The circular economy in today’s business world

It was a delight to be invited to 6head’s recent seminar and creative workshop ‘Designing a Circular Economy’ at the IDEO London office. During the workshop, Chris Grantham, Portfolio Director of IDEO London, unpacked the concept of circular design and discussed how this new mindset can enable businesses to create competitive advantage, better serve customer needs, and work towards long term economic and environmental sustainability.
The concept of the circular economy is entering the mainstream and becoming better understood, but there is still misunderstanding about how to finance it, and the risks and opportunities it presents.
As the concept of sustainability becomes more deeply embedded in the fabric of society and the economy, the notion of the circular economy has started to gain traction.
But while there has been much talk of what the circular economy is and how businesses can adapt to it, one area that has not been fully explored is how it will be financed.

But exactly what is a Circular Economy?
One interpretation is that a circular economy can be an alternative to a traditional linear economy; using the concept ‘make-use-dispose’ in which we keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each service life.

But something far more important to factor is that a circular economy is restorative and regenerative by design, and aims to keep products, components, and materials at their highest utility and value at all times. The concept distinguishes between technical and biological cycles.
As envisioned by the originators, a circular economy is a continuous positive development cycle that preserves and enhances natural capital, optimises resource yields, and minimises system risks by managing finite stocks and renewable flows. It works effectively at every scale.

This video is a perfect introduction to re-thinking progress in our world and The Circular Economy:

Considering the above you really have to ask the question about The Circular Economy, is this a myth and if not a myth, how will The Circular Economy effect me, my business and the community in today’s world?

The president of the European Commission, Jean-Claude Juncker, has said he wants to focus on jobs and growth, and rightly so. There are a number of routes to get to a destination, but the end result will be the same. Jobs and economic growth are no exception and one possible route to achieve this ambition is growth of the circular economy.

Globally, Innovate UK claims resource efficiency measures could add $2.9tr to the economy by 2030, with returns on investment of more than 10%. There are also major job opportunities. WRAP and Green Alliance recently identified that more than 200,000 jobs could be created in the UK if circular economy activities continued to grow. In a recent report (pdf), the World Economic Forum and the Ellen MacArthur Foundation also identified that a shift in reusing, remanufacturing and recycling products could lead to more than half a million jobs being created in the recycling industry across Europe.

It is a fact that The Circular Economy could go a long way to helping reduce carbon emissions. According to a recent report (pdf) by the Carbon Trust, Innovate UK’s Knowledge Transfer Network and Coventry University, remanufacturing typically uses 85% less energy than manufacturing, and on a global scale has the potential to offset more than 800,000 tonnes of CO2 emissions per annum.

And remanufacturing is just one component of the circular economy. In its first phase between 2005 and 2009, WRAP’s Courtauld commitment, a voluntary agreement aimed at improving resource efficiency within the UK grocery sector, avoided 3.3m tonnes of carbon dioxide equivalent emissions, equal to an aeroplane flying around the world half a million times

You will find many companies using terms around The Circular Economy as a justified theory, however, I read a McKinsey report on the subject recently that really resonated with me, it quoted moving from theory to practice, refers to the transition taking place as companies in many sectors use circular-economy concepts to capture more value from resources and to provide customers with better experiences. The term “paradigm shift” is overused, but this is one instance where it applies. Since the Industrial Revolution, companies and consumers have largely adhered to a linear model of value creation that begins with extraction and concludes with end-of-life disposal. Resources are acquired, processed using energy and labor, and sold as goods—with the expectation that customers will discard those goods and buy more.

Contemporary trends, however, have exposed the wastefulness of such take–make–dispose systems. The same trends have also made it practical to conserve assets and materials so maximum value can be derived from them. Consider that resource prices have become more volatile and are expected to rise over the long term, as consumer demand increases and easy-to-access, high-grade stocks of key commodities dwindle. People and companies are increasingly willing to pay as needed to use durable goods, rather than to buy them outright. With digital technologies and novel designs, items can be tracked and maintained efficiently, which makes it easier to extend their useful lives. And governments are imposing new restrictions on pollution and waste that apply along entire product life cycles.

These developments mean that it is increasingly advantageous to redeploy resources over and over, often for the same or comparable purposes. This is the organizing principle of circular economies, and the benefits that come from following it can be substantial. According to the research documented in “Finding growth within: A new framework for Europe,” a circular economy could generate a net economic gain of €1.8 trillion per year by 2030. The building sector, for example, could halve construction costs with industrial and modular processes. Car sharing, autonomous driving, electric vehicles, and better materials could lower the cost of driving by 75 percent.

The benefits are just as significant for less-developed economies. “Ahead of the curve: Innovative models for waste management in emerging markets” describes effective ways of encouraging the conversion of waste materials into valuable inputs. These include aggregating waste flows into large volumes that businesses can work with and establishing incentives to lessen waste creation. South Africa increased collection rates for scrap tires to 70 percent, from 3 percent, in just 18 months, leading to the creation of small and midsize processing and recycling companies. The country also aims to divert a majority of scrap tires into high-value material-recovery processes by 2020.

When you consider the facts its clear there are some significant opportunities to considering our future as one that can be sustainable and one that provides opportunity for others

Developing products for a circular economy offers another point of view on how to eliminate waste and create value and creates significant innovation. It is not easy to create products that are lasting, simple to reuse or recycle, and profitable. But when design teams get together with other company departments and use design thinking like IDEO, they can conjure up resource-efficient ways of delighting customers. Greater collaboration allowed one medical-equipment company to figure out that collecting and refurbishing used devices would allow it to meet the needs of underserved customers in emerging markets.

I believe and this belief is very evident with the likes of Adidas, Bundles, Fairphone, Caterpillar, Desso to name a few have proved and as other companies will follow these pioneers in the transition from circular-economy theory to practice, they are certain to encounter obstacles. This is natural: breaking out of old models and letting go of time-tested approaches is challenging. But the lessons of the circular economy are accumulating and they show that the gains from making the transition outweigh the effort and the risk. With those benefits in mind, you will see that The Circular Economy in today’s business world is here to stay!

Rob Eglash once said:

“The reason that Google was such a success is because they were the first ones to take advantage of the self-organizing properties of the web. It’s in ecological sustainability. It’s in the developmental power of entrepreneurship, the ethical power of democracy”.

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