Sustainability in a Circular Economy
What is a circular economy?
A circular economy aids to eliminate waste and pollution, keeps products and materials in use and regenerates natural resources. Transition to a circular economy requires a vital redesign of existing models, innovation and incorporation of new technology and smart materials.
The Ellen MacArthur Foundation defines circularity as a framework for an economy that is restorative and regenerative by design. (https://www.ellenmacarthurfoundation.org/)
Business models form the engine of our economy. However, many existing business models are centred on the assumption that natural and social capital are there in virtually limitless supply.
The existing economic model of taking natural resources, making, using, and then disposing of used products cannot be wholly sustained. Businesses, cities, government and communities need a new economic model – the circular economy.
As circular economy is a relatively new concept, many businesses lack awareness, understanding, information, tools and skills to enable them to use circular economy ideas to create new opportunities and reduce their reliance on global limited resources and how this will apply to their business and industry models. A circular economy is one where the lifecycles of materials are maximised and usage optimised. A circular economy is supported by the use of renewable energy and is environmentally sustainable by design.
Why a circular economy?
Present day economies work on a strict basis where resources are extracted, converted into a useable product, used and then disposed of after the product is considered past its use. A circular economy is an alternative to this in which resources are kept in use for as long as possible so that the maximum use can be extracted from them. The focus then shifts to recovering and recycling products and materials at the end of their life. Therefore a circular economy is one where the lifecycles of materials and products are maximised and usage optimised.
As a Futurist Consultant, sometimes it is a hard sell to convince a business leader to change their business model based on threats or opportunities that they have not yet envisaged. These business leaders are often held back by the notion that if a system running well, ‘leave it’. Innovation therefore, takes a backseat as their current business models become less and less effective in enabling these businesses, their industries, and whole economies to adapt or innovate more successfully. In order for there to be a willingness for change amongst companies and their leaders, different approaches to value creation and consumption must be urgently looked upon.
Sustainability
According to the UN Sustainability Goals, there is clear agenda for the road to sustainability. In the United Nations’ 17 goals for sustainable development, these goals range from environmental goals like “Life below water” to more social goals like “No poverty”. (https://www.un.org/development/desa/disabilities/envision2030.html)
Scientific reports suggest that if everyone on the planet consumed as much as the average US citizen, four Earths would be needed to sustain them! In contrast, if the whole human population lived like the people in Bangladesh, we would only need a small proportion of our planet to sustain our civilization. And this brings us back to the circular economy model. The highest consumption of resources can be observed in the United Arab Emirates, where the current use of resources would lead to the need for 5.4 planets to sustain such a level of consumption.
Ocean plastic
A study published in Science magazine in 2015 reports that in the year 2010 alone, 8 million tons of plastic garbage were disposed of in the world’s oceans. Can you guess how long it takes for the following items to degrade when they are disposed of in the ocean?
• A plastic bag?
• An aluminium can?
• A plastic bottle?
(https://www.sciencemag.org/news/2015/02/here-s-how-much-plastic-enters-ocean-each-year)
With the human population on our earth growing at an exponential rate, the basic idea behind sustainability is that we live in a world of limited resources. It is estimated by 2050, the world population will have reached 9.8 billion(UN) with a high estimate of 11.2 billion by 2100(UN).
Given this exponential growth, the available resources that for a long time seemed to be enough for everybody will reach a peak surprisingly fast.
So, it is not surprising that advocates of a circular economy see it as a viable and sustainable alternative to our current economy. Shifting towards a circular economy will represent an entire model shift to a new global operating system generating sustainable economic, environmental, and societal benefits. Which would further lead to reduced waste, drive greater resource productivity, deliver a more competitive advantage, better address emerging resource security/scarcity issues in the future, and help reduce the environmental impacts of production and consumption.
Brundtland definition of sustainable development
The first widely accepted definition of the term “sustainable development” was brought forward in 1987. The report “Our Common Future”, that contained the definition, is also known as the Brundtland Report in recognition of former Norwegian Prime Minister Gro Harlem Brundtland’s role as Chair of the World Commission on Environment and Development (WCED). In the report, sustainable development is defined as: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
The reality of environmental and population trends is putting sustainability squarely in the sights of business. In many parts of the world, natural resources such as water are growing scarce, and energy costs are mounting across the globe.
A change of business models.
