What is circular economy and why is it relevant to you?

October 23, 2019
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Circular economy has truly embraced the world of both national and corporate agendas, high-level conferences, and business networking events—but what comes to your mind when you hear the words “circular economy”?

Something to do with recycling, waste prevention, or improved resource-efficiency? Circular economy is all that and much more. It is as diverse as people who work on implementing it and the industries it covers.

In short, a circular business model focuses on any one or more of these categories:

  • circular design: developing products and materials with the aim of long-term value retention
  • optimal use: supporting prolonged usage and product productivity
  • value recovery: capturing value even after the product reaches the end-of-life stage
  • network organization: organizing and coordinating a community that enables circular business models

This infographic shows circular economy activities along the value chain

As such, circularity manifests throughout the whole lifecycle of a product. This also shows that circularity can be considered in the entire business strategy of any industry.

Why is circular economy relevant right now?

Did you know that including the manufacturing of materials for buildings and construction account for 36% of global final energy-use and 39% of energy-related carbon dioxide emissions?[i] Or that the average individual throws away 37kgs of textiles per year[ii], which is very unsustainable as synthetic clothing can take hundreds of years to decompose and is almost impossible to recycle.

We live in a world of limited natural resources and unsustainable greenhouse gas emission levels. However, we have been exceeding our planet’s carrying capacity for several decades, and our economy is largely based on business models that do not account for this trade deficit of natural resources. Logically this means that the only sustainable solution in long-term is that these resources are consumed within the limits of planetary boundaries and that we all limit our greenhouse gas emissions.

Currently, circular economy represents the best alternative to the traditional take-make-dispose model. For that reason, circular economy initiatives have become increasingly recognized as an opportunity to move towards a more environmentally sustainable and carbon-neutral world.

People, including your customers, are also increasingly aware of environmental challenges. The World Business Council for Sustainable Development (WBCSD) and The Boston Consulting Group (BCG) conducted a study on circular economy implementations in business. In that study, 50% of survey respondents consisting of circular economy practitioners and business leaders from various industries said customers are the most influential external group (World Business Council for Sustainable Development (WBCSD), 2018).[iii]  Besides, the final report on Behavioural Study on Customers’ Engagement in the Circular Economy, commissioned by the European Commission, showed that

  • Consumers tend to be willing to pay more for longer-lasting products
  • The main reason for consumers to repair or buy second-hand products is to save money
  • Consumers are starting to shift their need from product ownership to product accessibility. [iv]

As consumer trends are raising circular aspects as a key preference, you do not want to stay still and opt to only react to these trends. You should actively nurture an innovation culture to constantly challenge your own business model and test the alternatives. This will be key in identifying new revenue streams in the post-linear economy era. To capture the potential of the customer behavior shift, it is critical to adopt models and mechanisms that help to save natural resources and to execute business in a sustainable manner.

It has also been estimated that transition to the circular economy could possibly unlock $4.5 trillion of GDP growth worldwide by 2030.[v]

Why is moving towards a circular business model relevant to your business?

By engaging your company to embrace a more circular business model, not only are you helping the planet and adapting to customer trends, but also encouraging innovation to save resources and increase efficiency. Some examples of successful new business ideas are fashion rental services and phone repair businesses. Besides, it might not come as a surprise that data monetization and circular economy go hand-in-hand, as the circular economy is all about three things:

– extending the lifecycle of resources and minimizing waste

– extracting the maximum value from the resources when they are used

– then regenerating products and materials at the end of their service life.

These principles create several opportunities for businesses to monetize their data through digital technology and digital platforms or apps. Trends such as urbanization and sharing economy help foster this, as more people are looking for the combination of convenience, good user-experience and the possibility of using something without necessarily buying it. In that sense, circular economy makes sense and is ready to disrupt the market.

Innovation and data-driven circular economy will also improve your economic competitiveness.  Moreover, it’s much easier and profitable to anticipate and proactively adapt to change than it is to change only when you are forced to. You don’t want to adapt to requirements just to stay in the game. You want to thrive and set an example to other businesses.

Summary

Believing in circularity drives innovation to make your company more efficient and competitive, and such innovation is relevant to all industries. Besides, you are not the only person who is going to be affected by circularity. More and more companies have to act and move from a linear to a circular economy. This is imperative in these times when people have realized the linear, business-as-usual economic model of production, use, and disposal is no longer a viable option. The environmental awareness of shareholders is growing, and companies paying no attention to that face a grim future, as their shareholders lose trust in them. By staying one step ahead of regulations, you become a leader in your field while simultaneously improving resource-efficiency and mitigating risk from regulatory, investor and societal pressures.

What can circular economy give you?

  • It helps you to improve resource-efficiency and mitigate risk
  • gives a rationale and incentive to invest, as it leads to higher resource and asset productivity, mitigation of input price volatility, increased quality of earnings and reduced climate risks
  • It helps you to implement outcome-oriented solutions and new levels of efficiency through technology and digitalization
  • It helps you better meet customer expectations and deliver customer outcomes

Work hard to work smart—moving towards a more circular economy is relevant for everyone on this planet.  Finding innovative and scalable solutions to close the loop is one of the best ways in which businesses can contribute to sustainable development goals and limit their negative impact on the environment. This is why all industries should do their best to take part in circular economy initiatives! And they can. The overall result is a more robust and resilient business that is ready to lead in the era when both environmental sustainability and customer-centricity are more topical than ever before.

So, how can you make a positive change in your business and take it closer to a more circular economy? Do you want to know how to get started? Our next article will cover some concrete tips that help you go circular!

[i] UN Environment and International Energy Agency (2017): Towards a zero-emission, efficient, and resilient buildings and construction sector. Global Status Report 2017.

[ii] www.Fashionrevolution.org

[iii] World Business Council for Sustainable Development (WBCSD), Boston Consulting Group:  The New Big Circle. Achieving growth and business model innovation through a circular economy implementation, : World Business Council for Sustainable Development (WBCSD), 2018.

[v] LE Europe, V. E. I. C. T., Behavioural Study on Consumers’ Engagement in the Circular Economy , European Commission, 2018.

[v] Peter Lacy and Jakob Rutqvist, Waste to Wealth: The Circular Economy Advantage, New York and London: Palgrave Macmillan, 2015.

Michael Hanf
Executive Partner
With more than 17 years in business and technology consulting, Michael has deep experience in helping companies deliver and navigate disruptive change. He’s passionate about bringing together corporates, start-ups and senior experts into an open ecosystem to deliver impact and value for Taival’s customers.
Michael Hanf
Executive Partner
With more than 17 years in business and technology consulting, Michael has deep experience in helping companies deliver and navigate disruptive change. He’s passionate about bringing together corporates, start-ups and senior experts into an open ecosystem to deliver impact and value for Taival’s customers.
Michael Hanf
Executive Partner
With more than 17 years in business and technology consulting, Michael has deep experience in helping companies deliver and navigate disruptive change. He’s passionate about bringing together corporates, start-ups and senior experts into an open ecosystem to deliver impact and value for Taival’s customers.

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