The fact is this: the vast majority of companies have a linear business model—a 'take, make and waste' approach—rather than a regenerative one. More commonly known as the circular economy, regenerative business is a means of changing the very way business is conducted, in our corporate lives and as a society. But it isn't an end state; it's a continuous journey, thus the core concept of circularity.
A circular approach means fully extracting the value of a product before it's recycled or reused, helping in the process to reduce waste, energy use and environmental impact. This approach can help us meet ESG targets and milestones, and ensure we're using our resources in a sustainable way, whether that involves reclaiming components from end-of-life products or manufacturing goods in a fundamentally different way.
But it also requires innovation in business models to incentivize certain behaviours or activities, and then restructuring entire operations around those behaviours or activities. For example, it might mean incentivizing consumers to return products when they've reached their end of life in order to recover, reuse or recycle materials and components.
Meeting ESG goals through circular economy principles
Most importantly, the circular economy has a role to play in helping us meet our emissions reduction targets and reach net zero—globally, nationally and even organizationally. According to the Ellen MacArthur Foundation, a global think tank, switching to renewable energy will only address 55 per cent of global emissions. The remaining 45 per cent will have to come from changing the way we make and use products, materials and food.
We're already seeing the emergence of circular models around reverse logistics or take-back schemes. While these models may seem simple or straightforward in practice, there's a lot of collaboration required across the value chain to make them work—involving new ways of visualizing supply chains and a shift in the customer mindset.
An early adopter of circular economy principles is the retail and consumer goods sector, which is employing reverse logistics to recapture value at the end of a product's useful life for servicing, refurbishment or recycling. Other sectors—from mining to manufacturing—can take inspiration from the retail sector and apply these principles in ways unique to their industry.
Fortunately, there's more than one path to a circular economy. According to the World Economic Forum, there are five types of circular economy business models:
- Circular inputs, in which renewable, recycled or recyclable inputs are used in production processes
- Sharing economy, in which assets that would otherwise remain idle are shared, such as a conveyor belt or warehouse
- Product-as-a-service, in which customers buy a product for a limited time and then return it to the provider for remanufacturing or refurbishment
- Product use extension, in which products are specifically designed to be repaired, reused, reconditioned and/or recycled
- Resource recovery, in which materials and resources are recovered from products at the end of their useful life.
How to get started
First and foremost, you have to rethink your current business model and how it can apply to the circular economy. Critical to this is recognizing that you can't address the circular economy on your own; it requires collaboration with other members of your value chain. For many, this will require a shift in corporate culture.
For example, for a retailer to "go circular," it must collaborate with designers, product manufacturers, transportation suppliers and waste recycling infrastructure partners, among others. And this must happen from the get-go if the retailer is to envision what's possible and what role they will play.
This also depends on understanding your key stakeholders throughout the value chain. How do they interact with each other? How could you fundamentally shift or change the way those dynamics are playing out? How could a new business model help meet your aspirations around circular economy principles?
That's where technology can play a role, though it's not a panacea. Look at where certain technologies—such as blockchain or digital twins (about the latter of which we will have to more to say in our next post)—will have the greatest impact in helping to achieve that circular vision.
There and back again
In the same way that digital transformation fundamentally changed how business and society operates, sustainable transformation will require the same type of journey—and it's going to open up myriad opportunities, some of which we can't even imagine yet.
The bottom line is that innovation can play a key role in helping companies achieve their sustainability goals and participate in a circular economy. Yes, sustainability is hard: it's the challenge of our generation. But if we rise to it, we can create a whole new paradigm of sustainable development.