Innovation researchers like Alexander Osterwalder (e.g., Osterwalder & Pigneur 2012) define business models as the “fundamental structures for how companies create, deliver, and capture value.” In an academic conceptualization of sustainable business models, Bocken et al (2014) propose that: “On the road to sustainability we need…
• Systems that encourage the minimization of consumption, or impose personal and institutional caps or quotas on energy, goods, water, etc. and;
• Systems designed to maximize societal and environmental benefit, rather than prioritizing economic growth;
• Closed-loop systems where nothing is allowed to be wasted or discarded into the environment, which reuse, repair, and remake in preference to recycling;
• Systems that emphasie delivery of functionality and experience, rather than product ownership;
• Systems designed to provide fulfilling, rewarding work experiences for all and that enhance human creativity and skills; and
• Systems built on collaboration and sharing, rather than aggressive competition.”
Consumerism
• Americans spend $1.2 trillion annually on nonessential goods – in other words, items they do not need.
• Some reports indicate a consumption of twice as many material goods today as was consumed 50 years ago.
• And still, 1 out of every 10 Americans rents offsite storage – the fastest growing segment of the commercial real estate industry over the past four decades.
• 3.1% of the world’s children live in America, but they own 40% of the toys consumed globally.
We own more things than ever, but does that make us happier? A large body of research has shown that material possessions do not necessarily lead to more happiness. As a reaction to this prevalence of consumerism in our western societies, a growing “degrowth” movement is demanding a radical change.
They state that: “Many analyses from various scientific disciplines imply that a growth-based economic and social system cannot have a future: Despite a growing number of technological solutions for “Green Growth”, inequality and the destruction of nature are significantly on the rise. It is high time to develop economic and social models that are independent of growth and can provide for a good life for everybody.”
Consumers are becoming more discerning about the sustainability footprint of the products and services they use. In order to thrive, businesses need to respond and find ways to solve these problems and profit in the process. But to do so takes innovation in management practices, business models and market infrastructures.
As companies in many industries wrestle with costs, radical approaches are required to actively seek to reduce consumption.
Consumers, especially in Australia, New Zealand and Europe, are increasingly aware of a product’s sustainability value and willing to pay a premium for environmentally sound products. A company’s drive for sustainability makes the company’s footprint a key element in attracting and retaining talent, especially among younger generations.
Business model innovation is the bottom line of sustainability-driven Innovator success and looks beyond product, service or technology advances, explicitly addressing the fundamental choices a business makes about what it is offering to whom—its value proposition — and how it leverages its value chain, cost models and organization to deliver that value
Research suggests that, companies in developing countries are the most likely to focus on sustainability-related business-model innovation. In stark contrast to managers who say sustainability is not adding to profits, those who say that it is are more than twice as likely to report that sustainability is driving business-model innovation. The sustainability race is a global one, and companies are continuously looking at innovation and improvement. It’s a process that requires constant attention and commitment.
Companies that change their business model are more likely to increase collaboration with customers, competitors, suppliers and across their own business units as a result of sustainability, than companies that do not. Business-model innovation is a key indicator of whether a company will profit from its sustainability activities.
Since business-model innovations can involve significant corporate change, organizations should address the need for and the speed of that change. The circular economy provides a compelling, prosperous, low carbon model for the future. Leading cities and the businesses that operate within them a key opportunity to lead, influence and speed up this transition.
Cities around the world could be better off, with much lower carbon emissions by 2050 and create new economic opportunities for businesses, employees and communities, and enable a more resilient future. The focus should be on how efforts can increase market share, improve renewable energy efficiency and build competitive operating models.
Measuring success
Through a level of co-operation and co-ordination with individuals, communities, businesses, central and local government working together we could measure and track sustainability goals and performance through the use of scorecards, KPIs and other integrated reporting tools that track performance against goals. These measures could give a clear signal that groups are taking the effort seriously.
Understand how customers think about sustainability and what they are willing to pay for in connection with sustainable products or services. All your activities need to be centred on customer expectations. Even without legislation and regulation, consumers are looking for sustainable lifestyles and the demand is going to grow faster and faster.
The trends are clear, and the stakes are high. Climate change, demographic shifts and population growth are increasing the sustainability demands placed on businesses.
Sustainability is both a business necessity and an opportunity, even modest changes to company business models can reap significant financial rewards by pursuing process and product innovations that reflect circularity and create new forms of value, open up new global markets and support sustainable growth by reducing our reliance on limited resources.
