Why I believe businesses must adopt circularity to stay competitive

In my previous article about why CFOs should step up and drive the sustainability agenda I briefly touched on the topic that transition into a new sustainability business model is vital for companies’ future existence. In this article we will explore this further as:

• The linear economy is not a sustainable model, it is reaching the end of its line
• A circular business model is good for profitability, environmental care, and social well-being
• Three basic strategies can help re-designing your business model to balance profitability, environmental care and social well-being

WHAT does it mean

The linear economy results from business practices that assumes constant supply of resources. The production of goods is at the expense of our ecosystem. Our waste is overwhelming the planet and without action, our oceans will be filled with more pieces of plastic than fish by 2050.

In addition to the damaged caused on our ecosystem, the model also put the supply of resources at risk and leads to fluctuating raw material prices, scarce materials, geopolitical dependence on different materials and increasing demand.

The linear economy is reaching the end of the line.

A circular economy is the opposite to the linear economy.?

After my graduation in 1998, I worked as Chief Accountant for PLM Beverage Can in Sweden. In this position I was for the first time exposed to a concept that I would categories as an early model of circular economy. I managed the administration of Returpack AB. Returpack AB is a company created in the early 1980s to reuse the aluminum from used cans in the production. PLM acted as a strong driving force for the development of this company and was one of the biggest owners, together with the breweries and the grocery industry. Since the start in 1984 the system has been developed along with other operators in the value chain, constantly developing the deposit system. I find this system very impressive because it is a voluntary and self-financed system that completely changed the behavior of Swedish people. In Sweden 88% of all cans and bottles are recycled and reused and this puts Sweden as one of the best countries in the world to recycle and reuse cans and bottles.??

A circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible.

The key elements in a circular economy are:

• the elimination of waste and pollution
• the circularity of products and materials
• the regeneration of nature

WHY it is important

Economic Growth: Research carried out by Accenture shows that the circular economy could generate an additional $4.5 trillion of economic output by 2030 through job creation and innovation.?

Job creation: A 2018 report issued by the International Labour Organization found that by transitioning to a circular economy, the world could see a net increase of 6 million jobs by 2030.

Business resiliency: By creating supply chains that recover or recycle the resources used to create their products companies can shrink their environmental footprint, trimming operational waste, and using expensive resources more efficiently which will make businesses less exposed and more resilient in a volatile world.?

Costumer loyalty: New business models emerging from the circular economy, such as leasing contracts and subscriptions, establish longer-term relationships between businesses and their customers, as well as increase the number of touch-points over the lifetime of a product. As a result, companies that adopt these new circular models have the opportunity to gain competitive insights into their customers’ usage patterns that can lead to better customer service, greater brand loyalty, and in turn, increased profits.

Environmental benefits: The Circularity Gap Report 2021 by Circular Economy suggests that by implementing circular economy principles globally, we could reduce global greenhouse gas emissions by 30% by 2032.??Globally, we currently produce roughly 300 million tons of plastic waste each year. This would also be significantly reduced if circular economy was fully adopted.

Embracing circularity in the business model will help CFOs and Business Leaders to accelerate growth, enhance competitiveness, improve efficiency, and mitigate risk.

HOW it works

The first step to moving a company to a circular model is?to understand?your social or environmental impact.?Map your business model to visualise its main impacts. Adopt a systemic point of view to consider your economic, social and environmental impacts.

(Re)Design business models by looking at:

• Where to play - identify circular business opportunities by mapping existing value flow, identify lost value and what value is at risk in the future and identify where you can either maximise existing value or conserve value at risk.
• How to win - identify customer and key partnerships needed and define what a mutual circular value proposition could look like.
• How to operate - identify the circular capabilities your business will need.
• How to profit - select the right circular pricing strategy.

Explore different scenarios and anticipate threats.

Harvard Business Review presented in 2020 three basic strategies for circularity.

• Retain product ownership (RPO); in this approach, the producer rents or leases its product to the customer rather than selling it.?
• Product life extension (PLE); companies applying this strategy focus on designing products to last longer. Durability is a key competitive differentiator and provides a strong rationale for premium pricing.
• Design for recycling (DFR); companies applying this strategy redesign their products and manufacturing processes to maximise recoverability of the materials involved for use in new products.?

For a company looking to create a circular business model, the model will involve one or more of these basic strategies. The right strategy can be determined by how easy it is to get your product back and how easy it is to recover value from your product.?

What is coming next

Finance, Operations and Other Business Leaders must work together to turn the sustainability challenge into opportunities.?

Next time we will deep dive into how businesses can leverage digital in their sustainability practice.?

I’m looking forward to continuing the conversation with you.