With pressure on natural resources increasing, it is time businesses switched to a circular economy where industry becomes restorative and regenerative. This is the only way economic growth can be developed says Alexander Collot d’Escury
Pressure on natural resources is going to increase, assuming business leaders want to continue developing the global economy.
In the 20th century, the extraction of four main categories of raw materials (construction minerals, ores and industrial minerals, fossil fuels and biomass) went up by a factor of eight, according to a study from the UK-based Green Alliance. The 2011 report added: ‘Thanks to population growth and increasing affluence, we are now consuming more resources than ever: between 45 and 60 billion tonnes of resources are extracted globally every year, and current growth trends suggest that this figure could increase to 140 billion tonnes by 2050.’ In Europe, only 40% of 2.7 billion tonnes of waste produced in 2010 was reused, recycled or composted. A 2013 United Nations Environment Programme (UNEP) report showed that only one third of the 60 metals it studied had recycling rates of more than 25%. Even with metals that have high recycling rates, significant value was lost annually – $52 billion for copper, $34 billion for gold, $15 billion for aluminium and $7 billion for silver.
Globally, the middle-classes are set to increase to five billion people by 2030, purchasing ever greater amounts of consumer goods and services. This is entirely a good thing from the business point of view as well as the social aspect of lifting millions more out of poverty. But at the same time, it puts even greater pressure on an old linear economic model, a legacy of the second industrial revolution, where, according to the Ellen MacArthur Foundation, ‘resources are extracted from the earth for production and consumption on a one-way track’.
Business leaders all face a game-changing moment in history in which they start to make the transition from the linear ‘take, make and waste’ model to the circular economy, which is designed to be regenerative and use less material and energy.
The circular economy, as defined by The Ellen MacArthur Foundation is ‘an industrial system that is restorative or regenerative by intention and design. It replaces the “end-of-life” concept with restoration, shifts towards the use of renewable energy, eliminates the use of toxic chemicals, which impair reuse, and aims for the elimination of waste through the superior design of materials, products, systems and, within this, business models’.
The linear model leads to excessive waste of finite natural resources. The stark reality is that it is unlikely business can sustain economic growth on the scale hoped for in the decades to come unless leaders make the switch, learning how to design goods for disassembly and safe recycling. There are four global crises the circular economy will help businesses tackle:
1) The climate crisis – Not only is the ultimate goal of the circular economy to move to renewable energy to power the next industrial revolution leading to lower carbon emissions, but the fact that the recycling and reuse of materials is much less energy-intensive than the current linear system will also reduce emissions. Walter Stahel, co-founder of the Swiss-based sustainability consultancy, the Product Life Institute, points out that in the linear model, 75% of the energy used in manufacturing relates to the extraction and production of raw materials such as oil, copper, iron, etc, and 25% for the actual manufacturing of the goods. At the same time, Stahel points out that only 25% of the labour is employed to produce these raw materials. Most of the labour is in the making of goods. So, if this is correct, if the shift is made to the circular model, companies will be less energy-intensive and more labour-intensive, providing new jobs. This is a positive and highly practical way of developing economic growth in a way that also helps to tackle climate change.
2) The toxicity crisis – We consume chemicals from manufactured goods all the time. Given that humans spend 90% of our time indoors, this is a major issue to consider. Another related health risk is the level of fine dust in the indoor environment, which can lead to vascular and lung diseases including the scourge of asthma. The Cradle to Cradle philosophy (followed by Desso since 2008) calls for “smarter design”, so that the materials are analysed for any potentially risky chemicals from the start. They are also designed for disassembly. The central idea of Cradle to Cradle, created by German chemist Dr Michael Braungart and the US architect William McDonough, is to design healthy, circular material flows – either biological or technical. In this process, it is crucial to know what is in your materials, a process that relies also on knowing what your suppliers are using. As the world urbanises and more and more buildings are created, manufacturers need to ensure the goods that go inside are made with human health and the environment in mind. It is also important to know that the materials are non-toxic for the recycling process, so that the materials can be recycled and reused in a healthy process.
