17 Mar Building Circularity into Your Business
By James Byrne, Director ESG, CvCC
In the consumer economy of 2021, we are concerned less about what we own but about the experiences we have access to. The millennial generation is more aware than any other that living in the suburbs is much harder now than it was even 20 years ago. Even with the housing crash of 2008 we have now seen the longest stock market and real estate bull market in history. Owning a property is simply not an option. This has necessitated or perhaps revealed a better way to live to many young people, that of living life for experience rather than things. This is what Forbes dubs the “Experience Economy”. A staggering 74 percent of Americans prioritize experiences over products, and that’s not just millennials either: As baby boomers retire, they are also looking for new experiences. We can see this in the rise of luxury car rentals, streaming services, and the idea of mobile phone upgrades and even glamping as well as the rise of the fitness industry! Everything is temporary, everything can be upgraded, traded, and thrown away and what matters is the time we spend on things we like doing with people we choose to be around. To reflect this, businesses has adapted by offering service business models rather than product purchase models. Why waste so much money on products that get thrown away, it’s a waste of capital and resources. This is a change from the linear economy that has been around since the start of the industrial revolution. A circular waste strategy also helps businesses work towards the UN Sustainable Development Goal SDG 12– “responsible consumption and production”.
This is where the circular economy comes in. A circular economy or circular business model is one that shifts from a product to a service-based business model by valuing the raw materials that go into their offerings. When I say value, I mean that they see the economic value in not wasting resources. If you want to be philosophical about waste and argue that we should not waste regardless of the economic imperative that’s fine, but the bottom line is that we can run a successful business and still protect natural resources. In the words of Tom Szaky, founder of TerraCycle, a company that specializes in helping corporations go circular
“It is all about the money … The only thing that matters is the money”. Harsh but that’s ok, circular makes business sense.
According to the EU Sustainability Guide a circular business is one that “articulates the logic of how an organisation creates, offers, and delivers value to its broader range of stakeholders while minimising ecological and social costs”. Heavy right, well all it really means is that a circular business understands that profits are linked to your user base and not to your sales or profits. Long term value creation is about retaining customers, not maximizing at point of sale. Circular businesses are therefore heavily focused on the experience of the product rather than the product per se. Lets take a look at some of the more common circular business types as defined by the EU sustainability guide:
Fully renewable, recyclable, or biodegradable resource inputs that sustain circular production and consumption systems. Usually with a focus on substituting fossil fuel inputs with renewable ones.
Access and performance
Access and performance types are concerned with providing the capability or services to satisfy users’ needs without owning physical products. Value is found in the product as a service or a hybrid system, a combination of products and services that seek to provide functionality for customers.
Extending product value
Products that last longer, getting away from the planned obsolescence model. These products are supported by design for durability, reparability, upgradability, and modularity. This reduces waste.
It promotes platforms for collaboration among producers and consumers, either individuals or organizations. Value is driven by bringing different types of consumers together to drive supply and demand. Now, this all sounds very technical, so how do these circular businesses work in practice and how can any business go circular? Let’s take a closer look at some real examples:
The Ellen MacArthur Foundation (EMF), a global think tank on the circular economy says the first stage is to start the discussion. Start looking at your product or service from a resource and waste perspective, not just from your facility but at the end of use stage of your offering. Then you can start to look at your current business model, and your competitors and see if there are new ways of extending your products life, or changing how your customers use your product. Look at you supply chain or as EMF calls it “reverse logistics”. If you can’t change your product then you can instigate a “bring back scheme” so the raw materials can be re used for new products. Phillips did this with one of its vacuum cleaner models recently. It built trust too as customers knew that there was accountability and discounts available when it was time to throw away and trade up their vacuum cleaner.
BioPak- Case Study
Single use packaging is perhaps the most visible of the circular economy principles in action. Why make something to be used once? Well its daft, and that’s why so many businesses like BioPak are realizing the waste that results in the old system and making changes. BioPak’s new offering is a compostable foodservice packaging made from renewable plant-based materials, offering a partial solution for the foodservice items that remain single-use. You can see that its not just about collection of waste, its about cutting out waste down the line at the very beginning in the design stage. BioPak offer a collection service and make sure that their waste does get composted, so they are doing circular properly. Their new business model has resulted in a huge boost in profits as more and more businesses seek sustainable suppliers. So, BioPak shows how sustainability goes right up and down the supply chain, and making sure your business is a strong link in the chain, will strengthen your business and the sustainability of the wider system.
Energy management firm Schneider Electric shows any business can go circular. It uses recycled content and recyclable materials in its products, prolongs product lifespan through leasing and pay-per-use, and has introduced take-back schemes into its supply chain. Schneider’s Circular activities now account for 12% of revenues, saving over 100,000 metric tons of primary resources between 2018-2020. That’s a pretty clear competitive advantage, not to mention a better product that gives users peace of mind.
Because supply chains are by their nature, chains, you cannot create circularity as a silo within one organisation, says Phillip Mossop, chief operating officer at Pentatonic, a business circularity consultant: “Companies come to us with their sustainability team,” yet really “we need to meet the marketing manager, the operations manager, the service manager. Sustainability might affect some parts of the business more than others, but it has to be immersed across the business”. That is why to embed a circular business model requires collaboration and using a consultant can make this much easier. Get in touch and we can help you get started or simply offer you some advice to get started yourself.