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What's A Closed Loop System?

By Kristin Hunt

Businesses use all kinds of terms to prove they’re environmentally friendly. “Recyclable,” “plant-based,” and “energy efficient” all get tossed around a lot — and while most people generally know what those words mean, there’s one frequently used phrase that’s harder to decipher: closed-loop system.

When a company says it uses a closed-loop system, it’s referring to its supply chain. Under a closed-loop system, businesses reuse the same materials over and over again to create new products for purchase. It’s a way to conserve natural resources and divert waste from the landfill, and increasingly, more companies are adopting it.

The phrase “closed-loop system” is often paired with “circular economy,” which is “an industrial system that is restorative and regenerative by intention or design,” to use the World Economic Forum’s definition. It’s helpful to think of literal loops or circles to understand the core concept. Instead of raw materials moving in a straight line from collection, through manufacturing, to purchase (and, once it’s broken or used up, the trash can), imagine a loop. The materials are always moving through this loop, never reaching an endpoint.