What Covid-19 can teach us about a resilient circular economy

While the financial crisis in 2008 presented a global financial shock, the current pandemic is a global environmental shock—with little prior organizational experience.

A shock from an evolving pandemic is certainly different than one from exceeding climate tipping points. But both have in common that they are environmental shocks. We can therefore use the opportunity and look at what we can learn from this crisis for climate change and sustainability.

An important question is: how can organizations prevent and prepare for global environmental shocks?

An initial answer might be: they can learn how to build resilience and circularity, from an innovation ecosystem perspective.

An innovation ecosystem can be seen as a set of actors—manufacturers, regulators, individuals, suppliers, service providers—that interact with each other to produce a collective outcome. Such an outcome can be, for instance, a functioning mobility or health care ecosystem. Actors within an ecosystem can develop collective abilities, like resilience and circularity. Resilience is the ability to absorb disturbance, reorganize, and retain functionality. Circularity is the ability to maximize the value of material assets over time, and to minimize the associated emissions, waste, and pollution. In one of our research articles, we explored how ecosystem services can inspire the design of resilient and circular innovation ecosystems.

Based on this research, I want to describe three useful concepts that can help explore how this could be done, and relate them to Covid-19: response diversity, decentralized circularity, and adaptive capacity.

But first, let us explore how this pandemic disrupted the sharing economy, to understand why it is important to integrate circularity and resilience.

The vulnerability of the sharing economy

One idea of a circular economy is that people share access to certain products, like cars, bicycles, clothes, houses and office spaces. The goal is to maximize their use capacity. This can reduce the overall number of products that exist in a given location. Hence an assumed decrease in environmental impacts. In the context of a circular economy, this has been referred to as designing out 'structural waste'.

But look at the situation now. Covid-19 has disrupted many business models that rely on shared access. AirBnB has experienced mass cancellations, to the detriment of hosts who depend on the platform for their income. Car sharing firms stand still. Trains are empty. In fact, the private car—the secret enemy of the circular economy movement—has become the last resort for people to travel safely across cities.

The Corona Virus exposes a key vulnerability of shared access: it does not work during social distancing.

But this article is not about bashing the sharing economy. The point is that Covid-19 is just an early taste of what may be lurking on the horizon. With accelerating climate change, soil erosion and biodiversity loss, we will likely be confronted with severe shocks in the future—if we do not manage to prevent them.

Environmental shocks are difficult to predict. They occur within complex adaptive systems. The only choice we therefore have is to embrace complexity, and explore how we can prevent and prepare.

Integrating resilience and a circular economy

One way to start may be to integrate resilience and circularity. Three concepts, derived from ecosystems ecology, can help explore how this could be done: response diversity, decentralized circularity, and adaptive capacity.

1.   Response diversity

Diversity refers here to the diversity of actors involved in an innovation ecosystem, in terms of identities, roles and functions. High diversity promotes stability. It provides high resistance to, and faster recovery after failure and disturbances. It increases the ability to self-organize and renew.

Response diversity is a way of looking at diversity. It refers to how the loss of some offerings get compensated by the persistence of others: how, for example, the loss of car sharing gets compensated by other modes of transportation that work under social distancing, like the private car. But if the private car is the only option to fall back on, and many people do not own one, then response diversity is low.

Take New York City, which has been hit hard by the Corona Crisis. Voices that called for a shutdown of the subway were met with strong resistance: everyone relies on the subway, and there is no easily accessible alternative. Many people in the city do not own a car, so they have no option but the subway to move around. Low response diversity.

Now take Amsterdam, where many people who take the Metro have an easy potential alternative: the bicycle. In fact, the bicycle is a silent winner of the Corona crisis. It belongs to the last bits of personal freedom during lockdown. And the bicycle is fully compatible with the idea of a circular economy: it is light, human powered and reparable. The ability for many to quickly switch from Metro to bicycle is an example of response diversity, integrated with circularity.

A key takeaway of this is that resilience and circularity can be integrated through response diversity: to make sure that ecosystems can respond to shocks with other circular and sustainable options that can compensate for the possible loss of others.

2.   Decentralized circularity

Decentralized circularity refers to how openly circularity can be organized, for example in terms of information about, access to, or ownership of material assets. Examples include ifixit, an open source repair platform; 'the right to repair', which gives users more and better access to repair their products; or Mondragon, a global cooperative with decentralized ownership structures. Decentralized circularity may lead to faster reorganization and higher performance and stability under environmental shocks.

Within a decentralized ecosystem, actors can be activated to interact and build new relationships, and to coordinate and perform essential ecosystem functions, like producing, distributing, repairing, and many more. These functions deal with material assets, like cars, buildings, and food. During the Corona pandemic, they may refer to coordinating the rapid design and production of face masks and other essential equipment on a local scale. At the moment, the production of gloves and face masks creates a big pile of waste. Imagine decentralized circular ecosystems that can reuse and recycle them to ensure continuous supply.

To avoid nationalist fantasies of local independence and isolation, decentralized circularity needs to be coupled with strong international cooperation, knowledge exchange, and solidarity.

The key take away is that more decentralized circularity, approached from an ecosystem perspective, is inclusive of local actors, and can help build resilience against global supply chain disruptions.

3.   Adaptive capacity

Adaptive capacity refers to how the actors within an ecosystem adapt their interactions, to increase the recovery potential after environmental shocks. Organizations with adaptive capacity respond effectively to surprise, renew how they collaborate, and maintain and rebuild ecosystem functionality.

Several firms have adapted during Covid-19. J?germeister, for example, has started producing disinfectants. Volkswagen has used 3-D printing to produce face mask parts. And many local businesses, like bakeries, have offered discounts or free food to health care workers and crisis teams. In Rotterdam, the Erasmus MC has collaborated with hotels to turn their rooms into intensive care units. The capacity to adapt fast and effectively can add resilience to the ecosystem. As these examples illustrate, this may require local actors to collaborate in new ways with new partners, to be able to jointly rebuild ecosystem functionality.

The key take away here is that adaptive capacity can safeguard against ecosystem disruption through quick and coordinated action. For proactive firms, adaptive capacity means that they are well equipped to help solve acute problems on the ground, and stay in business under environmental shocks.

Where to go from here

The concepts discussed here can provide a starting point to think differently about our economic systems. They suggest a focus on resilience and circularity post Covid-19. We need more research, ideas and experimentation on how to do this in inclusive and just ways.

How do you think firms can apply these concepts in practice? What is your experience with building resilience and circularity? Please share your thoughts in the comments below.

Last but not least: As the world is hitting a major recession, many people are now in firefighting mode to manage the crisis. My sincere gratitude goes out to all who help others and show solidarity for those most affected.