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The circular economy as a $1 trillion opportunity

Aided by the Internet of Things, circular flows are being realized with growing speed. Here are stories from three of the world's largest companies.

Growth without rapacious consumption of resources. Finding and realizing new value in existing, already used materials. Keeping materials and their molecules in play. A trillion-dollar shot in the arm to the global economy. These are all ways the circular economy has been described.

The hyped but often misunderstood circular economy is beginning to take shape alongside the traditional linear economy, as companies put into practice circular operations in parts of their enterprises. The audience at VERGE 16 in Santa Clara last week heard from the pioneers. 

From Nike, which is remanufacturing material from 30 million pairs of used sneakers that have been returned to the company, to Google, which repurposes the hardware in its vast data centers in new data centers, to Philips Lighting, which increasingly markets "lighting services" to customers over lighting products so it can continually upgrade lights in the field and keep materials in use, these corporate practitioners of the circular economy are giving it early shape.

At Google, "we are saving hundreds of millions of dollars a year" by continually repurposing hardware in data center operations, said Kate Brandt, who leads sustainability across Google's worldwide operations and products, speaking at VERGE 16.  

Data centers are vast, multiple-football-fields-in-length centers housing thousands of servers that crunch the data to deliver billions of search queries. Google has data centers all over the world. But these days, it does not often build them from scratch with all new materials.

"What we are doing is keeping all of our hardware at its highest value and reusing older parts. We do remanufacturing, and what we can’t use, we resell in the secondary markets," Brandt said.

In one of the most interesting manifestations of a circular economy data center, Google has negotiated with the Tennessee Valley Authority to repurpose an old, shuttered coal plant in Alabama to be a data center. The plant, which has a vast network of transmission lines that once carried electricity throughout the region and huge, sturdy buildings, negates the need for Google to build huge buildings in the area or to string vast networks of transmission lines from its data center.

But Google's aspirations in circular economy thinking and value creation merely start with data centers. 

"We are looking across our systems, starting with data centers," for opportunities, Brandt said.

Dame Ellen MacArthur

The circular economy movement was launched by Dame Ellen MacArthur, who on a sail-around-the-globe trip was confronted by the huge amount of garbage the world generates. MacArthur said systemic change is exactly how a circular economy will come about, be it in one organization or globally.

It is about fundamental systems change. We are not talking about taking what we have and making it more efficient.

"It is about fundamental systems change. We are not talking about taking what we have and making it more efficient," MacArthur said, speaking the the VERGE 16 audience where the circular economy was a major topic. Within a company or any organization, the decision to embrace a circular economy business model means changing mindset and methods in every department.

"It is about opportunity," she said. Indeed, in a study the Ellen MacArthur Foundation did with McKinsey & Co. they determined that transitioning to circular economy models could unleash $1 trillion worth of new business into the global economy.

In a perfect circular economy, resources mined from the earth would be reused over and over, while biological resources would be used as long as possible and then returned to the earth in a biologically sound way. But to really make that possible, manufacturing has to begin with designs that envision ongoing and changing uses of a resource, and procurement and sales operations also must be carried out with a vision for multiple successive uses of something.

"It has to be multiple points. It has to involve the finance department, design, marketing, manufacturing, distribution," MacArthur said. She added that it may have to involve creating new departments such as resource recovery — which could supplant a procurement department.

"It’s not easy and it takes time" to change both mindsets and operations to get the most utility out of every object, she said. "To create real success, you have to change every part of the business."

Rethinking materials use requires jettisoning a 20th-century business tenet of consumption equals growth. But in a world whose population is projected to grow by one-third in a mere 35 years, the globe simply does not have enough natural resources to continue that economic model.

That is why many regard making this change — from a linear consumption-oriented economy where items are thrown out after use to a circular economy — imperative. "There is a real challenge out there with current economy," MacArthur said.

IoT to the rescue

The time is ripe for circular economy implementations not only because of the global imperatives of producing food and goods to support 9 billion people by 2050, but also because tools that can help in this process didn't exist until recently.

The Internet of Things is a great enabler of circular economy manufacturing and resource recovery processes, experts said at VERGE.

Because IoT technology allows "things" to communicate with each other and share information about their location, functionality and working condition through sensors which beam information to central databases housed in the cloud, systems can be designed to trace the use of a material from when it was first used in manufacturing a product to its fate in product disassembly, recovery and reuse.

IoT allows you to think about things at every part of the life cycle. Previously, it was difficult to get that level of analysis into things.

Amip Shah, head of the IoT lab at Hewlett Packard Enterprises, said, "IoT allows you to think about things at every part of the life cycle. Previously, it was difficult to get that level of analysis into things." This is particularly important in resource recovery — or getting materials back once they have been dispersed in products to customers and global operations. Shah said that resource recovery is one of the biggest challenges.

Chris Guenther, U.S. lead of the CE 100 (100 companies pledging to implement circular economy principles) for the Ellen MacArthur Foundation, said IoT is of huge assistance to this process.

Circular economy implementation "does entail a massive redesigning and rethinking of each system," he said. IoT can trace all those pieces and enable that design process.

In its essence, the circular economy "is keeping product materials and components in their highest value use at all times, keeping them circulating for a long time," Guenther said. With biological materials such as crops used in food production, a circular economy principle would be to allow that material to circulate if possible — for example, agricultural waste being reused as biofuel — but eventually returning them to the soil in a regenerative, restorative way.

Philips Lighting, Nike put it in play

Companies as varied as Nike, the sports apparel manufacturer, to Philips Lighting, the lighting services and fixtures company, and Avery Dennison, which helps apparel manufacturers and retailers with branding and tracking sales, have implemented circular economy practices into their operations.

Nike has told its customers it will take back their old sneakers, including other brands, and repurpose them.

"We've gotten 30 million pairs of sneakers," said Cyrus Wadia, vice president, sustainable business and innovation at Nike. "At the same time, we are doing a lot on the factory floor" to redesign how manufacturing processes use materials so Nike can repeatedly reuse certain resources and materials. "We put 18,000 different materials into our products," Wadia said. "So we are thinking about how to create 1 billion products" by reusing those 18,000 materials. Quite a logistics exercise.

Philips Lighting is trying to transition its customers to a leasing model of "lighting services" in which Philips retains ownership of the lights and various lighting systems and provides the service of light to its commercial customers.

In a leasing situation it more readily can design for constant upgrades and improvements rather than having customers throw away older lighting fixtures and replace them completely with all new material when they move or shut down. With Philips retaining ownership, it may be keeping perfectly good lights from ending up in landfills.

Nicola Kimm, head of sustainability at Philips Lighting and overseeing some of this transition, said three enablers are key to bringing about a circular economy shift inside a company.

First is a business model that shifts thinking from capital expenditures — or big, one-time investments that have an end time of focus — to operational expenditures or major investments of time or money in which the focus remains on that operation.

Second, circular design is essential throughout operations — or designing products, manufacturing processes and marketing plans around assumptions that materials will be reused over and over. That includes planning for reverse logistics or how to get things back, which Kimm said is one of the most difficult pieces.

The third enabler is collaboration. "You have to work with all your suppliers" as well as with customers to alter processes to circular models.

Not all of Philips Lighting sales have shifted to the lease model, Kimm said. Some customers and particular residential customers want to buy lights. In fact, leasing lighting services is only a fraction of Philips Lighting total business. But is a fraction getting increasing attention from the top of the company and is one way Phillips Lighting — a 125-year-old company — now defines itself.

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