Toward a Circular Economy

[Heidi Sumser]

We live in “take-make-waste” societies.  Consumption abounds, and the more of it, the better. Owning and accumulating goods is perceived as progress and socially is considered a sign of success.  Consumption is a key indicator of economic growth, reflected in the importance of the consumer confidence index for national economies.   All this consumption is linked to greater use of resources including raw materials, energy, water and waste. If one of the ultimate goals of a society is to increase the well-being of its citizens, don´t we need ever-higher rates of consumption?

What if we could flip this? What if we could systematically change the perception into less is more; and that the more environmentally sustainable system is the better one? This change is already starting to happen all over the world: we are shifting from a linear economy to a circular one.  Given resource constraints, competitive pressures, and the most urgent and important need to reduce carbon emissions to keep global warming to manageable levels, this shift must be accelerated as part of the solution to fighting climate change.  While there are challenges, the circular economy offers ample opportunities to individuals, organizations and financial institutions for business innovation and value creation by rethinking and redesigning how we operate and consume.  Everyone and every organization can play a role.

Moving beyond the traditional use of GDP as a measure of economic growth/well-being, alternatives such as the Human Development Index (HDI) and Happy Life Years (HLY) are being used to measure the well-being of countries.  The graph below illustrates a promising phenomenon to support sustainable consumption and the shift toward a circular economy.  After a certain level of consumption, the level of well-being no longer improves.   In order words, higher and higher levels of consumption (represented as the material footprint) do not lead to higher and higher levels of well-being (represented by the HDI and HLY).  Thus, the leveling off of the curve shows that after a certain point, nations with a high per capita material footprint (i.e. high environmental impact) do not benefit from a corresponding increase in well-being. The trend is similar for carbon, water and land footprints.   Two countries from Latin America – Mexico and Brazil – have fairly high HDIs (above 0.80) and HLYs (48-52) with a much lower material footprint (13-15 tons/capita) compared to developed countries, showing the potential for well-being to be decoupled from consumption.

Source: The Global Resource Footprint of Nations, Arnold Tukker et al., 2014

How can we move toward a circular economy?  We need to adjust and redesign policies, business models, resource extraction and use strategies, product design, production systems and waste management.   While policy changes are of course also needed, companies, including, financial institutions can play a role in driving and shaping these policies.   We need to adjust the way we think and behave as well, not a small undertaking. We need engaged societies where individuals and teams can continuously and iteratively develop new ways of business and the systems, processes, products and tools necessary for circularity. What are some ways to do this?

·         Circular business models – Innovate by developing a new business model or more simply reorganizing the elements of the existing business model.  Innovation is not just about new things, but about looking at existing things in new ways. Create circular value by slowing, closing or narrowing resource loops, using some mix of circular strategies: repair, remanufacture, reuse, recycling, upcycling and optimizing.  Develop value propositions that enable circularity and are client-focused. These can include product-as-a-service offerings, asset sharing, cost reduction and on-demand production.

·         Circular product design – From the beginning, a product should be designed for maximum functionality and for an extended lifetime. Also, products are designed to use fewer inputs, limiting both the number and amount of minerals, metals and other raw materials. In addition, using technology, products are designed for easy repair and upgrades, and at the end of the product cycle, the design facilitates the reuse of parts, material recovery and decomposition, end-of-life recycling and remanufacturing/refurbishment.

·         Reexamining Waste:   Waste can be significantly reduced through smarter consumption, better investment decisions, reuse and recycling.  Waste becomes an input for new  and remanufactured products, a source of income through sales, or as donations to support other organizations in the community that value the waste.  Responsible waste management is critical, with incineration for harmful materials and safe disposal for non-harmful ones.  The increasing amount electronical equipment, electronics and mobile phones require special care for material recovery and waste processing, which needs to become more available, accessible and attractive for consumers. Waste can also be a source of energy in waste-to-energy plants.

What are some of the benefits of the circular economy?

·         Repairing, reusing, recycling, upcycling and remanufacturing goods:  When done right, costs can be reduced on raw materials/inputs, earn revenue on sales of products (new and remanufactured, as well as on selling waste or biproducts) or on renting out or selling unnecessary space for things like business operations or storage. Since circular goods are designed to last longer and are more easily upgraded, the can result in less frequent investment and capital outlays. It also has the potential to improve credit risk profiles of companies through manufacturing higher quality products, providing extended product warranties, and offering extended producer responsibility, to name a few.

·         Sharing economy – Access over ownership, with greater use of rentals and used/remanufactured equipment. Instead of the usual produce, use, throw away, consumers can save money and have greater access to a wider range of goods and services. Two examples are large household appliances such as washers and dryers and heavy machinery such as construction and maintenance equipment. If overall, we had fewer of these and they were more energy efficient, consumers could save money, have greater access (not everyone can afford nor has the conditions to have their own) and benefit from their higher quality.  This would also reduce the end-of-life water and waste management needed, along with the associated environmental impacts that occur along the product life cycle in extraction, production, transport, use and end-of life.  In addition, the capacity of these machines (which sit idle most of the time) could be optimized. This of course brings inconveniences to some and requires changes in behavior at scale. In the not-so-distant future, there may not be much choice anyway.

·         Educational opportunities – The circular economy demands increasing technical, managerial and communication skills that offers opportunities to universities, institutes, start-ups and businesses to develop new programs, courses and interactive spaces for individuals to learn new skills and develop expertise that are in increasing demand. As important, interactive online and physical spaces are needed for people to experiment and devise solutions to design, fix, reuse, recycle, upcycle and remanufacture things.  Social connections among diverse participants (from entrepreneurs to senior business executives, and from students to engineers to retired workers) are also developing.

·         Business and financing opportunities – There are an increasing number of opportunities to join and create business networks, strategic partnerships and communities to share knowledge, innovate, tinker and problem-solve.  New green financing opportunities arise for purchase, rental and pay-as-you-go for retail and business customers — from EE appliances and vehicles to more capital-intensive investments in equipment, heavy machinery, production and process upgrades, renewable energy (including waste-to-energy) plants.  The business case for various types of leasing, another lever of the circular economy, is also strengthened. Here, rental and financing for a wide range of equipment are possible, for example renting with the option to buy at the end of the contract and relationship-based service contracts (continuous access instead of a defined number of uses).

The shift that is underway from a linear to a circular economy invites us all to evolve in the way we think and act.  What will you start with?

Some links of interest:
·         The Circular economy platform of the Americas: http://www.cep-americas.com

·         The Circular Economy program of the WBCSD (global): https://www.wbcsd.org/Programs/Circular-Economy

·         The Circular Economy Club (global):  http://rmis.jrc.ec.europa.eu/

·         The story of stuff: https://storyofstuff.org

·         The IIIEE’s podcast exploring the Circular Economy: https://soundcloud.com/user-306046724/the-circular-economy-and-you

·         Fixperts:  http://fixing.education/fixperts

·         Instructables: https://www.instructables.com/

·         Course Circular Economy online course: https://www.coursera.org/search?query=circular%20economy&

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