Rethinking the Circular Economy - What Needs to Change

Introduction

Many businesses, governments and publicly funded agencies are officially stating their interest and commitment to the circular economy. However, in real terms, the circular economy as a concept is failing to deliver much-promised reform and economic benefits. It is time to overhaul our approach and begin to establish programs and projects businesses and consumers can easily understand and adopt.

It is critical to remember that the circular economy has deep roots in three disciplines - environmental economics, industrial ecology, and Walter Stahel's 'service-life extension of goods - reuse, repair, remanufacture, upgrade technologically' philosophies as they apply to industrialised economies. Stahel went further by arguing "Product-life, or the period over which products and goods are used, governs their replacement speed and thus the consumption of natural resources required for their manufacture and the amount of waste they create. 

The private sector, whether R&D, manufacturing or finance, will find innumerable business opportunities in product-life extension activities - reuse, repair, reconditioning and recycling. Indeed, while increasing the number of skilled jobs available and reducing our dependence on strategic materials, such activities will provide the private sector with fresh impetus to make cheaper goods available as part of a self-replenishing economy built on a spiral-loop pattern which allows substitution of human resources for energy. In this way, unemployment and poverty, which certainly aggravate the fundamental instability of the world economy might be substantially reduced."

In 1976 Stahel, in collaboration with Genevieve Reday, wrote a paper 'Potential for Substitution Manpower for Energy' for the Commission of the European Communities (now the European Commission), which may be considered to be the beginning of the circular economy. These three disciplines have converged to provide us with the foundations of the circular economy. Unfortunately, all this research and work remained stuck in academia as primary raw materials remained inexpensive, sustainability was not on anyone's agenda and the world simply was not ready to change.

What We Need to Let Go

Approximately 10 years ago the Ellen MacArthur Foundation, much to their credit, brought us the circular economy we know today. For many of us, our first introduction to the circular economy is via the famous and rather ubiquitous Butterfly diagram, which is a great image to understand a concept but has little practical value.

It is time for us to move on from the Butterfly diagram. After all, how many businesses and policymakers can translate the Butterfly diagram into real practical value that can be applied on a day-to-day basis?

It also means we need to dump the wishy-washy language of the 3Rs (reduce, reuse and recycle) because that too is not enough for the task at hand, namely climate change, resource efficiency, resource recovery, establishing reprocessing industries, inventing closed-loop materials, innovative business models, redesigning products and reassessing our attachment to ownership.

Secondly, we need to stop teaching the circular economy except as a foundation course built around systems thinking and the core functions from the three aforementioned disciplines (more on this later). All we are doing is attracting people who want to 'make a difference' or feel 'helpless' in a world facing climate change and see the concept of the circular economy as a solution. Concepts are not solutions. Nor are they developing the skills to advance the core functions of the circular economy, instead see the promotion of this concept as enough.

Nevermore than this been made clearer than in this year's 'The Circularity Gap Report', providing us with the dismal statistic that in 2018 our world economy was 9.1% circular. This year, which marks the fourth edition, it states we are only 8.6% circular!

Are circular economy practitioners making a difference? Apparently not. Why? Because we are selling a concept and we need to stop doing that as quickly as possible.

Third, there appears to be a growing movement to include human social issues into the circular economy. This, in my opinion, is wrong and should not be considered at all. Circular economy practitioners should instead embrace sustainability and ESG reporting because this is the dominant trend, increasingly essential for companies and is far more advanced and mature than the current status of the circular economy. ESG reporting includes human rights and social issues and does not need to be doubled up under the circular economy.

Aligning the functions of the circular economy with ESG reporting provides businesses with extra insights into their resource efficiency and resource management in ways standard environmental issues do not. This could be a highly valuable skill for circular economy practitioners who consider specialisation as the key to gainful employment.

The Circular Economy is Made Up of Core Functions

The circular economy is made up of a number of core functions and these core functions are vital to the essence of the circular economy, namely resource efficiency, environmental economics and industrial performance.

Now, in my short pamphlet The Circular Rs, I suggest 12 core functions plus a 13th - the human action of refusing an item that does not fit into a resource-efficient, closed-loop world - a circular world.

Stahel only lists a few functions, and some creative people list dozens of possibilities. Yet the main aim here is not how inventive one can be, but rather what circular economy functions add the most value to an economy, either as a solopreneur, an SME, a skilled tradesperson within a company or as a consultant.

