The critical link between the circular economy and climate change is poorly understood, writes Mark Lancelott, sustainability and business design expert at PA Consulting.
Today’s economy is primarily linear, and follows a ‘take, make, use, and dispose’ model, relying on large quantities of cheap, easily accessible materials and energy. It is inefficient, with much of what we produce ending up in landfill. Only a fraction of the value we put into making things is recovered after use. As well as the draw-down on natural capital, and the impact of waste on biodiversity, this inefficient production and consumption model is responsible for a significant amount of our carbon footprint. The Ellen Macarthur Foundation estimated that the path to net zero carbon is 55% from transition to renewable energy, and 45% from changing production and consumption patterns.
There is an alternative. A circular economy is restorative and regenerative by design, and aims to keep products, components and materials at their highest utility and value at all time. It is about focusing the entire product value-chain on:
- reusing, refurbishing and recycling
- maximising inherent value in products and by-products
- reducing material and energy costs
- consuming services rather than purchasing assets
Which companies are already circular?
Innovative companies thinking differently and already circular are finding new ways to create value. It means that companies like Philips, Renault, British Sugar, and Brambles can compete in markets in new ways to drive growth and profit. The typical business models to consider are:
- sharing platforms, such as Fat Llama’s marketplace for buying, selling and renting consumer electronics
- Product as a Service, where products are used by one or many customers by means of a lease or pay-for-use arrangement, such as HP’s Instant Ink service
- product life extension, extending a product’s lifecycle through initial product design and refurbishment or remanufacture, enabling resale such as Apple’s trade-in programme and certified refurbishment range
- resource recovery, upcycling or recycling products such as Artisanal network Rede Asta in Brazil which recovers discarded materials and transforms them into valuable corporate gift collections
- circular supplies, redesigning products and supporting operations, for example Google’s approach to its server hardware in its data centres
A guide to designing a circular business model
Designing and implementing these successful business models are not easy. Talking to companies embarking on their circular journey, PA Consulting heard two common refrains. Companies were saying that they understood the circular economy as a big idea but working out how to put it into practice in their business was difficult.
On the other hand, some of the start-ups PA talked to had come up with great ideas for circular businesses that created positive impacts and financial savings at a system level. But turning that system value into profitable revenues to make an investable and scalable business was extremely challenging.
So, we thought: can we create a practical how-to guide, which directs people through the choices they have, to design a circular business? Something that goes beyond the different classifications and taxonomies of circular business models which are largely prescriptive.
This practical guide has been developed as an Ellen MacArthur Foundation Network collaborative project by business design, sustainability and circular economy experts at PA Consulting and Exeter Business School, with regular testing with small and large businesses across sectors and regions. It includes all the required practical steps, tools, templates and examples to identify circular opportunities and design business models that create, deliver and capture value in ways that also benefit society and the environment. Regardless of sector, region, business activity, size or maturity, it can be used to:
- identify new ‘greenfield’ circular business opportunities and define the business and operating models required
- explore and define how existing linear businesses can become circular
- design new circular business models
- refine existing circular business concepts and pilots.
The guide explores how to create, deliver and capture value in its different forms, in ways that also benefit society and the environment, recognising that this is critical to investable and scalable circular economy business models. Currently the guide is available as an open-source interactive PDF downloadable here.
What does it mean for public sector organisations?
The public sector has a key role to play in enabling the transition to a circular economy, for example through policy, and through procurement policy which can encourage circular suppliers. Whilst the guide is focused on commercial businesses, it could be used for public service delivery organisations, where there is a physical element to the service being delivered.
The circular economy is a unique opportunity for business – one where cost savings and economic productivity go hand in hand with reducing environmental impact. The key to unlocking these benefits is designing and implementing successful circular business models to help create a positive human future.
Mark Lancelott is a business design and sustainability expert at PA Consulting.
Photo Credit – Pixabay