial value. One of the most prominent collaborations in the field takes place between Bocconi University in Milan, the Ellen MacArthur Foundation, and the Intesa Sanpaolo group, which is considered one of the leading banks in Europe in promoting financing for a circular economy. Within the framework of this collaboration, innovative metrics were developed to assess the level of circularity of companies, and its impact on risk level, business resilience, management quality, and value creation ability over time was examined.
For example, in a study published this year, 643 public companies in 17 resource-intensive sectors in Europe were analyzed. The findings indicated that the higher the level of circularity of a company, the lower the probability of its insolvency and the better its resilience over time. Further studies by the same group of researchers found that circular companies demonstrated higher resilience during crisis periods, including the COVID-19 crisis, as well as better financial performance and risk-adjusted returns. The message here is clear: a circular economy is not just an environmental concept; it is a business model that contributes to creating measurable economic value and reducing risks.
This is perhaps the most important change in the perception of sustainability: a transition from viewing sustainability as a cost or a regulatory obligation to understanding it as an investment that generates economic, business, and social value over time. But even the circular economy is only a station on the way. In recent years, the global discourse is expanding from the concept of sustainability to the concept of regeneration. If sustainability seeks to reduce damage, then regeneration strives to leave behind systems better than those we received. It is not satisfied with preserving the existing, but seeks to enhance it. This is true for natural systems, but no less so for human capital, infrastructure, innovation, public trust, and the quality of institutions. In this sense, a circular economy is not a goal in itself; it is one of the central tools for building a regenerative economy that creates lasting value.
Israel actually has a relative advantage in this transition. We are not rich in minerals, but we are rich in human capital, entrepreneurship, science, technology, and the ability to solve complex problems. If we know how to combine these advantages with long-term public policy, regulation that encourages innovation, a financial system that channels capital to value creation, and a government that sees the country's assets as growth engines rather than just sources of expenditure, we will be able to turn our resource limitation into a competitive advantage.
It is time that in Israel too, the circular economy ceases to be identified mainly with recycling and becomes an organizing principle of economic policy. This means integrating it into the state budget, public procurement, infrastructure planning, regulation, the education system, government performance metrics, and the economy's growth strategy. This is not a task for one ministry, but for the government as a whole and for all sectors — public, business, and financial.
Ultimately, a circular economy is not just about waste, but about how we define value. It seeks to replace a culture of extraction with a culture of enhancement, a culture of consumption with a culture of responsibility, and short-term thinking with long-term governance. This is the real challenge for Israel: not just to grow, but to know how to manage its assets so that they create more value, more resilience, and more quality of life for future generations as well.
*The author is a senior economist and former Supervisor of Banks. Currently, Chairman of the Advisory Committee, Arison Center for ESG; Senior Research Fellow, Institute for Policy and Strategy (IPS), Reichman University.
