The Next Economy
How Circularity Indicators, Partnerships Are Accelerating Adoption of Circular Business Models

The concept of the circular economy has, at least over the last couple of years, evolved as somewhat of a holy grail for the sustainable business world. It offers the possibility of decoupling growth and resource consumption; a beacon of hope for companies currently grappling with the need to increase profit while reducing their overall footprints. Yet still many view it only as a promising aspect, somewhat confused as to how to transition standard business models from the linear to circular; how to measure these steps along the way, and what an end target might look like. Wednesday morning’s session at SB’15 London aimed to address some of these barriers.

The session was led by Jocelyn Blériot, co-founder and Executive Officer of the Ellen MacArthur Foundation (EMF), and consisted of an expert panel of Julie Hill, Chair of WRAP UK; Nicola Kimm, Global Head of Sustainability at Philips Lighting; and Mark Schrooten, Innovation Director at Dorel Europe.

Blériot briefly introduced the circular economy concept and its relative merits to the standard linear model, based on the linear production chain of manufacturing a product, using it over a relatively short time period and discarding to landfill (make-use-dispose). The circular economy disrupts this model by keeping materials in the use loop for as long as possible, with aims to minimise the amount of material which escapes this circular flow as waste. This is achieved through a reuse, refurbish, remanufacture or recycle model, with aims to maximise a product’s lifetime. Blériot highlighted four key enablers for this transition:

• resource constraints: the traditional linear model operates fine in an environment where resources are plentiful and infinite. Our approach towards our planetary boundaries mean that this is no longer an option;
• investment community: investors are now looking for more resilient, long-term opportunities;
• rise of the conscious consumer: consumer expectations for more sustainable and socially responsible purchasing choices are continuing to grow;
• technological development: enabling technological expertise and know-how for developing such an circular approach (e.g. through product tracking, online/virtual sharing) is available and continuing to evolve.

The economic case for such a transition? The EMF, in partnership with WRAP, estimates that in the EU e-waste sector alone there is an economic opportunity of US$130 billion per year. The environmental benefits are also obvious: McKinsey estimate that in Europe alone, a transition to a circular economy could reduce carbon dioxide emissions by 48 percent by 2030.

A recurring question in this area has been how to measure or track this process in a business’s shift of models. The EMF teamed up with Granta to develop a set of circularity indicators based on mathematical models fed by an intensive materials database including factors such as scarcity, risk of supply and intensity of manufacturing processes. These indicators not only allow a company to internally track its progress in this transition period, but also allow people to externally evaluate how linear or circular a company’s model is. This indicator tool is freely available for all companies to download, measure their operations and start the journey towards circularity.

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highlights!WRAP (now a charity, but initially set up by the UK government), as Hill explained, is an organization focused on trying to help businesses move towards more circular business models, while also helping them measure their progress through the use of these indicators.

“You can almost view the discussion around indicators as translated into: what does good look like?” Hill explained. “We all need to know what good looks like, firstly to build a case for change, and secondly when you’ve gone on the journey to make the change, understanding how well you’re doing.”

WRAP has a long history of gathering such data and indicators, as well as helping organizations begin to make important changes in practice. One of its first analyses in 2010 used this data to estimate that at the macro economy-level, the UK was only 20 percent circular. Its data compilation and work operates on all levels, from national to product life-cycle analysis, as well as work with specific companies. It has worked with supermarket chain, Tesco, for example on its food waste statistics and trends, resulting in the launch of its nationwide ‘Love Food, Hate Waste' consumer education initiative.

Philips Lighting is one of the most common signpost companies referred to in discussion on the circular economy. As Kimm explained, Philips has embraced a more circular model in several threads through its company operations. Running through each of the model loops (moving from reuse, refurbishment, remanufacture and recycle), Kimm discussed how value was lost in each loop from the centre to outer ring — not only in a material sense, but also for the company too. Therefore where most companies would testify to an integrated recycling program (which Philips Lighting does in 22 countries within the EU, recovering 85 percent of the material), Kimm admitted that the business viewed this as value lost from the inner loops.

Philips have managed to capture the value in the innermost reuse looping by transitioning its lighting (primarily commercial) model from goods to services. Rather than customers purchasing the bulbs, they now purchase the service of the light they provide. Philips maintain ownership of the materials, and customers pay for light on a per lumen basis. Throughout this contract service, Philips are responsible for the repair, upgrade or replacement of any of these light elements.

The company also operates in the refurbishment loop within the medical sector.

“The refurbishment loop is really where our medical products take advantage of the circular economy,” Kimm explained. “For example, in an MRI or x-ray machine, these pieces of equipment can be brought back to Philips. Different or specific components in them are replaced, then brought back into service.”

Dorel Europe’s introduction to the circular economy was much less planned, Schrooten explained. As a producer of baby and toddler products, the brand’s core value has always been “Care for Precious Life.” In fact, although sustainability was highlighted as one of the pillars within this strategy, Schrooten admitted that it had always seemed an obscure value — no one in the organization really knew what it meant to them.

“In fact, it wasn’t until we attended a Sustainable Brands conference three years ago, here in London, and we heard all of these great stories from companies about how they managed to find their own way to make sustainability and these values relevant to them. That was a bit of an eye-opener. We went back to our office energised and kickstarted some organisation-wide conversations about sustainability,” he revealed.

It was then that Dorel saw how its core mission to provide enhanced mobility for parents and increase the life of its products was tightly aligned to a sustainability focus. The drive/need for a more service-based circular model in the baby-product sector seems even more necessary and intuitive: products are naturally made to be incredibly durable but toddlers quickly outgrow them, leaving them unused for most of their lifecycle. The most obvious way to set up a business model around these products was for Dorel to rent them out, and have them returned and repaired before sending them out to another customer. This is how the company stumbled upon the service rather than sales business model.

Some of its innovative products, such as a chair for toddlers suffering from hip dysplasia, are designed to only be in use for a few months of a child’s life — here the circular model is a no-brainer.

Beyond these few examples of companies taking the initiative to embed these principles within their business models, what was the more general uptake of the circular model?

It’s on the increase, Hill explained, but for a variety of reasons, including:

• resource efficiency, and driving down expenditures on waste;
• supply chain risk in availability of materials;
• price volatility in raw materials;
• value recoup — being able to recycle money back into the business.

What are some of the barriers we need to address in order to increase this uptake and make it scalable? Salespeople are much more familiar with selling goods than services. This is a new challenge for many in the commercial sector. The length of time we have been working to optimise the linear production model also makes the transition to a circular model obscure for many.

The best way to increase uptake is to make the model and story so intuitive, easy and convenient for a company that it just happens, as it did with Dorel, regardless of whether its target was a circular concept or not.