What exactly does circularity mean for a company? We hear about circularity in multiple sustainability contexts, from the EU Taxonomy priorities and the European Green Deal (and even Duni Group’s 2030 Sustainability Strategy!) but what exactly does it entail at the microscale of a company?
Circularity
While often circularity is referred to in terms of the “Circular Economy”, in reality, it is more about the amalgamation of making individual systems circular. Thus, a life-cycle perspective is essential, where actors work to move the existing cradle-to-grave linear economy into a cradle-to-cradle, more circular one.
This can mean:
- Slowing loops: Slowing down the resource flows by designing quality products which have long lifespans, and which can be repaired or remanufactured when issues arise. These days, many products, from our appliances to our personal electronics are designed with “planned obsolescence” to force consumers to continually be buying new products every few years. Slowing resource loops is just better for consumers, the environment, and, if capitalised on through creative business models, can be better for producers as well.
- Closing loops: Even the best designed products will eventually reach the end of their lifespans. For this stage, we need to close the loops by putting the materials back into the system to the extent possible. Recycling is an example of closing the loop commonly employed in communities around the world. Other instances of closing the loop include designing products to be compostable or using waste for energy.
- Narrowing loops: An added method is through resource and energy efficiency, which some call “narrowing the loop”. While this approach does not slow resource flows or create circular or closed systems, it does mean that fewer resources are put into the system in the first place, which ultimately supports the goals of the Circular Economy.
Image source: “Product design and business model strategies for a circular economy” by Bocken et al. (2015)
Benefits
Why should companies pursue this circularity? The Ellen MacArthur Foundation, a pioneer in the sphere of circularity has identified a few reasons:
- Profit opportunities: For example, by leasing laundry machines instead of selling them, customers can save roughly 1/3 of the cost per wash and manufacturers can make roughly 1/3 more profit. This is just one example of a business using circularity to creatively increase their revenue streams. Another example is IKEA, who have introduced a buy-back programme and can resell the used furniture.
- Reduced risk in the supply chain: In the past few years alone, wars, the pandemic, and even a ship stuck in a canal have upset global supply chains. By using fewer virgin materials, companies are less susceptible to volatile prices and disruptions, and have more opportunities to use alternative materials provided by more decentralised suppliers.
- New business services: A shift to a more circular economy, as the EU is planning, will create demand for additional services, such as collection of end-of-use products to reintroduce into the system, specialised repairs, and parts manufacturing, to name a few. By capitalising on this demand early on, companies can not only increase their revenue streams but can benefit from being first movers in the industry.
- Improved customer interaction: With new business models, such as leasing or trade-ins, businesses establish more long-term relationships with their customers with several touch points throughout their products’ lifespans. Thus, companies can gain insights into usage patterns, common issues with the products, etc., which will ultimately lead to improved products and customer service in the long run.
Further benefits include:
- Increased resource and energy efficiency (and thus cost savings in production)
- Cost savings from relying on used materials over virgin
- Minimised waste, which is essential, given Europe’s move toward EPR
- Enhanced brand reputation because many consumers report interest in sustainability
- Keeping ahead of regulation and avoiding penalties of non-compliance
So, while the Circular Economy can seem like a daunting goal, breaking it down to the company level demonstrates tangible and actionable ways for individual businesses to benefit from circularity.
Want to learn how to implement greater circularity into your business model and strategy and get ahead of your EU legal obligations? Contact our Environmental Compliance Expert, Diego Perdomo!
Sources:
– “Product design and business model strategies for a circular economy” by Bocken et al. (2015) as published in the Journal of Industrial and Production Engineering
– 3E Exchange
– Ellen MacArthur Foundation
