Growing a circular economy: Key barriers and business benefits
A new thought leadership paper has unravelled the complexities surrounding the sustainability buzzword that is the circular economy, highlighting the key challenges and potential business benefits of going circular.
‘Ahead of the curve: How the circular economy can unlock business value’ is the latest publication from global CSR consultancy Corporate Citizenship. The paper explains why ‘the time is now’ for businesses to start thinking circular and concludes with practical ways in which a circular business model can be implemented.
“Companies that benefit from the circular economy will be those that are quickest to move past excuses and incremental steps,” writes Corporate Citizenship’s director Megan DeYoung. “The real winners will be those companies that truly grasp the bigger picture and the huge system in which the company operates.
“The overarching advice I would give every company is to be brave.”
Circular economy: 8 key challenges
1) Building a traditional mass
Traditional fossil fuel based raw materials remain cheaper than more effective substitutes. Integrated global supply chains mean that businesses find they lack the critical mass needed to start large-scale efforts to substitute resource scarce or hazardous materials with cleaner, restorative or more regenerative ones.
2) Developing material and design standards
There is currently a lack of consensus for the way we make products in terms of the materials used and how they are developed. One material or component may be developed in a resource effective way, but loses this value if mixed with an ineffective one. This is inextricably linked to complex global supply chains, which can cause materials to leak value as they move across international markets. This global issue may be solved if there are clearer standards across industries for how and where our products are made.
3) Setting clearer government signals
To transform the current system, business needs the support and incentives of government. Governments at all levels therefore need to advance policy instruments to create the right enabling environment. Investing in research and acting as the intermediary between business and consumers is a key role.
4) Developing skills
Core business functions currently lack the STEM (science, technology, engineering and maths)-based skills necessary to drive strategy, design and innovation towards the circular economy. These subjects are not mutually exclusive yet many business departments are siloed. It is important to see the opportunity of placing integrated knowledge in one room to solve resource challenges.
5) Transforming mind-sets
Industry actors and policy makers need to speak in a common language that the C-suite can relate to and therefore shift perceptions. The circular economy serves as a concept which can be communicated in terms of cost savings, new investment opportunities and enhanced value.
6) Updating the legal framework
The shifting economic paradigm has encouraged new forms of exchange, collaboration and knowledge sharing. Moving towards new business models such as leasing or sourcing from secondary markets will drive new liabilities and service obligations. The legal framework needs to be updated to accommodate these developments.
7) Financing the transition
Without the finance and investment community understanding the shift towards circular economy practices, companies that want to explore product and service innovations face cost barriers. At the transitional stage, investors need to develop a longer term mind-set in order to encourage and support business changes.
8) Changing consumer behaviour
The efforts of business moving towards a circular economy require attitudes and behaviours of the mass consumer to change. While there are signals of changing consumer taste, it is difficult to shift old habits. The challenge for business is therefore to make changes or innovations with minimal need for consumers (or users) to feel that they are dramatically adjusting or adopting behaviour.
Circular economy: 4 business benefits
1) Optimising the use of materials
Exploring the reuse, remanufacture and refurbishing of materials within the value chain can lead to significant cost savings and less dependence on the need for resource inputs made from virgin materials. Dutch based multinational Philips saved €471 million last year by simplifying its operating model using this approach.
2) Realising new revenue streams
By applying circular thinking across the value chain, a company can radically transform its product or service by rethinking the way it does business, and its relevancy in today’s world. Conducting a business model assessment can identify new revenue streams, product or service innovations and interesting co-creations.
3) Enhancing stakeholder relationships
By becoming more resource effective, companies display themselves as a responsible business that cares about the markets in which they serve. Thinking more systemically about circular strategy can also help to create impact beyond the value chain, which can secure social licence to operate. It is these types of companies, working to live within the constraints of the world’s resources and developing cutting edge business models that lead to a more restorative economy, who will ultimately stay winning.
4) Mitigating risk from future policy and industry shocks
The European Union Commission recently released a communication advancing its support for the circular economy, by establishing a non-binding resource productivity target for member states – ‘GDP relative to Raw Material Consumption’. The roll-out of global policies collectively signals to industry that policy is rapidly shifting. Companies staying alert to regulatory changes are mitigating public policy shocks.
The report also explains how and why the circular economy business model has become so important to stakeholders in recent years. It quotes a recent study from the Ellen MacArthur Foundation, which revealed that converting to a circular economy would generate in excess of $1tn material cost savings per year globally by 2025.
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