The circular economy, which has so far been understood primarily in the context of sustainability and climate protection, is increasingly becoming integrated into the efficiency and competitiveness considerations of national economies and businesses, making the extent to which the relevant actors apply digital solutions a critical factor, revealed the research project of the Digital Business Unit of Századvég Konjunktúrakutató at the end of 2023.


The circular economy aims to reduce the impact of production activities and consumption on the natural environment and to keep the raw materials that can be reused and recycled from products in a resource-efficient cycle. With the spread of digitisation, there is a growing belief that, in addition to external factors (e.g. scarcity of raw materials, regulatory interventions), the introduction of digital technologies can best support the transition to a circular economy.

Our research investigated which are the most widespread digital good practices globally for each element of the circular economy value chain, and how their application in Hungary can influence the transition of certain sectors to circularity.

Sectoral challenges

The sectors most affected by the circular economy are construction, textiles and food, but digitisation solutions are also a priority for the reuse of electronic equipment and selective waste management. The most common short-term circular goal in construction is the recycling of demolition materials considered as waste, although the sector also faces a number of other challenges (e.g. low intensity of information exchange, slow digitisation transition) in relation to circular economy solutions.

In this sector, expanding and enhancing the flow of information (e.g. the creation of sectoral demolition waste platforms) alone could significantly reduce the amount of demolition waste leaving the supply chain, while efficient robotised sorting solutions could be a breakthrough in the recycling of demolition waste, among other things.

In the food industry, the focus of circularity and digitalisation developments is on reducing food waste. One effective way to do this could be to develop IoT and artificial intelligence (AI)-based digital solutions to help better match food supply and demand.

The textiles and clothing sector is considered one of the biggest polluters globally, not only because of its high water consumption and use of toxic chemicals, but also because of the increasing amount of textile waste. One way to reduce the problem would be to transform the linear textile and clothing value chain into a circular one, which would imply more moderate consumption, more durable use, a boost to the second-hand trade and the use of discarded clothing as raw material. Making product traceability universal in this sector is the first step towards positive change. With digital identifiers, individual products can be tracked along the entire value chain, while status information can be recorded from primary production to final use and future disposal or reuse.

The global consumer electronics market generates around 10.5 million tonnes of waste (e-waste) every year. Circular economy solutions can make a significant contribution to reducing the environmental burden in this industry as well. Examples of such support processes include extending the lifetime of electronic products,

reducing planned obsolescence, ensuring repairability and making preventive maintenance common practice, or automating and improving e-waste recycling infrastructure

through a combination of image recognition technologies and robotics.

The research shows that smart waste collection and sorting is based on increasingly sophisticated digital technologies. They are usually faster and more accurate than human labour. Their widespread uptake could be driven by falling technology prices, rising labour costs and increased demand for secondary raw materials. Solutions based on a combination of optical sensors and artificial intelligence are leading the way in this field.

Digital technologies in the circular economy

In technological terms, IoT and cloud solutions can be seen as the basic digital infrastructure of the circular economy. IoT devices are able to detect changes in state in real time and communicate with each other and the system controller/user via the internet. Cloud-based technology solutions are an indispensable complement to IoT-based data collection, providing reliable data storage and a dynamic IT environment that guarantees quality of service.

Of course, the availability of a reliable mobile network is a prerequisite for the use of digital solutions, but IoT devices often generate very little data traffic, so a robust network infrastructure is not necessarily required for their deployment.

The full potential of IoT technology is unleashed when combined with other digital solutions. The data generated by IoT devices can be used to build a full circular economic data ecosystem and a variety of innovative solutions (artificial intelligence, big data, blockchain, Industry 4.0, digital twins, predictive maintenance, etc.).

The use of digital technologies helps, among other things, to

  • reduce the use of raw materials/resources for the production of products by optimising production and reducing waste,
  • increase the lifetime of products,
  • the reuse of used products,
  • reuse and recycle as much of the residual materials and waste as possible,
  • tracking products throughout their life cycle and monitoring product properties,
  • the spread of sharing economy business models,
  • the emergence of product as a service (PaaS) solutions.

In addition, digital solutions also help to break down barriers to the expansion of the circular economy, such as

  • imperfect or asymmetric flow of information between actors in the value chain about the position, status and characteristics of products,
  • the high transaction costs associated with finding customers and suppliers, as well as communication,
  • negative consumer externalities, high consumer risk aversion to used and recycled products.
Overall, digitisation can provide the tools and infrastructure to optimise resource flows, collaborate more effectively and spread new business models in the circular economy, unlocking the potential for innovation, efficiency and sustainability across the value chain.
• Methodology

The following methodological elements were applied in the preparation of the study:

1. Secondary sources

To analyse the situation, describe the field, identify national and international trends and digitisation solutions in the industry:

  • processing national and international strategies, legislation and relevant development policy documents,
  • analysis of data from international and domestic secondary sources (case studies, textbooks, journals, conference publications, statistical publications, company, tender and international databases [OECD, Eurostat, etc.], other databases and research).

2. In-depth interviews

In relation to the value chain elements of the circular economy, in-depth interviews were conducted with experts in the field and with managers of ICT companies related to the topic of the research project and offering digital technology solutions, the experience of which was also used to prepare the study.