For example, we know remanufacturing adds tremendous value to extending the use-cycle of products. The US-based NIST Office of Advanced Manufacturing writes "Commonly remanufactured product categories include aircraft components, automotive parts, electrical and electronic equipment, medical equipment, and food-service equipment. In order to address the future challenge of materials available in manufacturing, the U.S. remanufacturing industry is moving into the necessary phase of environmental and economic restructuring."

In Indonesia, manufacturing is a wealth-producing sector and one of the main economic activities of SMEs who, coincidentally, make up 99.96% of the Indonesian economy. In 2012, the number of SMEs involved in manufacturing was approximately 3.27 million companies yet only a minuscule number are engaged in remanufacturing. Ms Yun A. Fatimah, an academic from the Department of Industrial Engineering, University of Muhammadiyah wrote "...remanufacturing has tremendous potential for GHG mitigation... there are remanufacturing opportunities in Indonesia for common items including computers, automotive parts, agricultural machinery and white goods not only for environmental reasons but also for affordability concerns." 

Are we training skills on how a company, including SMEs, can include a remanufacturing service to their business? No. Instead, we are teaching circular economy concepts and hope that the more education and awareness there is, the easier it will be to shift to a circular economy. This strategy has already shown not to deliver the intended impact by environmental behavioural psychologists, including Doug McKenzie-Mohr and P. Wesley Schultz, who write "Traditionally, programs to foster sustainability have relied upon information-intensive campaigns to encourage the adoption of environmentally friendly behaviours. These campaigns use advertising to disseminate information, and they are often based upon the mistaken assumption that if recipients simply knew or cared more, they would change their behaviour. Although well-meaning, these initiatives have been largely ineffective in fostering the adoption of sustainable behaviours."

Reverse logistics is another core function of the circular economy by virtue of the fact that if you cannot get a product back, you cannot assess how any of the other circular economy functions can be applied, such as repair, remanufacturing or the reprocessing of materials when products reach the end of their use-cycle. As a proud member of the US Reverse Logistics Association, I am pleased to announce they will soon be offering accredited reverse logistics skills training. Reverse logistics skills can also be applied to e-commerce, an industry that will continue to see significant growth across Africa, Asia and the Middle East. While, unfortunately, e-commerce does encourage more consumerism, reverse logistics student may be able to rethink returns based on circular economy principles if the course is structured to do so.

What about the function of 'repair' as a skill. Why not? People who wish to be an accredited repair specialist can work with designers and companies to optimise their repair capabilities. Are we teaching anyone to become a repair consultant (different from someone who actually does repairs) to fit into a resource-efficient circular world?

By now it should be obvious where I heading with this line of thinking. We do not need circular economy general practitioners but rather specialists who fulfil a job within the core functions that enable the circular economy to be integrated within a company's operation delivering an agreed intended impact. The Circular Rs offer a glimpse on what can be achieved as long as it is practised within circular economy principles. No designing with waste, instead designing out waste. Or at the very least, establishing take-back reverse logistics schemes so more materials can be repurposed at the end of a 2nd, 3rd or even 4th life.

Circular economy specialists should be able to advise companies on any one of the core functions within a circular system specific to their business which, in turn, has a genuine sustainable impact that also fits into a company's ESG reporting.

In return, businesses should seek out circular economy specialists relevant to their business and short, medium and long-term objectives. Many businesses are highly original in history, style, culture, management and location operating in varied regulatory conditions and political-economic influences. Thus, any circular solution should fit their distinctive needs. It should not be up to the CEO or owner to have to figure it all out by themselves. Hopefully, this should pressure circular economy practitioners to raise their skill level and provide the intended outcomes required by their client. If you are a manufacturer and are interested in remanufacturing as part of circular economy systems thinking, find a circular economy practitioner who can deliver this service for you.

What We Need to Embrace

Many readers know I established the Circular Economy Africa, Asia and Middle East LinkedIn group in 2017. On 01 February 2021, I uploaded this image on the current status of investment into the circular economy. In 2020, the total amount of funds went from less than $4 billion at the start of the year to $11.4 billion by the end of the year ('Circular economy funds grow and outperform in 2020').

You can see that out of the 10 funds listed, six are investing in resource efficiency, resource recovery or recycling. While (potential secondary raw materials) resource recovery and recycling is easy to understand, what about resource efficiency? How is resource efficiency an investable option and how do companies become more resource-efficient to attract investment?

First, what is resource efficiency? (a) The OECD's definition "resource efficiency policies generally aim to decouple the consumption of resources from economic growth: to do more with less. More specifically, resource efficiency policies, to a greater or lesser extent, aim to achieve the following objectives while meeting people’s needs (i) To promote the conservation and sustainable use of natural assets; (ii) To reduce adverse impacts on the environment; (iii) To enhance the productivity and competitiveness of the economy; (iv) To create new economic and employment opportunities; (v) To increase the resilience of economies in the face of materials price (vi) volatility; and (vii) To address the social concerns arising from unsustainable use of resources.