3) Scarce raw materials crisis – For a century between 1900 and 2000, global GDP grew 20 times, which clearly raised prosperity levels for some of the world’s population. But this linear system was one where, as the Ellen MacArthur Foundation puts it, ‘resources are extracted from the earth for production and consumption on a one-way track with no plans for reuse or active regeneration of the natural systems from which they have been taken’. We simply do not have an endless supply of raw materials in the earth – copper, phosphates, zinc, oil and more – to continue on this basis. At present, about 80% of the waste from consumer goods (e.g., food, beverages, packaging, clothes, shoes, etc) ends up in incinerators, landfill and wastewater. As the Ellen MacArthur Foundation/McKinsey Report (Transition to the Circular Economy, Volume 2) has shown, there is commercial value to be gained from finding recycling and reuse business models in the fast-moving consumer goods sector which could amount to $700 billion in materials savings every year. In the long run, we will need to change to these models to generate sustainable economic growth on a resource-constrained planet. But in the short run, companies with circular models will also benefit as resource scarcity intensifies and environmental standards tighten.
4) Energy crisis – The US writer, thinker and government advisor Jeremy Rifkin describes the dilemma of relying on oil to continue to power the world economy. The fact that it is finite and is, in many cases, harder to extract leads to scarcity and price hikes, thereby destabilizing the economy. This goes, he says, in four-year cycles as an economy starts to recover from a crash – partly induced by an increase in the price of oil and its knock-on effect on other commodity prices – and again the oil price starts to shoot up.
Rifkin says: ‘When fuel costs rise, all the other prices across the supply chain go through the roof, because everything’s made out of fossil fuels: fertilisers, pesticides, pharmaceuticals, construction materials, synthetic fibres, power, transport, heat and light. So, when oil went over $80 a barrel in 2007, everything else went up. At $100 a barrel, the speculators came in to gain the market. At $120 a barrel, we had food riots in 22 countries because the prices of wheat, rice, barley and rye were doubling or trebling. We had one billion people in harm’s way, according to the UN. At $147 a barrel, it shut down. Prices were so prohibitive, consumers stopped buying. That was the economic earthquake. The collapse of the financial market 60 days later was an aftershock.’
Rifkin argues that a more stable energy system for what he calls the “third industrial revolution” would be based on a new, technologically-enabled power grid supplying renewable energy to homes, offices and plants. He is also critical of nuclear power, which post-Chernobyl poses too great a risk to human health. At the same time, Rifkin added, the building of new nuclear power plants is highly costly and the energy source uses vast quantities of water, also a precious resource.
The circular economy, with its long-term focus on the use of renewable energy sources and its less energy-intensive model provides a great structure for developing the new economy in the way Rifkin proposes.
Air pollution reforms
To put it into context, China, the economic powerhouse of the world, faces an ecological crisis, resulting from its hyper-fast industrial growth. The Economist described the problem of air pollution covering Beijing recently and suggested this was a game-changing moment for the People’s Republic: ‘A swathe of warm air in the atmosphere settled over the Chinese capital like a duvet and trapped beneath it pollution from the region’s 200 coal-fired power plants and five million cars. The concentration of particles with a diameter of 2.5 microns or less, hit 900 parts per million – 40 times the level the World Health Organisation deems safe. You could smell, taste and choke on it.’
This so-called “airpocalypse” led to a series of reforms in China to restrict air pollution and the decision to spend $275 billion over the next five years to clean it up. But the general issue of how to manage economic growth today in a way that is environmentally responsible and non-toxic is one of the big questions facing leaders in business and politics across the world. It is for this reason, I think, the idea of the restorative circular economy has started to enter the mainstream debate.
In fact, this topic was discussed at the annual meeting of the New Champions organised by the World Economic Forum in Dalian, China, in September 2013 at a number of sessions I was involved in.
Senior leaders from business, NGOs and technology came together to talk about the practicality of scaling up circular economy models. This was a significant moment, as the circular idea – which has its roots in thinking that goes back several decades – is being looked at more and more seriously.
It needs commitment from all these quarters to make the change happen. Businesses cannot do it alone. For example, governments may need to re-examine their tax systems, shifting the tax levy onto non-renewable items such as raw materials and reducing the burden on renewables including labour. Local governments can also make it less appealing for people to use landfill or incineration for dumping waste and encourage them to return materials to take-back schemes.
This is not about altruism. Going circular is likely to strengthen a company’s commercial success, increase its innovative capacity and make it less exposed to raw material price hikes. In fact, the circular economy could be worth billions of dollars every year to industry. In the EU alone, the savings made through using circular models could amount to between $380 billion and $630 billion per year, according to a 2012 report from the Ellen MacArthur Foundation and McKinsey. And this was calculated on the basis of a “subset of manufacturing”.
