Why every business should commit to a circular economy

10 minutes   |  BUSINESS & MANAGEMENT

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Modern industry is largely defined by a simple linear economy, in a “take-make-dispose pattern” that relies on extracting or harvesting materials to make products, which are discarded by consumers once their use has been fulfilled. 1 In a world of rapidly depleting resources – over 4.4 billion metric tonnes of oil was consumed in 2017 alone 2 – it is quickly becoming apparent that the old way of doing business is simply not sustainable. The model of the circular economy may provide the answer to this problem.

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The essence of the circular economy is to redefine the way we consider growth, by focusing more clearly on societal benefit as part of a closed, self-perpetuating loop, that minimises negative impacts. In effect, the circular economy is, by design, regenerative and restorative. 3 Not only does this model provide a clear path to greater sustainability, it may well provide a vital edge to organisations – if they’re willing to take the risk of adopting it early. In order to make that leap, however, businesses need to be aware of the benefits that flow from a circular economy. To help with that decision, it’s worth examining the concept in detail – including the potential benefits of the model.

What is the circular economy?

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The differences between the linear and circular economy are fairly obvious: one, the linear model, doesn’t really concern itself with waste insofar as it must be disposed of in as cheap a manner as is feasible, given government regulations and the like. By contrast, the circular economy is more interested in doing away with waste.4 But how does this differ from other sustainability measures, like recycling? The answer is the degree to which waste is removed from the system. A recycling economy, for instance, is one in which some waste is reused as part of the production cycle.

The concept of the circular economy has been a topic of discussion since at least the 1970s, but has found new interest and fertile ground for discussion in modern times.5 Ongoing pressure on once abundant resources6, along with the environmental impact of the linear economy, has made an alternative model of economic production a necessity. In 2010, 11.2 billion tonnes of waste was collected globally, with more left unaccounted forwith more left unaccounted for.7 While recycling models have helped stem the tide, they have failed to solve the problem entirely.

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In the ideal circular economy, waste is designed out of the production process entirely to make it a sustainable solution, with an emphasis placed on using resources efficiently, for reuse and recycling, and to re-enter the environment safely in cases where these are not possible.8This essentially creates a closed loop, where inputs enter the system and never leave (unlike in the recycling economy, where resources are eventually discarded after a certain amount of reuse). The ultimate goal of the circular economy is to create resource efficiency, where the value of a given resource is maintained, and even increased over time, through uses in multiple product cycles.

A real-world circular economy

While a circular economy is powerful in theory, in reality there have been many hurdles to the creation of a circular production loop. In order for the circular economy to function effectively, companies must be able to fully utilise used products and return these to the production cycle. There are challenges to doing so, as many products are complex in nature, making it difficult to repurpose their component parts within a single industry – smartphones, for instance, are made of numerous components, and each is often complex in their own right, further complicating the effort to reclaim and reuse them effectively. In this case, it becomes necessary for businesses to look beyond themselves, to find partners willing to share the load.9

Such was the case in the partnership between Jaguar Land Rover and Novelis in the REALCAR project, facilitated by the University of Cambridge Institute for Sustainability Leadership.10 The core problem addressed in this project lay in Jaguar Land Rover’s need for aluminium in the manufacture of its automobiles. Aluminium was chosen for its ability to reduce weight in the cars, leading to better performance and a more environmentally-friendly vehicle. Unfortunately, production of aluminium is expensive – both financially and environmentally. In order to lower costs and reduce the impact on the environment, stakeholders worked to replace the traditional supply chain model. This was transformed into a “value chain network”.11

Under this collaborative model, Novelis, a producer of rolled aluminium (the biggest global recycler of the material),4 worked alongside Jaguar Land Rover for the mutual benefit of the two companies, but also for the broader environment in which they operate. By providing recycled aluminium, Novelis allowed Jaguar Land Rover to build their vehicles in a more cost-effective manner. At the same time, Jaguar Land Rover provided Novelis with the aluminium by-products of their own manufacturing process, allowing for the reintegration of these resources into the on-going production cycle.

While Jaguar Land Rover and Novelis found great success in their use of this model, repeating this success on a broader basis will face distinct hurdles, and the general success of a circular economy rests on overcoming these.

The challenges of a circular economy

A crucial issue which the rise of the circular economy faces is the need for collaboration. This is highlighted in the ongoing success of projects like REALCAR. The complexity of materials which modern production makes use of brings to the forefront the challenge of integrating multiple-use resources. It is unlikely that a single company may find use for, or even have the capacity to recycle its own resources to the degree required for remanufacturing. Should an organisation choose to maintain its supply loop wholly within itself, it may also run the risk of generating inefficiencies as it tries to control these processes. Instead, a partnership must arise in which two or more organisations collaborate to recycle and improve resource efficiencies.

This is the case in the REALCAR project: unable to effectively recover and repurpose the aluminium needed for production, Jaguar Land Rover turned to Novelis, who are able to provide the resources needed. Computer technology company Dell has taken this route as well, partnering with Lonely Whale Foundation to re-use ocean-bound plastics for product packaging – specifically, by incorporating plastics collected from beaches, waterways and coastal areas for the protective trays for its XPS 13 two-in-one laptop.12

There are, unfortunately, several barriers to these sorts of collaborations. In the first place, the existence of a competitive market may well scare off any potential collaborators, as long as they see no immediate benefit to themselves – and if it succeeds, the collaboration could create a dependence between organisations that may prove vulnerable to disruption. For example, the collapse of an organisation that relies on a specific destination for repurposed resources could have a ripple effect for the companies linked to it. For success, such eventualities must be taken into account and planned for through the diversification of partnerships. However, this diversification can become complex with a number of relationships needing constant attention and management.

