Industry 4.0: A cornerstone of the circular economy.
Spiral staircase. (Image: Rolf Hecken via Unsplash).

Industry 4.0: A cornerstone of the Circular Economy

Data-driven systems identify risks and opportunities in circular business models.

By Manuel Albaladejo, Paula Mirazo, Johanna Cristina Perez Alvins and Carlos Repáraz Martín

In recent decades, the circular economy has increasingly been perceived as the industrialization model of choice for achieving sustainable growth. Yet, several technological, financial, regulatory and sociocultural barriers still hinder the transition from linear to circular production systems. There is a growing consensus that the advanced digital technologies collectively known as “Industry 4.0” (or I4.0) act as enablers of the circular economy, with the capability to overcome many of these obstacles. This is particularly true for filling the informational deficits that underly several of these barriers. Lack of data on waste (i.e., location, volume, composition), for example, represents an important bottleneck in the transition to circularity as it thwarts the substitution of virgin materials with secondary ones.1

The Fourth Industrial Revolution/Industry 4.0 is characterized by “the convergence and complementarity of emerging technological fields, such as nanotechnology, biotechnology, new materials and advanced digital production (ADP) technologies”. All of these are essential for the transition to a circular economy, where the focus is on improved management of renewable material flows within the value chain. I4.0 is also largely data-driven, leveraging the potential of big data, remote sensoring, intelligent process monitoring and advanced human–machine interfaces. Interacting with this information in real time means that I4.0 has the potential to optimize production, enable new business models, and expand product and service portfolios.2

The advanced digital production technologies of I4.0 make it possible to digitize and integrate information within value chains. They also enable the digitization of the supply of products and services and the development of disruptive digital business models. These, in turn, can generate additional revenue while optimizing consumer interaction and access through data exchange. All of this is key to incorporating various circular strategies into value chains and business models.

Industry 4.0 technologies

Industry 4.0 Technologies
Source: PricewaterhouseCoopers (2016), Global Industry 4.0 Survey.

Many of the technologies represented above have the potential to generate information on waste types, conditions, quantities and locations, facilitating better waste reduction and potential reuse.3 Similarly, more information enables better identification of risks and opportunities related to the adoption of circular business models. Data also facilitates the design and production of innovative and high value added circular goods, and contributes to the development and dissemination of circularity strategies.4

Case Studies – I4.0 leverages data to facilitate more circular models

Internet of waste (IoW)

One of the challenges of the circular economy is closing the loop once the use phase of a product has been completed. I4.0 technologies offer opportunities to make the post-use collection process more efficient, effective and sustainable. This is exemplified by AllWaste, an Internet of Things (IoT) waste collection and street cleaning solution in the city of Santander, Spain.

The system uses ultrasonic sensors and telemetry equipment to monitor and communicate container fill levels to field operators and supervisors. This allows for more efficient planning of collection frequency and routes based on real-time, geolocated waste generation. Unique tagging of containers, together with handheld RFID (radio-frequency identification) readers, allow collectors to identify containers and confirm activities to supervisors.

AllWaste’s optimized routes reduce fuel consumption and pollutant gas emissions, improve inventory control and reduce noise, visual and olfactory pollution. The system also has a mobile application allowing citizens to report incidents to the collection and street cleaning service, reducing response times and maximizing the resolution of events.

Blockchain for circularity in the food industry

Another crucial aspect of the circular economy is the traceability of products throughout their life cycle. This involves information collection at each stage of the cycle to meet the transparency demands of a growing number of stakeholders, to comply with legislation and standards, and to address the operational needs of supply chain actors.

Blockchain technology offers several advantages over conventional technology in terms of security, information encryption, automation and communication among chain participants who use different computer systems. The IoTrace tool is based on blockchain technology and it facilitates the exchange of logistics data among a company’s partners, tracks the location of components and shipments throughout the supply chain ecosystem, and integrates additional information related to the certifications and licences of various actors in the chain. This both strengthens and showcases sustainability and circularity credentials, transforming them into a competitive advantage.

Applied to an international fishing company, IoTrace monitors fishing methods, landing processes and other value chain activities by integrating third-party records. Consumers can then access all of this information using links encoded within the lot numbers on product packaging.

Blockchain and IoT to circularize the textile industry

Another application of IoTrace is helping to close the materials loop in the textile industry. The use of recycled textiles implies certain traceability requirements regarding the materials acquired, the transformations applied, and the final product sent to customers. The IoTrace application digitizes all information on the traceability of products in the intermediate stages of the textile reuse process.

This information is immutably linked in the blockchain network, being visible to all the actors involved, thus allowing total transparency throughout the process. The traceable information can be incorporated into the blockchain network by users themselves, or through external systems and/or IoT devices (sensors or others).


Transitioning to a circular production and consumption model is a matter of urgency, and there is an increasing recognition that this shift necessitates the integration of I4.0 technologies. This article has identified some of the informational benefits of I4.0 in supporting the circular economy. Advanced digital production (ADP) technologies have a broader sustainability impact by increasing energy and resource efficiency, while reducing waste and pollution. Incorporating circularity and I4.0 into manufacturing and business strategies can lead to a cleaner and more productive industrial sector that generates shared benefits across society.

  • Manuel Albaladejo is Country Representative for Argentina, Chile, Paraguay and Uruguay, at the United Nations Industrial Development Organization (UNIDO).
  • Paula Mirazo is Economic Transformation and Industrialization Research Assistant at the Regional Office in Uruguay of the United Nations Industrial Development Organization (UNIDO).
  • Johanna Cristina Perez Alvins is Climate Change and Circular Economy Project Leader at NTT DATA.
  • Carlos Repáraz Martín is Circular Economy technical Manager at NTT DATA.

Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

Read next