‘People talk about Eskilstuna as the place where nothing new is invented,” says the shopping mall manager Anna Bergström. An hour’s train ride from Stockholm, the “Sheffield of Sweden” has had something of an image problem in recent years. Once a steel-producing powerhouse, the town has fallen on hard times, thanks to the rapid decline in the industry throughout the 1970s. It now has an unemployment rate that is almost double the national average of 8%.

But the town has come up with an answer: recycling. Far from the Scandinavian stereotype of glossy modernity, Eskilstuna’s wide-paved, near-deserted grey streets are populated by kitsch 1980s pizzerias, workers’ cafes and gloomy pubs – not a place where you would expect to find such a radical approach to the environment. Yet since 2012, Eskilstuna has implemented a spate of green initiatives, vying to make it the most environmentally friendly city in Sweden – and perhaps the world. Public buses and cars are run on biogas and electricity, and the town uses low-carbon combined heat and power plants, which use the thermal energy from electricity production to heat water. Residents sort their waste into seven multicoloured categories at home – green for food, pink for textiles, grey for metal, yellow for paper, blue for newspaper, orange for plastic and black for mixed – and for the past four years people have been able to drop off their unwanted goods for recycling at Bergström’s secondhand mall.

Bergström moved to Eskilstuna in 2012, after becoming disillusioned with the huge waste she encountered during her career in commercial fashion, to run ReTuna (Tuna is the town’s nickname). She says the idea startled people to begin with. “When I first came here, no one knew about the mall. And when they did, no one liked it,” she says. “In a town like this, which has suffered, people are suspicious of change, especially something as radical as a shopping mall where all the goods are donated by the people of the town and then resold to them.”

Yet, since the recycling scheme began and ReTuna opened it has been a success, resulting in no domestic waste going to landfill, and potentially providing a second lease of life for the steel city. Despite being a 20-minute drive from the town centre on a Wednesday morning, ReTuna is full of shoppers roaming through secondhand stores, looking at everything from furniture to children’s toys, flowers and clothes. The mall is situated in an unassuming warehouse building in the middle of a field, next to one of the town’s two recycling centres. Residents drop off their goods to be sorted by the 12 staff on hand in the cavernous warehouse beneath the shop floors. Standing in ReTuna’s entrance hall beneath a tree fashioned from recycled cups, Bergström explains how she won over the town. “Everyone’s minds began to change the day we opened,” she says. “Six thousand people came to visit that day, and since then we average 700 visitors a day and 300 tour groups a year.”

The daily tour groups – which are made up mainly of students – shows how innovative Eskilstuna’s recycling schemes are. Today’s tour, for instance, is part of an exchange between Indian students from a college in Pune and a local Swedish media school. The teacher from Pune, Sonia Khambete, organised the trip after she heard about ReTuna on social media. “This is a very inspiring place,” she says. “In India, we have a huge waste management problem where, as the population grows, we increasingly live in a throwaway culture. We brought our students here because we could all learn a lot from a place like ReTuna.”

Mother-and-daughter shoppers Sandra and Elisabeth Jarvinen agree. “We have lived in Eskilstuna our whole lives,” Sandra says, “and ReTuna has revitalised the town, it’s something for us to be proud of.”

Facebook Twitter Pinterest Anna Bergström … ‘Everyone’s minds began to change the day we opened.’ Photograph: Graeme Robertson/The Guardian

Bjorn Gutenberg, who lives 30 miles (50km) outside ReTuna, but comes to shop here at least once a week, says: “We’re actually addressing the problem. It creates job opportunities, and it’s great for people to see the whole chain of recycling and consumption.” Shoppers come from even further afield, too, says Bergström who adds that families have visited from France, Japan and even Australia.

ReTuna is owned by Eskilstuna’s energy board, which is run by the city municipality, the Swedish version of a local council. To get the project started, the municipality invested 19.5m Swedish kronor (£1.6m) for building works, but also to subsidise rates for the shop owners. In 2018, for the first time, the mall operated without this subsidy and it broke even, but Bergström knows revenues need to increase to keep the business running. “We need to make more money to be able to hire people because the shop owners work really hard seven days a week.”

