The State of Green Business: The circular economy revs up

circular model circular economy
Production models that cut waste by constantly cycling materials back through supply chains are gaining traction due to dual financial and environmental benefits.

The following is an excerpt from the GreenBiz State of Green Business 2016 report.

The idea of a closed-loop world, where materials and resources are recycled endlessly and waste and pollution don’t exist, has been tantalizing since the dawn of the modern environmental movement. That vision is moving closer to reality as the notion of a circular economy has become a topic of conversation among some of the world’s biggest companies.

The term has no official definition, but at its core, the circular economy is about "keeping the molecules in play." In such a system, products are made primarily from benign and nontoxic ingredients — "nutrients" that can be returned safely to soil or water or, in the case of more durable components, placed back into service again and again. Toxic ingredients are not verboten; they can be used as needed in products or processes so long as they, too, are continuously cycled back into productive use and kept out of the waste stream. And, of course, as much of this as possible should be powered by renewable energy.

The lack of a widely accepted definition of the term risks confusion, misunderstanding, even greenwashing. If you ask sustainability executives point blank, "Is your company looking into the circular economy?" you’ll likely get a lot of affirmative answers. But when you drill down to specifics, you’ll often find that the term is being used to describe warmed-over initiatives like product recycling, takeback programs and reuse.

While all of these may be part of the circular economy, they’re just one important part. The circular economy involves a fundamental rethinking of products, materials and systems of commerce. It is not simply next-gen recycling.

What’s more encouraging are the big companies actively thinking about what the circular economy means to them, and discussing it internally as well as with peer companies that are part of their value or supply chains.

Over the past few years, Dame Ellen MacArthur, formerly a professional sailor who set a world record for solo circumnavigation of the globe, has been promoting the circular economy through her foundation, which has become a driving force in this arena. The Ellen MacArthur Foundation has spearheaded some of the best research on the circular economy, in partnership with the World Economic Forum, McKinsey & Company and others.

MacArthur joins other visionaries, such as William McDonough, the architect and designer whose Cradle to Cradle methodology and product certification system paved the way more than a decade ago. Before him was Swiss architect Walter Stahel, whose Product-Life Institute first came up with the concepts that undergird the circular economy and Cradle to Cradle — way back in the late 1970s and early ‘80s. Like many aspects of sustainable business, this is a movement whose moment has been long in coming.

But coming it is. Last year, at the World Economic Forum’s annual conclave in Davos, Switzerland, the organization launched a "Meta-Council" to define and accelerate the idea of a circular economy, particularly among its big-company members.

That such conversations are happening in unlikely places underscores the potential magnitude of the shift underway. Among the founding members of the Circular Economy 100 created by the Ellen MacArthur Foundation are Cisco, Coca-Cola, Dell, Google, IKEA, Lexmark, Michelin, Philips, Ricoh, Unilever and Vodafone. Granted, membership does not mean any of these companies are close to developing truly circular models. But their engagement is a sign that the movement is being taken seriously by some of the world’s most iconic brands.

Meanwhile, the World Economic Forum has organized the Circulars, an annual award for individuals and organizations that "have made a notable contribution to driving circular economy principles — where growth doesn’t depend on the use of scarce natural resources." The awards debuted last month in Davos. True, the state of the art may seem a tad nascent for award-winners to declare victory, but that’s how such movements get attention.

Creating circular models for some materials won’t be easy. Consider plastics, which undergird, coat or package so many of the things we buy. Besides being some of the global economy’s most ubiquitous materials, they are also among the most environmentally irksome. Recycling many plastics has proved difficult, or at least uneconomical, and plastic trash has become widespread — literally from sea to shining sea. Still, plastic consumption continues to rise, growing an average of 3 percent annually since the mid-2000s, according to market intelligence firm ICIS.

Dow Chemical, whose plastics division is the company’s largest, is experimenting with several circular economy-inspired initiatives, according to its vice president of corporate sustainability, Neil C. Hawkins. The company is piloting an "energy bag" technology where customers collect non-recyclable plastics, such as utensils and packaging, which Dow turns into synthetic crude oil.

Dow knows it’s an imperfect solution, because the resulting polymers are worth more per pound than the fuel it yields. "If we can recycle materials back into materials, we’ll always want to do that first," said Dow plastics global sustainability leader Jeff Wooster. Dow competitor BASF is similarly working on a way to do this.

Recycling plastics — and most other things — can be a labor-intensive exercise, which is one reason the idea of a circular economy is by no means limited to developed economies. Indeed, this is another place where developing economies might leapfrog more industrialized nations. China, for example, is facing significant resource constraints, not to mention sky-high levels of pollution and environmental degradation. Its government has developed a national circular economy strategy, part of a 50-year plan to address sustainable growth objectives and challenges, and has made substantial investments in circular economy-oriented pilot projects, according to the Ellen MacArthur Foundation.

There’s sound business rationale for all of these countries and companies to be jumping aboard the circular-economy bandwagon, beyond the obvious sustainability benefits and other do-goodism. In short: This stands to be a massive business opportunity.

According to modeling by the Ellen MacArthur Foundation, the circular economy represents a net materials cost savings opportunity of $340 billion to $630 billion annually just within the European Union. The biggest opportunities were found in the automotive sector, followed by machinery and equipment. Another of the foundation’s reports looked at fast-moving consumer goods, this time at the global level. It concluded: "The full value of the circular opportunities, globally, could be as much as $700 billion per annum in materials savings, or a recurrent 1.1 percent of 2010 gross domestic product."

As Peter Lacy, global managing director at Accenture Strategy, put it, the circular economy could be "the biggest economic revolution in 250 years."

Sure, reorienting the global economy into a circular model may sound like some futuristic, utopian vision: factories with no smokestacks, drainpipes or dumpsters, powered by the sun and wind, making products sourced benignly
from nature, then continuously recycled with no waste. And not long ago, it was, indeed, an unattainable idyll.

Then again, not long ago, you could have said the same thing about "zero-waste" factories, where nothing goes into landfills, or buildings that generate more energy than they use. Now, both are becoming commonplace.