Sustainability: Circular Economy - PDF

Making a Line into a Circle: The Circular Economy Nature operates in cycles: such as the journey of a tree from seedling to maturity, followed by death, decomposition, and enriching the soil for the next generation. Human civilization and culture also follow cyclical patterns. Simi...

Making a Line into a Circle: The Circular Economy Nature operates in cycles: such as the journey of a tree from seedling to maturity, followed by death, decomposition, and enriching the soil for the next generation. Human civilization and culture also follow cyclical patterns. Similarly, the economy goes through cycles of booms and busts. Why then are we so fixated on doing business in a linear fashion? In this chapter, we’ll cover The Circular Economy, a new spin on an old way of thinking around designing products, reusing materials, and replenishing resources that not only leads to a sustainable future, but a better way of doing business.  The Status Quo: The Linear Economy In 1955, LIFE Magazine published an article titled “Throwaway Living,” preaching the virtues of having everything be disposable. No need to wash your dishes, dog bowls, or even your clothes if you can just throw them away after you use them! How wonderful! The article was not satire. This is emblematic of the Linear Economy (LE), a system of Take, Make, and Waste. The majority of businesses rely on continual access to rapidly dwindling natural resources. Most products are designed to reach obsolescence and be disposed of. As of now, 90% of extracted resources are eventually dumped into a landfill, where they lie unused, and their value is essentially lost. While this was fine back in 1955, it doesn’t make sense anymore from an ethical, environmental or business perspective. Business as usual won’t be in business for much longer!  False Promises: Recycling No matter how diligently we Reduce-Reuse-Recycle, the system as it is now just isn’t making an impact. The rate of plastic recycling reached its peak at around 10% in 2014, and has declined to just around 5% today. That means 95% of plastic goes to a landfill, or the rivers and oceans. The great Pacific Garbage Patch is only growing larger Recycling, besides being ineffective, operates within a questionable industry. Many recycling operations rely on cheap labor in low-income countries, which often serve as a dumping ground for the developed world. Recycling centers lack standards, and contribute to pollution by burning and melting materials. Bottom line: we need a better system than recycling alone. This is where the Circular Economy steps in.  What is The Circular Economy? Three Principles The Circular Economy is an economic system Design reusable that aims to benefit businesses, society, and the products environment by transitioning from the linear ‘take- make-waste’ model to a regenerative approach, decoupling growth from the consumption of finite Keep materials in resources. use From a business perspective, it’s flipping the usual question of: Regenerate natural “How can we minimize the negative systems impact?” Into: “How can we extract as much value as possible out of what we already have?”  The Two Systems The Circular Economy consists of two systems: Technical and Biological. The Technical side is anything that doesn’t biodegrade, needs to be recovered and fed back into the manufacturing process. The Biodegradable side consists of organic materials that can break down over time. A major obstacle to these two systems is their materials must be kept separate. The Linear System as it is now mixes them up, and combines them into giant trash heaps that makes meaningful extraction of value not cost-effective. This concept is inspired by the Image Credit: “A Guide to Corporate Responsibility” Ditlev- Cradle to Cradle school of thought Simonsen  Cradle to Cradle In line with the two systems of the CE, the Cradle to Cradle (C2C) is a certification process and design philosophy for reusable products. C2C splits materials into technical and biological categories, and views them akin to a nutrients flowing cyclically through a system. Main Principles 1. Inspired by natural systems, where there is no waste. Nutrients are used and reused continually. 2. Renewable energy is paramount, as it’s cheap and creates no emissions. 3. Diversity creates resilience and adaptability to change.  Regulatory Standards: CEAP The main principles behind the EU ‘s plan is for products made in the future must be durable, reusable, repairable or recyclable, and contain recycled materials. This leads into the 2020 Circular Economy Action Plan, one of the main building blocks of the EU Green Deal. Circular Economy Action Plan (CEAP) Make sustainable products the norm in the EU Empower consumers and public buyer Focus on the sectors that use the most resources and where the potential for circularity is high such as: electronics; batteries; packaging; plastics; textiles; construction and buildings; food and water; make circularity work for people, regions, and cities Regulatory Standards: Right to Repair In 2024, the “Right to Repair” law came into effect for all EU countries. The law obligates manufacturers to enable end-users to be able to repair or replace parts, as well as provide repair manuals for many appliances such as washing machines, vacuum cleaners, and mobile phones. Apple Inc. has been notorious for making their phones highly difficult, if not altogether impossible for the average consumer to fix themselves, leading to the trend of buying a new phone rather than having it repaired. The passing of legislation such as Right to Repair is indicative that we are on the verge of a new era of not only product design, but changes in consumer and corporate behaviors, further emphasizing sustainability beyond a “nice to have” to a “must have.” Right to Repair Case in Point: Fairphone Antithetical to Apple's approach to obfuscating the customer from the inner workings of their devices is Netherlands-based Fairphone. Fairphone sells sustainably-sourced mobile phones that emphasize end-user agency through a completely modular and easily repairable design, as well as transparent sourcing of raw materials. Fairphone's commitment to transparency and repairability sets a precedent for the future of electronics manufacturing, demonstrating that profitability and sustainability can go hand in hand.  