One such shop owner is Maria Larsson, who works a 70-hour week to keep her florist open. Alongside preowned items, she sells upcycled pieces, too. “I’ve invested all my money into this shop, and I’m hoping this is the first year I’ll actually get paid,” she says. “I have had to put all the money [it has made] back into the business, and have pretty much been surviving on my fiance’s wages. This mall would maybe work better in a town with more people and more employment.”

Larsson, like the other shop owners, has to address the problem of how to price products they have received for nothing – while still making a profit and paying the costs of running their shops. “People assume our products should be cheap, but it’s really hard to price what we do,” she says. “Eskilstuna is a workers’ town, so people here are suspicious; they care about functionality over sustainability.” A rummage through the mall finds shirts retailing for 120 kronor, books for 60 kronor and Larsson’s flower pots for 480 kronor.

For the workers in the sorting plant, it is an equally demanding job. Matti Koskela, 25, works 10-hour shifts, hauling waste from cars into the ReTuna warehouse. “Everything people bring along is very good,” he says. “I’ve shopped in the mall once before, and thought it was great. We all work very hard because people around here don’t have much money. But it’s a lot better than my last job in an incineration plant. I just hope the mall will last.”

More than 10% of Eskilstuna’s population of 100,000 is made up of refugees (about 239,000 people sought asylum in the country between 2015 and 2018, according to the government) and the shopping mall provides opportunities for them to acquire skills, or brush them up. Yusuf al-Aboud from Syria has lived in Sweden for two years and works as a handyman in the ReTuna furniture store. “I’ve always liked making things, doing work with my hands, so this job has been great to help with the environment as well as produce nice products,” he says, smiling, while painting a repurposed dresser. “Back home, we would never throw things away unless they are completely broken, so this work is usual for me.” His residency permit has not been renewed for next year, though, and so he will soon be forced to move on. “They want me to enrol in university or get some more education, but I already have all the skills I need,” he says. “I wish they would let me keep on working.”

Another recent arrival to Eskilstuna is a Glaswegian, Kevin Roxburgh. Having lived in Stockholm for 30 years, Roxburgh moved to Eskilstuna two weeks ago to manage ReTuna’s franchise of the charity shop chain, Stadsmissionen. “I used to work in fashion, like Anna,” he says. “And I became totally disillusioned with all the waste – I decided I wanted to help people in their lives instead.” Stadsmissionen employs staff with learning difficulties and long-term unemployed people. It was founded in Roxburgh’s home town, under the name Glasgow City Mission. “I was pleasantly surprised by the mall,” he says, “and I think this recycling system is brilliant – it’s much better than Stockholm’s and definitely better than the UK’s.” Roxburgh recently gained Swedish citizenship, because of “all this Brexit bullshit”, and says he has no plans to move back. “This is the real community spirit here,” he adds.

Facebook Twitter Pinterest Maria Larsson … ‘People assume our products should be cheap.’ Photograph: Graeme Robertson/The Guardian

Any waste, or “resources”, that cannot be resold in ReTuna, finds its way to the Lilla Nyby sorting centre a 20-minute drive away. From the outside, Lilla Nyby is a typical waste plant: heaps of putrid rubbish waiting to be sorted, opportunistic gulls swooping and diggers carving through the mounds. There is a noticeable lack of people at Lilla Nyby, though. Inside the warehouse, the recycling bags whirr through a maze of conveyor belts, passing camera points which recognise their different colours and then swat them off the line accordingly. The result is a seamless trash-maze that allows five people to process 20,000 tonnes of waste a year.

