Decoding the Circular Economy: Business Transformation Guide
Decoding the Circular Economy: Business Transformation Guide
To describe the previous year as difficult for SMEs would be the biggest understatement of these tumultuous last 12 months. In an economy that feels battered and broken, looking ahead towards the next few years, it seems like a challenge just to survive financially without considering the short period we have to also fix our planet. The challenge that hangs over us is how we can address climate change and Covid-19 in a way that benefits us all.
What is the circular economy and why should companies care?
For governments, businesses and especially SMEs, the answer is simpler than you may think. It lies in moving from our current linear economy of take, make and dispose to a circular economy. The concept of a circular economy is not new, in fact it is something many authorities and businesses are recognising as a high priority, and yet many are also still scratching their heads at what exactly it means?
In a recent survey by ReLondon across local authorities and SMEs in England, 74% of all respondents stated they would like their organisations to make more use of the circular economy however only half of respondents felt confident they understood what the circular economy meant, and a quarter were unsure how it could help the climate crisis.
So, let’s debunk this concept. Put simply, the circular economy aims to eliminate waste, keep resources in use for as long as possible and support regenerative practices. It promotes reducing consumption of inputs, reusing, repairing, recycling and remanufacturing items alongside a shift towards renewable energy, so that our growth (as a business, economy and society) is not dependent on the continuous consumption of new goods.
Moving towards a circular economy could have transformative effects on our environment. 45% of climate-changing emissions currently come from the global management of land and the production of goods and food. With SMEs accounting for 90% of global firms, transferring to business models on a wide scale that reuse goods and regenerate natural systems could have significant influence over our global emission reductions. Research estimates that a circular business model can achieve a 50 – 90% reduction in a products’ environmental footprint.
Source: Oliver Wyman
Alongside its substantial environmental benefits, the circular economy also makes sense for our communities and businesses. By decoupling your growth from linear resource use and shortening your supply chain, a circular business model has been proven to build the resilience of a company against market shocks such as Covid-19.
It can also have benefits for production costs. Raw material costs are continuously rising but they make up, on average, one third of a company’s total costs. By reusing your materials and eliminating any waste, closing the loop can have important financial savings.
Finally, in a society that is increasingly promoting inclusive and responsible business, the circular economy encourages more connected communities and illustrates a genuine commitment to responsible consumption.
Circular economy and the SDGs
Taking all of this into account, the circular economy can have a crucial impact on addressing the Sustainable Development Goals by tackling, as a minimum,
Goal 8 - Decent Work and Economic growth;
Goal 11 - Sustainable Cities and Communities;
Goal 12- Responsible Production and Consumption; and
Goal 13 - Climate Action
How can organisations implement circular practices?
So, the circular economy sounds pretty sensational right? But what does this actually mean in practice for your organisation and how accessible is it?
Whilst the circular economy might initially seem more relevant to sectors such as food and fashion, its application is not limited to specific products or supply chains. It is an opportunity for all industries and governments to create a significant impact.
Governments and policy makers do undoubtedly have a critical influence in ensuring the circular economy is accessible and wide reaching. However, progress is being made. One of the key pillars of the Europeans Green Deal is the Circular Economy Action Plan which sets out 54 actions for transitioning Europe’s economy from a linear to circular model. In June 2020, the UK government’s Circular Economy package also introduced a legislative framework for reducing waste and establishing waste management and recycling opportunities across the UK. As policy begins to increasingly recognise and support the implementation of circular initiatives, there is no reason for your organisation not to jump on board (or perhaps on the metaphorical wheel!)
Deciding how your organisation can transition to a circular economy model will require an understanding of your product/service’s full lifecycle, collaboration with your stakeholders and innovation. Rental, repair services, take-back schemes, refurbishments, and waste sorting are just some of the potential options.
If you want to begin considering how your organisation can move towards more circular processes the below points are a great place to start:
Raw Materials: What materials are used to make your product/provide your service? Are these non-renewable resources, or resources that harm the environment through their creation? If so, maybe you can look at using natural or recycled materials.
Production & Manufacturing: How is your product made or service provided? Consider how much energy or water you use and how much waste is generated from this production process. Perhaps you can implement ways to reuse your water, repurpose your waste or transition to renewable forms of energy.
Secondary Raw Materials: Do you use any third-party parts in your product/service? Consider the lifecycle of items such as packaging, shop fittings, tools, logistical services and whether these can become more circular.
Consumption & Use: How is your product or service consumed and what can your business do to help extend how long it is used for?
Waste: Once your service/product is no longer in use, what is leftover and what happens to it? If you produce any by-product or waste, consider how you can reuse and repurpose this, or encourage your end-user to do so.
Community & Society: What can your business do to support society? By getting involved in the community and encouraging jobs, educational support, charity actions and environmental protection, your business can contribute to the environmental, social and economic growth of your community and encourage continuous development.
Moving to a circular business model is no easy task. It requires a reframing of production, consumption and business patterns as we know them, in order to save our businesses, communities and planet. But change is coming, and if there is one thing the pandemic has taught us, it is that we must act upon risk immediately before it’s too late.