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Profiles in Business

The Circular Economy: Could it Present a New Way of Doing Business?


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by Will Henley

The sense that our planet is running out of the minerals, metals and organic matter required to sustain its rising human population has helped to fashion a new concept for our times: the circular economy. At its core is the argument that the old, linear model of conducting business – extraction, consumption and waste – is past its sell-by date.

To its standard bearers, the circular economy promises a radical break with the past. Materials should not be cast away and expended, rather they should be re-used and replenished, so the argument goes. But how transformative is this new philosophy and to what extent does it present an opportunity for business? Is it a revolutionary reimagining of economic theory or merely a recycling of, well, recycling?

Jamie Butterworth, chief executive of the Ellen MacArthur Foundation, which launched the Circular Economy 100, a forum of companies that includes corporate giants such as Coca-Cola, Nespresso and even the Scottish government, contends that the circular economy is very much a "new industrial model".

In practice, it means opting for reusable materials in design, ending wasteful manufacturing processes, embracing renewables, shunning toxic chemicals and developing new markets for repurposed products. It presents a step change in business strategy, Butterworth says, because it replaces the "end-of-life" concept with restoration.

"The opportunity for businesses is to decouple profitability from resource price volatility and at the same time provide a better product or service," he says. "For the economy, it reconciles the outlook for growth and economic participation with that of environmental prudence and equity. For businesses, it provides the opportunity to deliver superior value."

The Foundation has worked hard to back its rhetoric with hard numbers. A 2013 study produced in partnership with management consultants McKinsey calculated that by adopting the principles of the circular economy, the consumer goods sector could save up to $700bn annually. As one example, the report claimed that turning discarded household food waste into bio-gas and nutrients for agricultural soils could net local authorities and investors in the UK alone $1.5bn.

The incentive for companies is twofold: a combination of addressing risk and realising opportunity. To some extent, the cost of sourcing ever more scarce materials can be passed on to customers. Eventually, though, you hit a brick wall. Either the cost becomes prohibitory or, more dramatically, you completely exhaust supplies.

By 2020, it is reckoned that the planet will have an extra three billion middle-class consumers. "Raw materials are going be in increasingly short supply causing cost price increases at best, non availability at worst," says Matt Sexton, director of corporate social responsibility at B&Q, the British DIY home improvement retailer, which aims to recycle 98% of its waste by 2023.

For Sexton, the circular economy doesn't aim to extinguish economic growth, but rather to ensure it continues uninterrupted. "Growth is currently driven by still reasonably strong levels of availability of raw materials. As these decrease, economic growth may slow. But the circular approach offers us a chance to sustain it even when resources are low or exhausted.

"Businesses that make an early start on accessing and using waste materials and designing products in a different way – minimising materials use, designing them to be repaired or easily disassembled – will be better set up to cope with these new challenges," he adds.

According to Kevin Moss, head of BT's Net Good programme, "the challenge with products that are not high value, like a computer, but lower in the price range, is that it can be more expensive to recondition it than to just get a new one ... the whole idea of the circular economy is to move away from that."

Getting customers to dispense with the existing model of cheap, throwaway consumerism might ordinarily be considered a stumbling block. But it also creates an opportunity for innovation. "We want to change our thought process for business, for individuals to change their way of thinking about themselves away from the idea of consumption and waste towards the idea of using," Moss says.

By putting re-use to the forefront of considerations on packaging and product design, BT has managed to encourage a majority of customers to return used or faulty home broadband hubs to it for reconditioning, rather than simply throwing them away – with the rate of return up from 19% in February to 62% in April.

It may seem a small step on its own, but it is symbolic of what the circular economy hopes to achieve. "Instead of our focus being on bigger, faster, more and better, which is one way of driving innovation, the circular economy brings the focus on another way," Moss says.

"It forces us to rethink the underlying model – and it has the potential to be transformational."