The current linear economy, based on the ‘make, use and dispose logic’ is running out of time. The quest for efficiency and growth of our Productive Systems is showing all its limits in terms of resource depletion and negative effects on our planet. Basically, we are doing a better job in depleting resources than generating value. We have failed to notice that matter can be designed to persevere, as brilliantly noticed in an EIT-KIC article.
The long term success of companies can be threatened by, amongst others, unstable resources supply, new regulations on waste generation and emissions or value shifts of consumers. Therefore, understanding and embedding the principles of the Circular Economy today it’s not just a matter of taking responsibility towards the environment, but it will also be the key to secure competitiveness and long term profits for your business.
The Value of a product is no longer determined only by the price consumers pay for it. The Social and environmental performances of brands and their products play an increasing role over consumers’ choices. This new and fast-growing market segment of conscious consumers will lead the way to an important shift in their decision making process. As the media are increasingly highlighting the environmental damages and social injustices caused by the production and/or consumption of certain products, consumers have started to actively seek for better alternatives by carefully looking at the type of material used, the provenience and many other factors.
Market research on consumer trends, such as The decade ahead: Trends that will shape the consumer goods industry, from McKinsey & CO., or 2020 consumer products industry outlook, from Deloitte, show that green consumerism is one of the 10 factors that will shape the consumer industry in the next decade. Many large corporations, which have sensed this wind of change and risk suffering the most damages from this consumers' value shift, have tried to jump ahead of the growing pool of small and local competitors. However, the result of mostly unstructured and money-driven approaches is, in often cases, an embarrassing wave of Greenwashing. But consumers won’t take it any longer.
If you want to be successful in this new market and compete with new businesses which are truly sustainable, it’s time for you to switch mindset.
An efficient industrial system should strive to embrace the basic principles of the Circular Economy of maximizing the lifetime of resources and, with that, their value. However, the impressive growth experienced under a linear economy model made us blind to how much we are losing on the way. The Circularity Gap Report 2020 shows that only 8.6% of the 100 billion tons of material that enter our industrial system are upcycled, recovered or recycled. This means that our system uses only 8.6% of what is produced for longer than a year.
Increasing recycling rates of resources could only bring benefits to both companies and the planet. A study from McKinsey and the Ellen Macarthur Foundation showed that a synergic circular economy across european regions could entail a potential cost reduction of 600 Bln Euros and other 1.8 Trln Euros for other economic benefits.
Moreover, scientists and advisory firms highlight that one of the major risks that companies will be facing in the future is the steadiness of resources supply. At the current pace of extraction, regeneration won’t be possible (resource depletion); which will consequently cause sectors to start running out of resources. Plus, if we don’t stop emitting huge amounts of greenhouse gas emissions, the average global temperature will keep on rising and more extreme weather events will cause even more resource instability.
Today more than ever, Heraclitus’ words are relevant. In the past 10 years, we have seen a ramp up in business model innovations, mostly insinuated by startups. These new models led to important revolutions in many sectors: take for instance the Sharing Economy, one of the most prominent application of the circular economy where you don’t strive to buy new things, but you rather lease, rent, or share them. Along with new jobs, it creates new economic opportunities while maximizing the efficiency in resources usage. The size and scale of many of the firms in this sharing economy now rival, or even surpass, those of some of the world’s largest traditional businesses in transportation, hospitality and other sectors. And we have only scratched the surface of the innovative opportunities that business could offer.
Moreover, as highlighted by Goldman Sachs in his report, with Millennials and Gen Z becoming the biggest spenders, there will be a radical shift in market dynamics. Choosing access over ownership, value over brands and relying on information found on the web, innovative business models will be vital to win this new customer base.
With all the blatant limits governments and intergovernmental organizations have shown in effectively fighting global issues, things are actually moving forward. The ratification of the Paris Agreement by 195 countries has shown a global commitment to save the planet from a potential breakdown. On 4 November 2016, the Paris Agreement entered into force. However, whether all countries will act upon their commitments, remains to be seen.
Europe is slowly taking action. In december 2019, the European Commission presented the Green Deal as the start of the transformational journey towards a sustainable industrial system. Action, according to the document, will tarket greenhouse gas emission reduction and a more efficient use of resources.
In March 2020, the Circular Economy Action Plan was presented. The documents lays out the guidelines of the regulations - in place from 2021 - that will force industries to limit the use of hazardous materials, design more sustainable products, manage their waste better; in short to apply a circular business model.
There will be technical and financial support to make this transition as smooth as possible. Uncertain is if the industry will accept or reject this transformation.
To sum up, there are plenty of opportunities to catch in terms of market share, new customer base, resources utilization, value generation and in terms of social and environmental responsibility. After all, as companies, we play an important role in society and it’s necessary that we take seriously our responsibility towards the planet and the people who are affected by our products and services.
We have the opportunity to make a positive impact and it’s critical that we use our platforms to communicate and influence communities around this mission. Recent events have shown us the weaknesses of a system focused on unsustainable growth.There is, therefore, a compelling urgency to take action and find ways to focus our energy and use our power for the benefit of all, working towards a world that looks brighter for the generations to come.