Towards  a Circular Economy

Written by Heidi Sumser

 

We live in “take-make-waste” societies. Consumption abounds, and the more of it, the better. Owning and accumulating goods is perceived as progress and socially is considered a sign of success.  Consumption is a key indicator of economic growth, reflected in the importance of the consumer confidence index for national economies. All this consumption is linked to greater use of resources including raw materials, energy, water and waste. If one of the ultimate goals of a society is to increase the well-being of its citizens, don´t we need increasingly higher consumption?

However, what if we could flip this? What if we could systematically change the perception that new, quickly produced stuff using a lot of resources is better? And instead, the perception turns into less is more; and that the more environmentally sustainable the whole system is, the better? This change is already starting to happen all over the world: we are shifting from a linear economy to a circular one.  Given resource constraints, competitive pressures, and the most urgent and important need to keep global warming to manageable levels, this shift must be accelerated. It offers opportunities to individuals, organizations and financial institutions for  business innovation and value creation by rethinking and redesigning how we operate and consume. Everyone can play a role.

Circular economy principles help its users turn otherwise expensive environmental challenges into profit, and economic value.

We must remember that without economic efficiency - no economy could continue existing.

Moving beyond the traditional use of GDP as a measure of economic growth/well-being, alternatives such as the Human Development Index (HDI) and Happy Life Years (HLY) are used to measure well-being of countries. The graph below illustrates a promising phenomenon to support sustainable consumption and the shift toward a circular economy. After a certain level of consumption, the level of well-being no longer improves. In other words, higher and higher levels of consumption (represented as the material footprint) do not lead to higher and higher levels of well-being (represented by the HDI and HLY).   Thus, the leveling off of the curve shows that  after a certain point, nations with a high per capita material footprint (i.e. high environmental impact)  do not benefit from a corresponding increase in well-being. The trend is similar for carbon, water and land footprints. Two countries from Latin America – Mexico and Brazil – have fairly high HDIs (above 0.80) and HLYs (48-52) with a much lower material footprint (13-15 tons/capita) compared to developed countries, showing the potential for well-being to be decoupled from consumption.

         

​How we can move towards a circular economy?

We need to adjust and redesign things including policies, business models, resource extraction and use strategies, product design, production systems and waste management. While policy changes are of course also needed, companies, including, financial institutions can play a role in driving and shaping these policies.  

We need engaged societies where individuals and teams can develop new forms of business and the systems, processes, products and tools necessary. What are some ways to do this?

  • Circular business models 

Innovate by developing a new business model or more simply reorganizing the elements of the existing business model. Innovation is not just about new things, but about looking at existing things in new ways. Create circular value by slowing, closing or narrowing resource loops, using some mix of circular strategies: repair, remanufacture, reuse, recycling, upcycling and optimizing. Develop value propositions that enable circularity and are client-focused. These can include product-as-a-service offerings, asset sharing, cost reduction and on-demand production.

  • Circular product design

 From the beginning, a product can be designed for maximum functionality and for an extended life-time. Also, it can be designed to use fewer materials, and limiting both the number and amount of minerals and metals and other raw materials. In addition, products are designed for easy repair and for upgrades, and at the end of the product cycle, the design facilitates the reuse of parts, material recovery and decomposition, end-of-life recycling and remanufacturing or refurbishment.    

  • Reexamining Waste

Waste becomes an input for new/ remanufactured products, a source of income through sale, donations to organizations in the community that view your waste as a valuable resource. Waste can be significantly reduced through smarter consumption, better investment decisions, reuse and recycling. Responsible waste management is critical, with incineration for harmful materials and safe disposal for non-harmful ones needed. The increasing number of electronical equipment, electronics and mobile phones require special care for material recovery and waste processing, which needs to be accessible. Waste can also be a source of energy in waste-to-energy plants.

 

What are some of the benefits of the circular economy?
  • Repairing, reusing, recycling, upcycling and remanufacturing goods: Save money on raw materials/inputs, earn money on sales of products (new and remanufactured, as well as on selling waste or biproducts) or on renting out or selling unnecessary space for storage or equipment. These goods last longer and more upgradable, which can require less frequent purchase or investments for companies and can contribute to better credit risk profiles for clients through high quality products, extended product warranties, and extended producer responsibility.

  • Sharing economy – Access over ownership. Instead of simply producing and throwing away more, we can optimize the use of goods and services among users by increasing access to a wider range of products, including higher quality/more expensive ones. If we take household appliances as an example, if we owned fewer of them, it would save money, and people could use them when needed. We could choose fewer appliances of higher quality that are more energy efficient and idle capacity could be optimized. This would save resources, reduce pollution and decrease waste generation. If few appliances are used, then this would reduce the end of life water management needed and reduce the associated environmental impacts (in production, transport, use and end-of life phases).  

  • Business and financing opportunities - build business networks, develop new social connections among diverse participants (from entrepreneurs to senior executives, from students to engineers to retired workers), creating of green financing opportunities for retail and business customers like EE appliances and vehicles to more capital intensive investments for SMEs and corporates like equipment, heavy machinery, production and process upgrades, clean energy and waste generation plants. It strengthens the case for green leasing where the link between access (operation the  EE equipment) and financing needs (operational /financial leasing) is increased as demand rises.

  • Educational opportunities – the circular economy demands increasing technical, managerial and communication skills that offers opportunities to universities, institutes, academies and businesses to develop new programs and courses and for individuals to learn and develop new skills that will be in increasing demand.

Shifting from a linear to a circular economy invites us all to evolve in the way we think, act and make decisions. There are ample opportunities to develop expertise in the new areas the circular economy requires to fix, reuse, recycle, upcycle and remanufacture things. There are an increasing number of opportunities to join business networks, partnerships and communities to share knowledge, innovate, and problem-solve. What will you start with?

Some links of interest:  

 

 

 

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