The true business case for the circular economy
Road maintenance firm FM Conway claims to be a contractor with a difference; embracing the circular economy and putting environmental concerns at the heart of its business model. As the company's CEO Michael Conway argues, the financial benefits of this approach so should not be overlooked.
The circular economy is suffering from an image problem. Most people still view the circular economy primarily as a purely environmental model – a rejection of the traditional ‘take, make and dispose’ model of production and a move towards resource sustainability.
Environmental concerns are central to the concept of the circular economy, but what is often overlooked is the economic argument for it. The landmark Ellen MacArthur Foundation report in association with McKinsey & Company, Toward the Circular Economy, made a compelling business case for the circular economy, estimating that the European Union manufacturing sector could realise net materials cost savings worth $630 bn (£390bn) a year by 2025 by adopting a circular economic model.
The issue with the circular economy being so closely associated with the environment is that businesses often view it as ‘nice-to-have’ rather than a ‘must-have’. Adopting an alternative to a linear economy should be considered by resource-heavy businesses to be critical, but it is all too often put to one side.
Why we went circular
FM Conway’s core business is building and maintaining road networks in London and South East England. Road maintenance is inherently a resource-intensive industry which involves large volumes of materials such as bitumen – a product of crude oil – and quarried aggregates. As such, our activities have the potential to have a large impact on the environment.
Being able to demonstrate environmental sustainability to our clients is incredibly important. All of our clients – both private and public sector – are more focused than ever before on the environmental impact of their own business and that of their supply chain. We work with 17 of the 32 London boroughs, as well as working with various private sector clients including the Port of Dover, Eurotunnel and Lydd Airport. Increasingly, we are seeing waste and resource management credentials as carefully scrutinised as costs.
Adopting a circular model has directly supported our self-delivery model whereby we produce all of our own materials. This is a very efficient system and one that has given us a competitive advantage in the market. Closing the loop and developing our own products has allowed us to create security of supply, protect ourselves from price increases and give certainty to our partners and clients.
Investing in critical infrastructure
We have invested £35m over the past five years developing our own recycling and manufacturing plants. These facilities allow us to produce all our own materials that have high volumes of recycled content. This is particularly important in road maintenance since asphalt, a key component of road construction, has high volumes of embedded carbon, but can in theory be infinitely recycled.
This £35m investment is considerable when considered that the majority was made during the recession. It demonstrates the confidence we have in the benefits of resource management – not just to the environment but to the business bottom line. The facilities include two £10m asphalt production and recycling plants at Erith and Heathrow, the latter of which became operational this summer. Each has the capacity to produce 300,000 tonnes of recycled asphalt per year and they are strategically positioned to opposite ends of London to help reduce the number of miles materials have to travel to reach our projects.
We have invested in a UKAS-accredited research and development laboratory which allows us to develop new materials – particularly those with a high-recycled content. This includes a 75% recycled binder and a 20% recycled surface course. We also extract water from our gulley cleansing operation at our drainage treatment plant and use it in the production of concrete and the washing of aggregates and vehicles. Recycling water from our gulley cleansing work allows us to reduce the amount of mains water we use by 50,000 litres per day.
In addition this summer we opened our own bitumen terminal at Imperial Wharf. This has the capacity to dock and store 7,500 tonnes of bitumen and gives the company a secure supply of a vital road-building material.
The benefits we’ve seen
This investment has yielded significant environmental benefits. Each year we are able to divert 450,000 tonnes of construction waste from landfill, recycle 98% of the waste that we generate, reduce the virgin aggregates we use in asphalt production by 100,000 tonnes, and recycle 200,000 tonnes of asphalt from roads in London and the South East. In total, recycling activities across the business save approximately 5,900 tonnes of CO2 from entering the atmosphere each year.
What’s equally important – and what is often overlooked in discussions around the circular economy model – is the economic advantage this has given our business, allowing us to be more cost-competitive and pass savings and efficiencies on to clients. The facilities that we have developed are crucial for giving us clarity on costs. Other suppliers are subject to price volatility for strategically-important materials, which affects the prices they can offer to customers. Our approach mitigates this by bringing material supply in-house – cutting out a layer of cost from the supply chain and making us far more competitive in the market.
In a recent customer survey, 98% of our customers indicated that sustainability issues were very important to their business. This, together with the broader need for sustainable procurement – under which local authorities seek to work with partners that will work responsibly for communities and the environment – has made it imperative for us to show we can support the sustainability agenda. By taking a lead on these issues, FM Conway has been able to develop a strong reputation as a sustainable supplier.
FM Conway has achieved major growth despite the broader decline in public sector funding and highways budgets. In a challenging economic climate, we have continued to buck the market conditions to deliver year-on-year increases in turnover, from £86m in 2007/2008 to £166m in 2013/2014. Forecast turnover for 2014/15 is stronger still, at £235m.
The approach has been fundamental to securing new contracts, including the £1.2 billion London Highways Alliance (LoHAC) framework, where we were appointed as part of a joint venture with AECOM. We have retained key clients, including a £60m contract with the London Borough of Merton, and we have won work in new markets – such as a £9m contract to deliver structural works for a Grade II-listed building at the Port of Dover.
FM Conway’s financial performance has seen the company named in the Sunday Times’ Top Track 100, which ranks Britain’s top 100 private companies with the fastest growing sales over the past three years, for both 2011 and 2012. We have also been recognised with industry accolades such as a ‘Big Tick’ in the BITC Sustainable Business Award – the kind of third party endorsement that is invaluable when speaking with clients.
The way forward
For FM Conway, careful resource management and tightening of the circular economy model will continue to be a core part of our future activities. It has brought significant business benefits and has established our reputation as a responsible supplier. Our exact model would not work for every construction company. However all businesses should take note that a successful circular economy model can bring a multitude of benefits – not least of which is significant financial gain.
Michael Conway is CEO at leading infrastructure contractor FM Conway.
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