With three billion new middle-class consumers projected to enter the global marketplace in the coming decades[1], it is now widely acknowledged that the global economy of tomorrow will face material scarcity and supply chain insecurity at an unprecedented scale — an inevitable consequence of an industrial era based on a make/use/dispose model. These new realities have galvanized an international community of academia, NGOs, governments and corporate interests to promote new principles to guide future economic decision-making.
With three billion new middle-class consumers projected to enter the global marketplace in the coming decades[1], it is now widely acknowledged that the global economy of tomorrow will face material scarcity and supply chain insecurity at an unprecedented scale — an inevitable consequence of an industrial era based on a make/use/dispose model. These new realities have galvanized an international community of academia, NGOs, governments and corporate interests to promote new principles to guide future economic decision-making. Circular economic thinking is one key outcome of these exchanges and applies the principles of industrial ecology to economic development to foster the conditions necessary to make economic activities more resource efficient and environmentally benign.
A primary goal of the circular economy is waste prevention; a successful transition would virtually eliminate material leakage and disposal by treating waste as a feedstock for new processes. Policies that require producers to be directly involved in the recovery of products at their end-of-life are therefore inextricably linked to the goals of the circular economy. Producers of an increasingly wide range of consumer products are now obligated in more than 50 countries to design, implement and fund the end-of-life management of the products that they supply into the market — a policy approach known broadly as product stewardship and in some countries as extended producer responsibility. However, many of today’s models for resource recovery, reuse and recycling fall short of maximizing innovation and social benefits due to poor program design and the fact that product stewardship programs are generally managed at a sub-national level; this results in reduced economic efficiency through significant revenue loss as large volumes of high-value materials cannot be leveraged in a patchwork system. Major multinational companies are now required to participate in hundreds of individually regulated recycling programs around the globe, each with differing rules and responsibilities. Innovation is stymied and resources wasted due to a lack of scale and poorly conceived public policies.
The design and implementation of industry-led product stewardship programs, therefore, has major implications for our collective ability to jumpstart the transition to a circular economy. Large multinationals require stable, large-volume supplies of high-value material to meet the demands of a growing global marketplace. With resource reserves dwindling, this is becoming increasingly difficult and more expensive to achieve. For packaging specifically, the transition to a circular economy is difficult because producers face supply challenges in the form of inconsistent quality and volume and have to compete against global commodity markets for feedstock. Coca-Cola, for example, has established a growing number of bottle-to-bottle facilities and is in need of significant supplies of collected PET to create new bottles for their beverages. With sales anticipated to increase in the future, Coca-Cola’s sustainability commitments are dependent on the dramatic expansion of plastics collection in all markets in order to secure a sufficient supply of quality materials.
The current inability of many product stewardship programs to deliver in this regard comes down essentially to financing and scale. Financing models such as product taxes and shared financial responsibility focus primarily on extending the lifespan of existing landfills and reducing financial demands on the limited property tax base. These approaches are worthwhile but have proven insufficient in achieving the far-reaching changes needed to transition to a circular economy. A more direct feedback mechanism is needed that incents major brands to break the “cradle-to-gate" mindset that guides the vast majority of business decisions. Financing models that allocate the full costs of end-of-life management to producers can contribute to this end; however, a shift in mindset commensurate with the scale of the challenge itself is required and this will need to be led from the inside out. Internalizing the costs of end-of-life management within the price of the product will empower designers, managers, engineers and executives to bring products to market that have been designed for disassembly, collection, recycling and ultimately reintegration into the supply chain. Finding value at end-of-life simply becomes another component of this financial equation. A holistic approach that entails the thoughtful design and harmonization of stewardship programs coupled with a radical shift in internal corporate decision-making will produce the scale of change needed to feed the supply chains of the future.
To maintain a social license to operate within the emerging circular economy, corporate leaders will also need to ask themselves: Is my supply chain something I can be proud of? The transition to a sustainable circular material flow cannot be achieved without the integration of the millions of workers (perhaps as much as 2% of the world’s population makes its living scavenging recyclable wastes) who collect, sort and process consumer waste — a sector that in many emerging markets is informal and does not enjoy any of the benefits and protection afforded to the workers in the “formal” material supply chain. In Brazil, Johnson & Johnson has launched Project Phoenix to address this issue directly by creating the business conditions necessary to transform the recycling supply chain and build a supplier base that upholds high standards for feedstock and labour conditions. To operate sustainably, multinationals will not only need to secure stable supplies of high-volume, high-quality feedstock but will also need to do so in a manner that provides acceptable working conditions for all. A circular economy is restorative and that applies to both people and planet.
The impending resource crunch is a problem of such magnitude that micro-level, uncoordinated efforts will simply not suffice. The leading 100 multinational companies, however, can have a bold impact on circular material flows. Not only do the world’s largest companies control a large share of materials (according to the WWF, 100 companies control 25% of trade of “commodities of concern”), their operations and decision-making is not restricted by political boundaries. Further, their supply chains often overlap — a future disruption for one company is a disruption for many. With some primary resources rapidly depleting, these disruptions will become increasingly common if the status quo continues. Working together, therefore, is not at odds with competition but rather is a necessary precondition for it. By joining forces, market leaders can ensure conditions exist that require all producers to take responsibility for their products throughout the entire lifecycle on a level playing field. They can leverage their collective experience and share investment costs to accelerate the transition. Perhaps most importantly, when the world’s largest companies begin to change their mindset — when their decisions internalize the costs traditionally borne by society and the environment — other players will follow suit. The outcome will be a competitive landscape that provides more for customers while costing less for society and for the environment on which we all depend.
Published Mar 15, 2013 4pm EDT / 1pm PDT / 8pm GMT / 9pm CET