Standing beneath the energy board’s logo, which looks like a floating carrot, the manager, Mattias Hellström, explains how it takes the effort out of recycling: “The machine is perfect because people are lazy,” he says. Hellström joined the team 10 years ago, when the plant was being built alongside the covered remains of the town’s landfill. “I’ve seen this whole place change in that time,” he says. “Before, if you wanted to recycle any waste, you would have to drive it to the bins by the supermarket. With this new system, people seem much more engaged with the environment because it is so easy – we have more than 97% accuracy in the sorting of waste in the bags.” Although sometimes something unusual turns up: “We found a dead puppy in one of the blue bags two years ago.”

As well as simply sorting the waste, food waste is composted at Lilla Nyby and sold back to residents. “It’s so high-quality, it sells out,” Hellström says – and the biogas from food waste at the plant is used for the city’s buses. In a small, humid shed behind the warehouse, an Uppsala University research project is taking place. They are testing the use of maggot larvae to digest food waste, then using the fattened maggots to feed to livestock, and potentially even humans. The worm has turned.

Sorting your household rubbish into seven different categories may sound like a step too far, yet the residents of Eskilstuna, it seems, have become waste aficionados. This might be because to opt out of the multicoloured scheme means doubling the yearly household waste disposal fee of 2,894 kronor. Yet, for new parents Caroline and Marlin Sommerlid, the recycling scheme is a moral obligation.

Facebook Twitter Pinterest Recycled chairs in ReTuna. Photograph: Graeme Robertson/The Guardian

“We’re very proud citizens to have this scheme here,” Caroline says, her five-week-old baby resting on her shoulder. “I want my children to grow up in a world that hasn’t been destroyed, and for them to leave it in better shape than they got it in.”

We meet in their newly built, eco-friendly house situated in the leafy suburbs of Eskilstuna. “I built this house to fit in with our recycling systems,” construction engineer Marlin says, showing the integrated bins nestled beneath the sink. “Caroline is obsessed – I came from a place where people didn’t recycle, but her parents were militant.” “When I go to places without the sorting systems, I feel as if I’m back in the 80s,” Caroline says.

If the scheme is so successful, why hasn’t it been introduced to other municipalities in Sweden, or even to other countries? “These projects require a lot of land to operate on,” the municipality’s director of energy, Kristina Birath, explains. “There’s no reason it couldn’t be implemented throughout Sweden though. We just need more bold politicians with a vision to be green.” This may be increasingly difficult with Sweden recently experiencing the resurgence in far-right politics seemingly sweeping throughout Europe. Jimmie Åkesson, leader of the Sweden Democrats, who won 17% of votes in the 2018 elections, has said that Greta Thunberg’s protest against the climate crisis is a “staged promotional campaign”. Yet Birath is optimistic: “From next year, all Swedish municipalities will be legally required to recycle. We have had rightwing governments before, so we’re used to being brave.”

The Social Democrat leader of the municipality, Jimmy Jansson, says other Swedish towns are slow to catch up because of a “lack of knowledge”. Born and raised in the town, Jansson left school at the height of its deindustrialisation. “We lost 10,000 inhabitants, and we’re still recovering from that time,” he says. “We had to find a new identity, and it felt natural to tackle the question of being a dirty industrial town. We had an opportunity to learn from our past mistakes and, even though we have not entirely recovered, it’s not difficult to do the right thing – it’s our responsibility.”

With continued high unemployment, these environmental policies could appear nothing more than a cynical rebrand for a town which, in Jansson’s words, “nobody wanted to come to”. Yet, Birath says, while the new recycling scheme has created 50 new jobs – a small dent in the almost 15,000 unemployed – for residents, the radical green action has not just put Eskilstuna back on the map. It has done so in a way that makes them proud.

“It has been a long time coming,” Bergström says. “It’s hard to get a town on board that has been so scarred by change in the past – so if we can make a success of it here, it could happen anywhere in the world. Where there is waste, there is an opportunity.”

• This article was amended on 20 June 2019. The original stated that 780,000 people had sought asylum in Sweden since 2015. In fact the government says the correct figure for 2015-18 is 239,000.