In Circular Economy – New business opportunities for sustainability (click here to read), we discuss the background, rationale, meaning, and creation of a circular economy. In this article, we’ll have a look at businesses that are driving a shift towards this new economic model across different industries, be it automotive products, consumer goods, electrical appliances, medical equipment, or fashion. In addition to becoming an integral part of these industries, this idea has also created opportunities for new businesses along the entire supply chain, ranging from manufacturers of plant-based raw materials with enhanced biodegradability, recyclers, and waste sorting companies, to IT businesses that manage data of product life cycles and calculate material use for maximum efficiency.
In the previous article, we discuss the four main value creation methods in a circular economy, namely 1) the use of materials within the inner circle through refurbishment or repair to prolong their service life; 2) circling longer through reuse and service life extension; 3) cascaded use either in the same supply chain or across industries; and 4) the use of pure inputs or minimally-modified natural materials to allow for efficient recovery. Businesses that have adopted a circular economy usually employ these four methods in conjunction to maximize their resources, both raw materials and energy, and minimize negative externalities.
The French automaker Renault has adopted these principles to transform its product life cycle. Its new vehicles have been designed to feature parts made of recycled plastics to be eco-friendly right from the start. An example is its Escape model, in which recycled parts make up one fifth of all components. Furthermore, its major raw materials, such as copper, aluminum, and fabric, are reused in subsequent vehicles. Renault also has established a subsidiary to oversee material cycling and waste management as well as collaborated with over 300 vehicle demolishers to recover useful materials from hundreds of thousands of cars abandoned each year, enabling it to retrieve various automotive parts from these used vehicles, such as windshields, side windows, chassis, engines, transmission systems, and fuel injection systems, for repair and reuse.
Responsible for tremendous amounts of plastic waste from packaging and containers, the consumer goods industry is also moving towards a circular economy. For its new Head & Shoulders shampoo bottles, P&G is making use of plastic waste retrieved from beaches by volunteers, which is then sent to sorting and cleaning companies before it is recycled into plastic pellets. This material makes up 25% of the plastic content of its redesigned container, and the company has aimed to incorporate this recycled plastic in at least 500 million shampoo bottles per year, which means a new useful life for 2,600 tons of plastic waste washed ashore.
Similarly, in 2017, Unilever announced that all its plastic packaging would be reusable, recyclable, or compostable by 2025. To get the ball rolling, the company began reducing its resource consumption by, for instance, designing modular packaging, encouraging the use of refills, and adding thin polyethylene layers into polymers for plastic bags or sleeves. The initiatives enabled Unilever to reduce its plastic use by as much as 1,700 tons in 2017. In addition, the company also used over 4,850 tons of recycled plastic, such as high-density polyethylene (HDPE) and PET, in its packaging for various products, such as salad dressings, fabric softeners, and detergents in the previous year. Furthermore, Unilever is also committed to its transition to recyclable or biodegradable materials. For example, the company is using 100% HDPE bags for every detergent brand in Chile, while in the United Kingdom, Canada, and Indonesia, tea bags are now made with corn starch and are thus 100% biodegradable.
In England, a subsidiary of Coca Cola established specifically to handle bottle recycling has also been able to operate with greater efficiency. In the London 2012 Olympics, this company recycled over 15 million bottles and returned them to shelves in just six weeks.
As for the textile industry, Levi’s is also encouraging its customers to use its products for as long as possible, and if they no longer need their clothes (regardless of brands), they are welcome to drop them in the boxes provided in its stores, so that they could be repurposed or recycled by the company’s partners into insulation for construction or shock-absorbing materials. These examples demonstrate how the circular economy is making its way into the daily life of consumers.
For other products, such as electrical appliances, office supplies, and medical equipment, Philips in the Netherlands and Ricoh in Japan are also transitioning from selling products (which will eventually become garbage once no longer functional) to providing services that offer value and long-term relationships in which customers do not need to be product owners. Through this model, the companies can decide when their products require upgrades or new technology or when they need to be called back for modifications or recycling.
Philips has applied this model to lighting systems in buildings and medical equipment, such as MRI scanners, which the company refurbishes and offers full warranty for. With the idea of circular economy, Philips has been able to recycle as much as 81% of its materials that would otherwise be discarded, resulting in green products that have become a vital part of its portfolio and account for two thirds of its current revenue.
On the other hand, Ricoh has been leasing office equipment such as printers and photocopiers since the 1990s. As it owns 60% of the products, the company can control over half of its product cycles. In addition to the leasing model, the company has also planned to reduce the consumption of pure raw materials by utilizing plant-based plastics in its printers and photocopiers, designing lighter and smaller equipment with fewer components, and using biomass toners.
The circular economy is also bringing about changes in heavy industries. For instance, ArcelorMittal, a steel and mining company in Luxembourg, recycles around 25 million tons of steel per year. In addition, under its policy to reduce greenhouse gas emissions, the company is also converting its carbon dioxide waste into ethanol for fuel and plastic production, which is expected to generate 300 million euros annually by 2025. Furthermore, ArcelorMittal is also producing cement from slag derived from its steel manufacturing, now sold in France and Brazil. The initiative not only reduces greenhouse gas emissions by almost one million tons per year but also generates revenue for the company as well.
While the circular economy is advancing at a frenetic pace and drawing many businesses away from the take-make-dispose cycle, a lot of challenges await those who wish to begin adopting it. The considerations that a business should take into account before applying this model are briefly summarized below:
It is important to design your products and business model for a circular economy right from the beginning.
Many devices we use in our daily life, from cell phones to cosmetic containers and milk cartons, have not designed to have modular parts that can be recovered from the beginning, and as a result, a number of useful materials end up in landfill. Similarly, some business models fail to implement the concept all the way through. For instance, they may fail to provide a way for unused products to be returned to the product cycle, or their products may feature components made of substances with complex structures or heavily processed materials, such as some polymers, which cannot be recovered for reuse.
A business owner needs to be familiar with every link in its own supply chain.
Companies must see their entire product life cycle and understand the impact of each part to create a closed loop. This is particularly important for industrial businesses with supply chains across multiple countries or continents that have to work with different tiers of suppliers and require a large number of components for their products, such as automakers and manufacturers of electronic devices.
Stakeholders are the heart of transitioning to a circular economy.
While a circular economy strives to create a closed loop and form a self-contained cycle, the changes that need to be made to each part of this system inevitably involve various stakeholders, ranging from legislators and policy drivers, such as the governmental sector, research institutes, educational institutions, which work to advance relevant knowledge and studies, to NGOs, which encourage cooperation related to the environment and consumers, and different business sectors, which can lend their expertise in areas where our businesses may be lacking. Collaborating with all these stakeholders can provide an insight into the needs and challenges related to a transition to a circular economy and give a business access to necessary cooperation, knowledge, and technology.
While a shift towards a circular economy may involve changes in several dimensions, this is not a trend that businesses can resist, given the finite resources we have in the world, the rising raw material costs, environmental crises, revised laws and regulations, as well as stakeholders’ increasing demand for such a transition. With more and more companies moving towards this new model, those insisting on single-use products may not survive this wave of change.
In addition to coping with these rapid changes, many businesses have demonstrated that, as discussed above, a circular economy also brings with it a whole host of new opportunities. With this new force in place, these companies have learned more about technology, developed innovation and new business models to move ahead of their competitors in the automotive industry, reduced raw material consumption in their packaging, increased their revenue in the steel industry, and fostered a long-term relationship with their customers by shifting from selling towards providing leasing services for medical and office equipment. Therefore, the circular economy not only brings about value for the environment and draws businesses towards sustainability but also generates financial value and creates future business growth.