Going round in circles?

The ground is being prepared for our transition from linear to circular thinking. But what does it really mean for business? Miranda Ingram reports

Remember when brown paper and bits of string were kept in kitchen drawers, hems were let down - and eventually ripped up for dusters - and anything that came with a plug was sent off for repair? Back before we were seduced into today’s disposable lifestyle, “waste not want not” was a normal way of thinking.

Now it’s back, relabelled the Circular Economy and with a clutch of new buzzwords: cradle to cradle, cascade economics (reuse of materials), closed-loop, biomimicry, zero waste, collaborative consumption, remanufacture.
But this time we are talking waste not want not on an industrial scale.

The world’s population continues to grow and is estimated to reach 9 billion somewhere around 2050. By 2030 we are looking at a worldwide middle class of 5 billion consumers wanting to enjoy prosperous lifestyles.

At the same time, our natural resources are vanishing at an alarming rate.

Clearly our linear, “take-make-dispose”, economy is unsustainable. Soon there will be nothing left to take. The circular - or closed loop - economy rejects the idea that products reach their ‘end of life’ and, through reusing, repairing, refurbishing and recycling, aims to turn one product’s waste into another product’s raw materials thus banishing the need to mine new resources as well as the idea of throwing stuff away.

Put simply, the circular economy strives to mimic nature where everything is reabsorbed into the eco-system and there is no such thing as waste. Under the circular economy, waste management companies will become resource management companies. The ultimate aim is to decouple growth from environmental impact.

The challenge now is to change mindsets - of both manufacturers and their relationships with consumers.

Using research prepared by the Ellen MacArthur Foundation, the leading think-tank on the circular economy, the ground is being prepared for our transition from linear to circular thinking. The first big event promoting the circular economy, organised by Resource, was held in London last year and is being repeated next month. The Davos Forum put it on the agenda last year and again last month. The EU has passed a number of Communications alerting member countries to the benefits.

For while the concept of the circular economy make perfect sense, the key to persuading business leaders into a new way of thinking is to highlight the financial rewards.

Alongside the moral arguments, “the transition to a circular economy will be driven by the promise of over one trillion US dollars in business opportunities”, said Frans van Houten, ceo of the Dutch multinational Philips, addressing Davos last year.

Philips, one of the pioneers of circular economy thinking, saved €471m last year by the reuse, remanufacture and refurbishing of materials.

In adopting its Communication “Towards a circular economy: a zero waste programme for Europe” last year the European Commission calculated that using resources more efficiently will bring new growth and job opportunities: better eco-design, waste prevention and reuse can bring net savings for EU businesses of up to € 600bn, while also reducing total annual greenhouse gas emissions. Additional measures to increase resource productivity by 30% by 2030 could boost GDP by nearly 1%, while creating 2m additional jobs.

“If we want to compete we have to get the most out of our resources, and that means recycling them back into productive use, not burying them in landfills as waste,” commented Environment Commissioner Janez Potocnik. “Moving to a circular economy is not only possible, it is profitable.”

The key to success is a shift in thinking by both manufacturers and consumers. What is referred to as the ‘functional service economy’, ’performance economy’ or ‘sharing economy’ involves concentrating on selling services rather than products - the consumer becomes the user. Through leasing models, companies compete on quality, durability and standards of service rather than price.

“This requires a fundamental redesign of business and our end-to-end value chains,” says van Houten. “Instead of selling products, we should retain ownership and sell their use as a service. Once we sell the benefits of the products instead of the products themselves, we begin to design for longevity, multiple reuse, and eventual recycling.”

A perfect example is the Wales-based Riversimple which manufactures eco-friendly cars then offers mobility as a service rather than selling the cars. For a fixed fee, consumers will receive the car, fuel, insurance and maintenance to run it. Riversimple will retain ownership of the car - it is therefore in the manufacturer’s interest to make the car as durable and sustainable as possible.

Leasing, sharing, swapping, auctioning and bartering are rising forms of exchange which both reduce pressure on resources as well as reducing the waste often inherent in ownership. The DIY giant B&Q developed Project Box, which allows customers to ‘borrow’ toolkits for a service fee, when they realised that most toolkits are used for only 2 percent of their intrinsic value.

“People’s attitudes are changing. We can begin to see a world in which users of expensive and vital heavy equipment in the construction industry, for instance, will be willing to lend out their machinery to other companies when they don’t need it,” said Bill Stephenson, CEO & Chairman of the Executive Board of DLL global financial solutions partner, addressing Davos last month.

“We are at the foothills of this revolution,” he continued. “We need a new circular economy model to build truly sustainable business. The vital question is how to develop the new value chains that will underpin this. In our business, we are engaged in regular discussions with our partners, shaping new circular approaches such as second life markets, where goods are refurbished and marketed to new customers, extending the life of the product and building new revenue streams.”

The circular economy has its corporate fans. MBA Polymers, Cisco, Unilever, Renault, Desso (carpets), Novelis (aluminium sheet), Philips and Kingfisher (DIY) are publicly nailing their colours to the mast. Industry platforms such as the Better Cotton Initiative, Pharmaceutical Supply Chain Initiative, Electronic Industry Citizenship Coalition and the Sustainability Consortium are also on board.

Investors, too, are starting to take notice. As Ellen MacArthur of the eponymous foundation puts it: “if you had the choice of buying shares in a company that relies solely on virgin raw materials or one that has built a take-back system into its business model to feed its remanufacturing operations, which one would you choose?”

Nevertheless, for all its inherent good sense, circular economy is not a term on everyone’s lips - it’s not something politicians are talking about never mind consumers. Are we really on the verge of transition to a circular economy?
Maybe, maybe not, believes Sally Uren, Chief Executive of Forum for the Future.

“There is increasing interest in the Circular Economy. When we polled over 2000 of our network members on trends we thought might be important for 2015, half thought that the circular economy would disrupt conventional business in the next two years, half thought not.”

“I suspect we are close to a tipping point, one which will be accelerated as the business case becomes ever clearer, no waste means more cost efficiencies and upcycling and recycling creates new markets.

“True, we don’t hear politicians waxing lyrical on the notion of a circular economy, but then, particularly in the UK, there isn’t much sense coming from any political quarters on an array of sustainable business initiatives.

“My guess is that we will see increased momentum in 2015, and increased evidence that a circular economy is actually a pre-requisite of a sustainable one.

“But I don’t think we will ever really hear consumers talking about the circular economy in the same way they talk about recycling – which is of course central to the notion – it’s too academic a construct.

“However, consumer engagement with aspects of the building blocks of a circular economy, such as recycling and take-back schemes, will grow.”

MacArthur, however, sounds a warning. “In a world of dwindling resources, where the cost of raw materials is rising as demand outstrips supply, companies that fail to separate their revenue from commodity constraints will become increasingly vulnerable,”she says.

“However, innovative businesses that find ways of adapting to this new reality and consciously transition away from linear, volume-based growth can look forward to a future of sustained, long-term success.”