Profit Potential of the Circular Economy Just as in the linear economic model, profitability in the circular economy depends in no small part on efficiency. Profitability in the CE depends on how efficient your resource reintegration loop is. The rule of thumb is, the smaller the loop, the more resource efficient and profitable it will be. This is one of the most exciting parts about the CE for business leaders: less emphasis on continually mining or otherwise procuring virgin materials, and instead on re-using materials that are already in circulation at maximum efficiency. This leads to shorter production cycles, lower upfront costs, and more long-term profits. Other “rules” for profitability in the CE: Don’t repair what isn’t broken. Don’t remanufacture what can be repaired.  Circular Finance Investment firms are taking notice of the CE as a new opportunity that curbs investment risk and drives superior risk-adjusted returns. Institutions such as BlackRock, BNP Paribas, Credit Suisse and Goldman Sachs are all seeing the investment potential of the CE. Lower Risk of Default “Analysis of 222 European companies across 14 industries has highlighted that the more circular a company is, the lower its risk of default on debt over both a one- year and five-year time horizon” Risk-Adjusted Returns “Research suggests that higher levels of circularity are driving superior risk-adjusted stock performance for European listed companies” *According to University of Bocconi’s white paper  Barriers to Entry for the Circular There are a number of obstacles toEconomy be overcome before the Circular Economy can achieve scale. As of now, repairing a phone has far thinner margins than just selling a brand new one. As of this writing, only 8.6% of raw materials are cycled back into production, for the following reasons: Consumer Preferences Regulatory Frameworks Remain fixated on novelty and buying Are designed around the next best thing. Purchasing a accommodating the linear “refurbished” anything is seen as a system. compromise Disposable in quality for lower price. Poor or Lacking Reverse- Design Logistics Many brands are designed around Current supply chains make disposability. The single-serve coffee market, reverse-logistics difficult even for i.e., Nespresso or Keurig, are an example of environmentally conscious brands that are the antithesis of the CE. consumers.  Circular Food The way we grow, package, and sell food has to change. Not only is it one of the biggest reasons behind the extinction of many species and loss of biodiversity, but also accounts for a third of all GHG emissions. We’ll cover an example of each at the production (farming), retail, and packaging levels of each. Biodiverse Farming Four crops make up 60% of the world’s calories. Businesses who invest in the wide range of alternative choices stand to gain considerably. Rather than planting bio-engineered monocrops like many other growers, farmer collectives like Community Grains are experimenting with a variety of different strains, encouraging biodiversity and improving soil health along the way. Circular Food Food Surplus Delivery Food Surplus Delivery or Food Saving Apps, are growing in popularity with consumers looking to save some cash on expensive takeout, and restaurants looking to do their part in reducing food waste. Apps such as Too Good To Go, Yindii, FlashFood, and Food for All, allow restaurants and grocery stores to sell food that would otherwise be thrown away at a discount to customers.  Circular Food Reusable Packaging When you order takeout from a restaurant, you may have noticed how much packaging you end up throwing away for only one meal. Services like BarePack are pioneering a new service model of takeout packaging utilizing reusable containers that can be returned to the restaurant for a return on a deposit to the customer. This is a small example of the kind of reverse- logistics that customers are happy to take part in when given the option. Circular Food Infinite Food Every year, 240 million slices of bread are thrown away each year. Companies such as New Zealand-based Citizen are capitalizing on this, and taking that left over bread and turning it into beer. A partnership with a local bakery lets them use the spent-grain by-product of their brewing process in order to essentially make the beer back into bread! This kind of concept is known as the “infinity model,” that is disrupting the current  Products as a Service From both an environmental and consumer perspective, certain products make more sense to rent rather than own. With the rise of ridesharing apps like Uber, Products as a Service (PaaS) offers an environmentally friendlier alternative to ownership. Businesses benefit from recurring revenue streams, while customers get access to quality products without the burden of needing to repair or replace them, offering a win-win scenario.  PaaS Case in Point: Clothing Rental Clothing Rental Brands like Ralph Lauren, YCloset, Hirestreet, and By Rotation are just a few that have jumped into the lucrative subscription-based rental clothing market. For a monthly subscription fee, users choose from a catalog of over of mid to high-end clothing shipped to their home that they can wear and cycle between at their leisure. The clothing rental market is slated to heat up in the coming years as many consumers report feeling overwhelmed by their stuffed wardrobes, and cognizant of the environmental impact their discarded clothing has on the environment.  Circular Economy: Key Takeaways The Linear Economy is based on Take, Make, and Waste. The Circular Economy is based on eliminating waste, recirculating materials, and regenerating natural systems. Recycling is just one small part of the CE. Recycling alone has failed to make a real impact on our growing environmental crisis for a number of reasons (low percentage of waste recycled, lack of reverse-logistical infrastructure, lack of standards, etc.) that the CE aims to address. The CE is slated to be a business model of the future, focused on the “win-win” of greater profitability for businesses, while being better for consumers and the environment at th4e same time. The CE is not without its skeptics, who point out that the global economy is far too ingrained in the linear economy, and the idea of eliminating waste sounds nice, but isn’t feasible. Pioneers are proving the different ways Circular Economics can be feasible: whether it be through “infinite food”, products as a service, or modular design, brands are making headway.  References “Sustainable Logistics and Supply Chain Management”, Grant et. al., Kogan Page, 2022 “A Guide to Sustainable Corporate Responsibility”, Ditlev-Simonsen, 2022 “Recycling plastic is practically impossible…” Sullivan, NPR, 2022 “Plastic Recycling Doesn’t Work and Will Never Work” Enck, The Atlantic, 2022 “We’re gobbling up the Earth’s resources…” UN Environment Programme, 2019 “The Circular Economy” Ellen MacArthur Foundation, 2024 “Sustainable Profits: The Circular Economy’s Transformative Impact”, Jensen, 2023 “…as a de-risking strategy and driver of superior risk-adjusted returns”, Bocconi University, 2023