Institutional theory and circular economy business models: The case of the European Union and the role of consumption policies

Abstract

The circular economy (CE) has been gaining traction in recent years as it promises a change for good, in terms of environmental, social, and economic benefits. The major changes required to implement circular economy business models (CEBMs), can prove to be especially difficult for organisations. This study provides a holistic analysis of the effect of CE institutional policies on the development of CEBMs in organisations, by exploring not only production-oriented policies, which have been the focus of previous research, but also consumption policies. Consumption policies, in the form of regulatory and information policies, are oriented towards consumers and have the potential to affect the demand for CE products, which in turn affects the development of CEBMs in organisations. The paper is framed within the institutional theory and the context of the European Union. Our results reveal that consumption policies have a positive, albeit diminishing, effect on the CEBMs. Our paper finds that regulation is the most impactful policy, having a larger impact than production policies. Our results highlight the important role of institutional policies in fostering consumers’ demand for CE products and of consumption policies as tools to be employed by governments in fostering CEBMs and achieving sustainability.