The 5 business models that put the circular economy to work
As our global economy continues to grow — by 2030 the planet will be home to nearly 9 billion people, including 3 billion middle-class consumers — the challenges of meeting this increasing demand for products and services will be unparalleled.
The World Bank estimates the amount of municipal solid waste will increase from 1.3 to 2.2 billion tons per year by 2025, with most of this increase coming from cities in developing nations. According to the Ellen MacArthur Foundation, in the consumer goods sector alone about 80 percent of the $3.2 trillion value is irrecoverably lost annually. The linear take-make-waste industrial model is no longer viable in the face of rapid population growth, resource constraints, urbanization, water insecurity and other trends.
The good news, though, is this paradigm is giving way to the circular economy, a model that focuses on careful management of material flows through product design, reverse logistics, business model innovation and cross-sector collaboration.
In essence, the circular economy is about moving from a system of waste to one of “endless resourcefulness.” This more regenerative model affords a viable business opportunity to successfully tackle environmental priorities, drive performance, innovation and competitiveness, and stimulate economic growth and development.
Accenture, in its report Circular Advantage (PDF), has identified five circular business models companies can leverage — singly or in combination — to generate resource productivity improvements in innovative ways that also cut costs, generate revenue and enhance customer value and differentiation. Let’s take a closer look at these models and some corporate leaders on the forefront of the transition to the circular economy.
1. Circular supplies
The circular supplies business model is particularly relevant for companies dealing with scarce commodities, in which scarce resources are replaced with fully renewable, recyclable or biodegradable resource inputs.
Royal DSM has developed a cellulosic bio-ethanol in which agricultural residue (baled corn cobs, husks, leaves and stalks) is converted into renewable fuel. The cellulosic bio-ethanol created a new source of revenue for DSM, while reducing emissions, creating jobs and strengthening national energy security.
2. Resource recovery
The resource recovery business model leverages technological innovations and capabilities to recover and reuse resource outputs that eliminates material leakage and maximizes economic value. Examples include closed loop recycling, industrial symbiosis and Cradle-to-Cradle designs, whereby waste materials are re-processed into new resources.
Walt Disney World Resort sends food waste — including grease, cooking oils and table scraps — from select restaurants in its complex to a nearby 5.4 MW anaerobic digestion facility owned and operated by Harvest Power. The organic waste is converted into renewable biogas (a combination of carbon dioxide and methane) to generate electricity, with the remaining solid material processed into fertilizer. The energy generated helps to power Central Florida, including Walt Disney Resort’s hotels and theme parks.
3. Product life extension
The product life extension model helps companies extend the lifecycle of their products and assets to ensure they remain economically useful. Material that otherwise would be wasted is maintained or even improved, such as through remanufacturing, repairing, upgrading or re-marketing. By extending the lifespan of the product for as long as possible, companies can keep material out of the landfill and discover new sources of revenue.
Over the past 40 years, Caterpillar’s remanufacturing activity, through its Reman Program, has focused on returning components at end of life to same-as-new condition or quality that reduces costs, waste, greenhouse gas emissions and need for raw inputs.
4. Sharing platforms
The sharing platform model is centered on the sharing of products and assets that have a low ownership or use rate. Companies that leverage this model can maximize the use of the products they sell, enhance productivity and value creation. Examples of the sharing economy abound, including transportation (Lyft, RelayRides, BlaBlaCar), lodging (Airbnb), and neighbors helping neighbors (TaskRabbit, NeighborGoods).
5. Product as a service
Through the product as a service business model, customers use products through a lease or pay-for-use arrangement versus the conventional buy-to-own approach. This model is attractive for companies that have high operational costs and ability to manage maintenance of that service and recapture residual value at the end of life.
Philips sells lighting as a service, in which the company aims to reach more customers by retaining ownership of the lights and equipment so customers do not have to pay the upfront costs of installation. Philips also ensures the sound environmental management of its products by taking them back at the appropriate time for recycling or upgrading.
U.S. Chamber of Commerce enters the circle
Accelerating and scaling up of the circular economy on a global level will require a combination of business models such as these, technological advancements and innovation, and collective action across different stakeholders, industries and geographies. That’s the reason we are holding our annual sustainability forum on the circular economy, for companies and other stakeholder groups to come together and identify viable opportunities for how the circular economy approach can translate into positive environmental impacts, real cost savings and greater profits.
With the world rapidly changing, resources becoming more scarce and expensive, and consumer preferences and expectations shifting, there’s no time like today to capitalize on the transition to the circular economy: an opportunity worth in excess of $1 trillion for the global economy.