Given these challenges, it would be easy for organisations to avoid committing to the circular economy until it’s felt that the concept has reached a point of stability and maturity. Such a decision could prove to be a mistake.

The business case for the circular economy

The circular economy undoubtedly holds great promise for the environment in which we live, however, it must also satisfy the needs of business in order to be called a successful model for the future of business. There are many cases which prove that the circular economy is good for the environment, and for profits as well.

In considering the circular economy, it’s useful to remember that resource efficiency doesn’t only concern the careful husbanding of our resources, but a verifiable cost-saving measure as well. Consider the example put forth by the Ellen MacArthur Foundation in their case study on resource efficiency in the restaurant business. The case study concerns the work of Marc Zornes, whose company, Winnow, markets a technological solution for reducing food waste in restaurant kitchens.13

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Winnow, operating on a software as a service model, makes use of analytics to tie food waste to profit. By visualising this information, Winnow has helped reduce waste by 40%-70% in these companies, while enabling savings of around £9 million yearly.14 As this example shows, there is a greater economic benefit to the circular economy than that experienced by existing businesses. In the case of Winnow, not only has food waste been drastically reduced, it has also found success by enabling others to enjoy the benefits of resource efficiency.

The relationships on which the circular economy are built, yield their own benefits for business. In the REALCAR project, both Jaguar Land Rover and Novelis have seen significant reductions in their respective carbon footprints.15 In a global society more aware of environmental impact than ever before, the ability to prove a commitment to a healthier planet has become an advantage all on its own, with consumers increasingly more likely to buy products from companies that they perceive as operating in an ethical and sustainable manner.16 In the circular economy, longevity becomes a prized quality of a product – a clear benefit to the end user. Repairing goods, too, is preferred to the resource-intensive process of replacing a product, and costs less for both business and consumer. In this way, companies are able to build customer loyalty while saving money.

These examples show the benefits of the circular economy, but there is one more, time-dependent benefit to businesses who make the transition to a circular model sooner rather than later – adopting the model before your competitors may well provide an effective edge in competition, as organisations are able to reduce cost significantly.

The way forward

The ultimate goal of the circular economy must always be kept in mind; not simply the welfare of linked and collaborating organisations, but the environment as a whole. While a circular economy may provide many benefits to the involved businesses, there is a fine balance between its business benefits and environmental benefits. The latter has obvious importance for the world we live in, the former has important social consequences that can not be ignored.

For the broader economy, the circular economy provides ample opportunities for those willing to invest their time and effort. This effective model has specific needs for the design of products, systems, technologies, and information services. These needs allow for the growth of businesses like Winnow, or new developments that drive growth in existing industries, as in the case of Novelis.

As a model for sustainability, the circular economy provides answers where many other approaches fail. Not only is it an effective way of reducing the impact of production on an already-strained environment, it provides the potential for businesses to thrive by forging new paths, while equally providing social benefits to consumers

By building and maintaining structures for greater resource efficiency, business leaders will have the opportunity to lead the charge in improving the outlook not only for their own organisations, but for a global society. And it is from business leaders that the impetus for the circular economy must come. Strong and decisive leadership is needed to create and maintain the relationships that the circular economy requires, alongside daring entrepreneurship that can facilitate technological solutions to the hurdles that the model faces as companies attempt to scale their approach.

In the end, there is one key fact that must be remembered: the need for sustainable business practices on a large scale is no longer a hypothetical good – it is a clear requirement for our resource-strapped environment. But beyond moral imperatives (the health of both our environment and population), there is indeed a business case to be made for greater sustainability

The benefits simply wait for those willing to step up to the challenge.

Become a champion for a sustainable future.

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  • 1 ‘Towards the circular economy’. Retrieved from the World Economic Forum
  • 2 BP. (2018). ‘BP Statistical Review of World Energy 2018 [PDF]’. Retrieved from Statista.com
  • 3 ‘What is a Circular Economy’. Retrieved from the Ellen MacArthur Foundation
  • 4 ‘From a linear to a circular economy’. Retrieved from the Government of the Netherlands
  • 5 Schools of Thought’. Retrieved from the Ellen MacArthur Foundation
  • 6 Camilla Ruiz. (2011). ‘The six natural resources most drained by our 7 billion people’. Retrieved from The Guardian
  • 7 Anne PM Velenturf, Phil Purnell. (2017). ‘Resource Recovery from Waste: Restoring the Balance between Resource Scarcity and Waste Overload’. Retrieved from MDPI
  • 8 Circular economy knowledge hub. Retrieved from the University of Cambridge
  • 9 Emma Davies. (2017). Getting the metals out of old phones. Retrieved from Chemistry World
  • 10 University of Cambridge Institute of Sustainability Management (2016). Collaboration for a closed-loop value chain [PDF]. Retrieved from the University of Cambridge
  • 11 University of Cambridge Institute of Sustainability Management (2016). Collaboration for a closed-loop value chain [PDF]. Retrieved from the University of Cambridge
  • 12 Izwan Ismail. (2018). Tech-kling the plastic crisis. Retrieved from New Straits Times
  • 13 Data-backed stories that drive change. Retrieved from the Ellen MacArthur Foundation
  • 14 Data-backed stories that drive change. Retrieved from the Ellen MacArthur Foundation
  • 15 University of Cambridge Institute of Sustainability Management (2016). Collaboration for a closed-loop value chain [PDF]. Retrieved from the University of Cambridge
  • 16 Alice Hancock (2017). Younger consumers drive shift to ethical products. Retrieved from Financial Times