But there are major challenges to scaling up the circular economy. Governments need to look at tax and other policies. Businesses need to rethink how they design goods, so they are made for disassembly and safe recycling, bearing all the initial costs and issues involved in major organisational change and transformation. And customers and end-users need to be open to new sales models, moving more from ownership of things to leasing or renting from the manufacturer. In this way, the manufacturer retains “ownership” of the precious and finite raw materials.
The rise of collaborative business models like car-sharing or renting out private homes for holidays indicates that people are already making this mind shift, which is encouraging.
I would suggest everyone in the global community has a responsibility to push for a more regenerative economic model that will satisfy the human need to drive progress and greater prosperity within the planet’s constraints, along with the need to deal with the four crises: climate change, toxicity, resource scarcity and energy. It is also the commercially smart strategy, driving new innovation and profitability.
This is the future we need to embrace, no matter how hard it will be to make the shift.
Companies embracing the circular economy
Micromidas produces bio-plastics made from renewable materials. Founded in 2008, the company has developed an innovative chemical process technology to make a variety of commodity chemicals from cellulosic biomass. The first commodity chemical Micromidas is addressing is para-xylene, the primary feedstock in the manufacturing of polyethylene terephthalate (PET) and polyester.
Micromidas’ interest in the circular economy is in identifying under-utilized cellulosic and waste feedstocks which could be consumed to simultaneously eliminate waste and produce renewable chemicals, and understanding the future materials needs of commodity resin consumers.
‘As a chemical technology developer working with renewable and waste materials, it is critical for Micromidas to intimately understand the structure of the circular supply chain. The Ellen MacArthur Foundation has provided an excellent opportunity to interact with the full circumference of that supply chain,’ says CEO John Bissell (pictured).
H&M is the first fashion company to launch a clothing collecting initiative worldwide. From February 2013, customers were able to hand in used garments at H&M stores in all its 48 markets. Sustainability is an important part of H&M’s offering and the company strives to reduce the environmental impact of clothes throughout their life cycle.
‘Our sustainability efforts are rooted in a dedication to social and environmental responsibility. We want to do good for the environment, which is why we are now offering our customers a convenient solution: to be able to leave their worn out or defective garments with H&M,’ says CEO Karl-Johan Persson.
The Coca-Cola Company (NYSE: KO) is the world’s largest drinks company, with more than 500 sparkling and still brands. The company is exploring ways to better leverage its supply chain and other partners to support a circular economy. It is increasing communication and engaging consumers to support the circular economy and advancing metrics to measure progress within the circular economy.
The Nestlé Nespresso company is an autonomous globally managed business of the Nestlé Group. With its corporate headquarters in Lausanne, Switzerland, it is present in more than 50 countries
and counts more than 7,000 employees worldwide.
Nespresso is selling portion coffees that require a specific machine to be brewed. Millions of these machines are sold every year, representing a million tons of raw materials and energy. Nespresso is relying on the EU’s waste electrical and electronic equipment (WEEE) scheme to manage the end-of-life of those machines and therefore do not know and do not benefit from the recycling, while some of these machines, or at least some of their components, are certainly still valuable. According to pre-studies, adapting the current Nespresso business model to the circular economy could create business value for the company.
‘We recognise our obligations to respect the environment and safeguard resources for future generations. We are committed to producing the highest quality coffee, while balancing the economic, environmental and social impact of our operations. Achieving growth sustainably
has become our way of doing business,’ says Richard Giradot, former CEO, Nespresso.
Alexander Collot d’Escury is CEO of Desso, a global carpets, carpet tiles and sports pitches company that has been making the transition to the circular economy since 2008. Desso was one of the first members of the Circular Economy 100 – a knowledge-sharing network organised by the Ellen MacArthur Foundation
- Towards the Circular Economy, Volumes 1&2, Ellen MacArthur Foundation
- Reinventing the wheel: A circular economy for resource scarcity, Green Alliance (2011)
- Martin Wright, The future’s lateral: the new (green) economy, according to Jeremy Rifkin, 19 January 2012, Greenwisebusiness http://bit.ly/1bmuIWI
- The East is Grey, The Economist, 10 August, 2013.