Within the evolving regulatory landscape of the European Union concerning animal by-product (ABP) management within the circular economy framework, this study explores the concurrent objectives of safeguarding public health and environmental integrity and maximizing final product value. Anaerobic digestion (AD) emerges as a holistic solution for ABP management, addressing sanitation concerns while enhancing end-product quality. Through laboratory-scale experimentation, the AD process applied to four substrates—poultry manure, swine manure, cattle manure, and food waste—is scrutinized. Prior to AD, pasteurization at 70 °C for 60 min ensures microbial safety. Subsequently, four experimental AD cycles compare pasteurized and unpasteurized substrates. Results highlight the efficacy of pasteurization in sanitizing final products across all substrates, emphasizing its pivotal role in product safety. However, pasteurization’s impact on system performance varies. While enhancing biogas yield from animal waste notably, its influence on food waste biogas production is less pronounced, indicating substrate-specific dynamics. This study offers insights into optimizing ABP management strategies, emphasizing the interplay between pasteurization, substrate characteristics, and AD performance. Such insights are crucial for advancing sustainable practices in the circular economy paradigm, balancing environmental stewardship with economic viability.