Innovation & Technology Innovation & Technology

The Circular Economy:
Reinventing Business Models for Broad Economic Change

Let’s start with where we are today. The state of the "economy," like the bible or the U.S. constitution, is granted semi-magical powers by most businesses, as if it were carved out of granite, solid and unmoving, never in flux. Yet we all know that the economy — which we'll define here as the system of production and consumption of goods and services within a given region — is ruled by no one, experiences massive upheavals as industries rise and fall, and serves to enrich some people and impoverish others. The economy requires the functioning of natural systems, from the hydrologic cycle to photosynthesis, to function.

By Adam Werbach | Published 11 years ago | About a 4 minute read

These ecosystem services, valued in the trillions of dollars, quaintly named “externalities” by economists, are rarely valued in our economic systems, creating a situation, aptly described by Garrett Hardin 45 years ago as "the tragedy of the commons."

We’re heading towards an ecological cliff; the chemical composition of the atmosphere has been altered by the release of potent greenhouse gases, two-thirds of all marine fisheries are degraded, freshwater supplies are over-stressed, and we’re experiencing what E.O. Wilson describes as the sixth great extinction. Most business leaders have run their businesses according to the existing rules, maximized their profit-seeking, in the process contributing to the run up to the ecological cliff. A few business leaders — the oil & gas industry comes to mind — have expressly exploited the free buffet of ecosystem resources for their own benefit. Welcome to 2013.

We are seeing stirrings of a change. The U.S. environmental movement, which experienced its greatest victories in the 1970s, placed the importance of maintaining our ecosystems in a civic, political and legislative context. The sustainability movement, which applies environmental, social and cultural lenses to business, is now in its golden years. Since 2005, when some of the world’s largest companies (Walmart and GE come to mind) publicly committed to exacting sustainability goals, virtually all of the world’s largest enterprises are considering their sustainability journey. Now it’s time to extend the tools we apply to business sustainability into the broader system of commerce and economic exchange. And that’s the subject of our discovery for this Issue in Focus for Sustainable Brands.

The circular economy is a convenient framing for this range of thinking. Think about the circular economy as how we design, manufacture and distribute goods and services in ways that maximize product enjoyment and efficiency through the reduction and reuse of materials. PUMA and Nike, for example, use reusable bags and boxes to distribute their shoes. Xerox sells printer services instead of printers. EcoLab, the largest buyer of commercial dishwashers, leases them to restaurants around the world. Examples like these abound, but now it’s time to extend them into the rapid iteration of product development and design.

Here’s where the challenge comes in. Having spent much of the last seven years as a midwife to corporate change, I’ve become frustrated at the pace. Companies are now on point to spend the next decade building internal efficiencies, engaging their employees and making material substitutions in their product lines. All of this is critically important work and needs to continue. But we also need product reinvention, not just improvement. The ecological realities we face simply demand it. We don’t just need more efficient cars, we need car-sharing. We don’t just need product disassembly guidelines, we need product reuse guidelines. This is the guts of the “product to services” transition envisaged by Bill McDonough and Michael Braungart. This is the economic opportunity championed by Dame Ellen MacArthur in her work with McKinsey & Co. This is also the “sharing economy” aptly described by Lisa Gansky in The Mesh and Rachel Botsman in What’s Mine Is Yours.

It is all before us. We hope the collection of contributors you’ll see in this Issue gives you some hints to explore. My gut tells me that we’re on the verge of another leap with as much significance as the moment when companies first embraced sustainability.