(b) UN Environment "The term “resource efficiency” is generic to all these different ideas: the technical efficiency of resource use; resource productivity, or the extent to which economic value is added to a given quantity of resources; and the extent to which resource extraction or use has negative impacts on the environment (increased resource efficiency implies reducing the environmental pressures that cause such impacts).

(c) In another definition from the UN Environment Programme "Material Efficiency means using less materials to provide the same level of well-being. It is measured by the amount of service obtained per unit of material used. Materials include biomass, cement, fossil fuels, metals, non-metallic minerals, plastics, wood, among others. Resource Efficiency encompasses material efficiency but is a broader term which includes materials, water, energy, and land.

Resource efficiency will certainly evolve to become a critical part of a companies operations over the coming years as we start to become serious on urban mining, use more secondary raw materials and lock up land around biodiversity policies. It is here where circular economy practitioners can lend their expertise but only if we know what we are doing in precise terms relative to businesses and consumers. And for the most part, sad to say, we do not know what we are doing and so undermine the very philosophy we are so eager to promote.

Personally, I have decided to steer my small organisation towards the specialisation of resource efficiency, resource recovery and reprocessing for a secondary raw materials industry. It also provides a segway to circular design principles and innovative business models. And all under the Circular Economy Asia banner and as part of ESG reporting.

This enables me to work with the investment community and other circular economy specialists in the field of remanufacturing, repair and any of the Circular Rs.

In Conclusion

In this essay, I have argued it is imperative for circular economy practitioners to develop skills relevant to the core functions to empower the principles of the circular economy so it can be applied by businesses and to steer government policies. Our current generalist approach which implies if you understand the circular economy you can apply it to your business, or participate as a consumer is impractical at best and nonsense at worst.

The circular economy as a foundation course is absolutely necessary as it opens up our ability to appreciate the effectiveness of systems thinking. Educational institutions who decide to teach the core functions of the circular economy should include ESG reporting, information on how to measure GHG emissions (Scope 1, 2 & 3) and life-cycle assessment (LCA). For example, the reverse logistic accredited course, hopefully, may include all these topics providing the student with additional skills to advise their future (or current) employer the benefits of certain actions based on climate change science, resource efficiency and resource management while, at the same time, automatically fitting into sustainability reporting.

Now, ditto for engineers who decide to take a remanufacturing course, repair consultants, renovators, builders, business strategy consultants, and so many others. Circular skills training can no longer be isolated from the pivotal challenges all life on earth is facing today.

The investment community is already experiencing amazing growth from investors who want to champion circle economy businesses. Unfortunately, a lack of transparency from investment funds denies circular economy specialists with enough critical information to collaborate at scale.

Finally, the circular economy is an eco-system in itself. Although I have focused on skills training, I have done this only to highlight the fact that circular systems thinking should underpin all decisions and choices made by CEO's, senior executives, all size business owners, policy-makers and public sector staff. Relevant individuals cannot make the right choices and decisions unless they are trained to do so and can access specific persons to fill in their knowledge gaps.

We can no longer teach the circular economy as a concept, it is too complex and detailed. This essay has not even touched on the legal frameworks we need to adapt to advance Product-as-a-Service business models nor our ability to manage the conflicting interests in our society such as incineration of 'waste' (linear economy) versus 'recyclable resource recovery for reprocessing' into secondary raw materials (circular economy). We still have a very long way to go.

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For anyone interested in upgrading their skills, the Circular Economy Asia Knowledge Centre is a wealth of information.

This article was written by Ms Adrienna Zsakay, CEO of Circular Asia Association, currently based in Malaysia.

References:

'Choosing Effective Behavior Change Tools' by Doug McKenzie-Mohr and P. Wesley Schultz, Social Marketing Quarterly, 2014.

'Policy Guidance on Resource Efficiency' published by the OECD, 2016

'Remanufacturing as a means for achieving low carbon SMEs in Indonesia' by Yun A. Fatimah and Wahidul K. Biswas, Department of Industrial Engineering, Engineering Faculty, University of Muhammadiyah, Magelang, Indonesia, 2017.

'Resource Efficiency and Climate Change' published by the UN Environment Programme, 2019.

'Resource Efficiency: Potential and Economic Implications' by the International Resource Panel Report, UN Environment Programme, 2017.

'The Performance Economy' by Walter R. Stahel, 2nd Edition, 2010