Supporting Sustainability through Effective Circular Business Models
Published: 23 March 2021
Circular practices, such as extending a product’s useful life or recycling waste into products, can yield environmental as well as economic benefits.
Future resource availability is a primary and immediate concern. In 2019, we used up all the resources the planet could regenerate in 365 days in 209 days. As of 2017, boundaries of four of the nine planetary life-support systems—climate change, loss of biosphere integrity, land-system change and altered biogeochemical cycles (phosphorus and nitrogen cycles)—had already been crossed. Human activities have degraded two-thirds of the planet’s land and water ecosystems. Consumerism driven by lifestyle aspirations and a growing population will only continue to worsen the situation. Extracting from natural resources to drive economic activities is no longer sustainable, and there is a clear and pressing need to turn to resource-efficient alternative models, such as a circular economy.
Circular Economy and Its Opportunities
A circular economy is built on the concepts of refuse, reduce, reuse, repurpose and recycle as opposed to the extract, produce and waste model. It transforms the way we produce and consume goods. Circular economy principles include product stewardship by manufacturers until its end-of-life date, extended producer responsibility, sustainable and regenerative design, waste-as-a-resource, true cost accounting, life cycle and systems-based thinking, zero waste and closing-the-loop.
Implementing circular economy strategies yields economic benefits and opportunities. In India, the Ellen Macarthur Foundation reported that the more effective use of materials and energy could translate to annual benefits of $624 billion by 2050 and reduce greenhouse gases by 44%. A circular economy is expected to have the greatest impact on cities and construction, food and agriculture, and mobility and vehicle manufacturing, which consume majority of the country’s resources. A report by the Federation of Indian Chamber of Commerce and Accenture Strategy estimated that extracting gold from e-waste alone will provide the country with about $1 billion.
How can effective circular business models be created? It may be challenging as the circular economy is still at a nascent stage, and there are practical constraints to push circular models. For instance, a circular model may need to pan across sectors that have little in common and rely on different technologies. Connecting the waste of one sector as a resource for another would require out-of-the-box thinking because the sectors may not be related at all. Packaging is a dominant generator of plastic waste, but several dependencies must be considered for its effective recycling—from the container’s design, layers, inks, collection, and cleaning process, etc.
Pushing any circular business model needs a significant mindset shift in businesses to replace resource-intensive models with resource-efficient models and for consumers to embrace circularity and develop an inclination to use reusable or recycled products.
Effective Circular Business Models
Creating effective circular models starts by identifying which products’ end-to-end material flows can be easily managed, re-absorbed into a production process, and returned, reused, or repaired. After this, certain features need to be institutionalized, such as establishing repair facilities for products that need extended lifespans. In India, on-demand home service provider Urban Company repairs various categories of appliances across manufacturers, thus extending their lifespan.
Resale or buyback of functionally useful products must be encouraged to extend product lives and minimize resource use. Sweden’s IKEA launched a buyback scheme in 27 countries for its furniture to be resold as second-hand.
Extending a product’s useful life and reducing resource-intensiveness also implies using product-as-a-service (PaaS) models wherein consumers can avail of products on demand without having to buy them as an asset. Companies that have adopted PaaS models include Sweden’s Beleco and India’s Furlenco for rental furniture and Singapore’s Grab and Pakistan’s B4U for urban mobility.
A feature of circular models that connects with circular supplies and resource recovery relates to designing products in a way that it uses another’s by-products or waste in the production process, or vice versa. Fly ash, a waste from thermal power plants, is used to make bricks. In India, social enterprise NEPRA Resource Management Pvt. Ltd. procures waste from various channels and then feeds the sorted waste into the value chain of products. Tata Coffee uses the waste produced from instant coffee processing as an alternative fuel in its boilers while Ultra Tech Cement uses toxic red mud from business partner Hindalco as a raw material.
Recycled materials may be used to make entirely new products. Sweden’s Electrolux and Stena Recycling made a vacuum cleaner entirely from recycled resources. In India, Pashupati Polytex makes polyester by recycling polyethylene terephthalate (PET) while Lucro Plastecycle recycles the raw material from multilayer plastic packaging to make shopping bags and car seat covers. Ramky Enviro Engineers’ environment management services include industrial and domestic recycling.
For recycling, collection must be institutionalized to make a closed-loop system and take products back into the production process. In Norway, collection and sorting machine manufacturer Tomra pioneered reverse vending machines where consumers could deposit used plastic bottles.
With product and technology innovations and a continued shift in mindset, the share of circular models in economic models should scale up. In this context, it is encouraging to note the advent of dedicated capital for the circular approach. Swiss investor Blackrock’s BGF Circular Economy Fund invests in businesses that advance the circular economy. Singapore-based Circulate Capital focuses on investing in interventions that reduce the flow of plastic waste into oceans. As circular models expand, circular green bonds—or bonds that finance circular economy projects in sustainable waste management and product and services produced thereon—should also emerge as they have surfaced in renewable energy, clean transportation, green buildings etc.
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