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Why companies see circular thinking as an emerging strategy

Pushing reuse and deriving new value from the materials of production, Ellen MacArthur is branding a new economic model.

Dame Ellen MacArthur sailed around the world solo in 2001 in a nonstop three-month journey. She raced again in 2004, breaking a world record by circumnavigating the globe in 71 days — faster than anyone had sailed singlehandedly before. She was knighted for her achievement.

To survive at sea alone for months on end, she needed to be extremely efficient and innovative with the resources onboard: conserving, reusing, repairing and replanting. And as she sailed, she saw lots of plastic refuse.

After MacArthur resumed her land-based life, she was struck by the unnecessary waste of 21st century life, she has said. Her lessons from surviving at sea led her to construct theories about transitioning production and consumption to fit a resource-constrained world.

Now known as a guru of the circular economy, MacArthur five years ago launched the Ellen MacArthur Foundation to propel research and initiatives to transition the economy toward a circular model of resource reuse. She shared some thoughts on the movement last week at GreenBiz 16. (Listen to our GreenBiz16 podcast.)

"It is fundamentally a change in the way the economy functions from the outset," from design of products to the way materials and energy input is managed to manufacturing that product all the way to its consumption and what happens to it after its so-called useful life, she said. 

This circular economy modeling contrasts with what MacArthur described as the dominant economic model of the past 60 years:

"At the moment, when designing a product — not all companies but at the large majority of companies — that product is not designed to fit in a system," she said. "It is designed to do a job; it’ll do that job brilliantly for the design life of the product," and then thrown away, with very little of it is recycled for reuse or remanufacture.

And many products are "designed with a fast churn rate" in mind, produced for "selling, selling, selling," with little thought to what happens when it is replaced. That means that in a world awash with consumer products, most packaged in plastic and marketed to a consumption-based populace, we are headed toward disaster in a resource-constrained world.

When products are designed with material extraction and reuse in mind, or 'designed within a system,' then value is created by freeing the material for new revenue production.

On the other hand, when products are designed with material extraction and reuse in mind, or "designed within a system," then value is created by freeing the material for new revenue production. A repeated, even endless, cycle of material reuse can follow and waste and pollution abated.

The good news is that circular economy thinking is gaining a lot of traction quickly.

Such influential organizations as the World Economic Forum (WEF), the European Commission and McKinsey & Company have taken up the cause, collaborating with the MacArthur Foundation to advance initiatives and research. WEF and McKinsey joined the Foundation and is forming Project MainStream to bring this theory mainstream and tackle its challenges.

Some 120 companies have begun to institute some degree of circular practices.

“It is still early days, but there are significant number of companies that now see as core strategy,” MacArthur said.

The key reason is economic value. "There is money there for the taking," MacArthur said. Working with McKinsey and WEF on data, they modeled the possibility of extracting $600 billion in value from the global economy in reusing materials over and over again in production.

Presented to companies "as a different economic model driven by statistics and driven by economic benefit" created some "huge interest."

But what does it all mean in practice?

It means designing products with their end of use in mind, with the plan to extract materials. It also means building the logistics and infrastructure to allow reuse of the materials in way that adds value.

For Philips Lightingit means changing its business model to sell lighting services rather than light bulbs and equipment. Instead Philips leases equipment and manages lighting — even paying the energy bills — to office buildings, campuses and cities, then takes it back when the customer moves.

For carpet manufacturers Mohawk Industries and Interface, it means leasing carpet rather than selling it. When a customer wants to move or remodel, Interface and Mohawk take back the carpet and recycle its materials into new carpets — avoiding what used to be a huge landfill problem.

Increasingly, new design principles are in vogue in which products are designed with material extraction and reuse in mind — and new revenue expected from the same resource.

A repeated, even endless, cycle of material reuse can follow, MacArthur said.

Challenges abound

The theory sounds seamless, yet the practice is very complicated. "We probably only know 2 percent of what the circular economy really is," she said.

The biggest challenge may be in that most ubiquitous 21st century product, plastic.

Only 14 percent of plastic packaging is captured for recycling and only 10 percent is left after sorting. Most of that is down-cycled in value.

Some 300 million tons of plastic is manufactured globally each year and "plastic packaging accounts for 78 million tons" of that, she said. It poses the biggest challenge of just about any material in the recycling and reuse world. For one, plastic doesn’t biodegrade. And plastic packaging is typically so light — and cheap — that recycling for reuse is prohibitively costly and complicated.

Currently, MacArthur said based on Foundation research, only 14 percent of plastic packaging is captured for recycling and only 10 percent is left after sorting. Most of that is down-cycled in value, so that only 2 percent of plastic packaging is actually recycled to its equivalent value, she said.

"The statistics after 40 years of trying are pretty poor." That’s a pretty sad statistic, she said.

To take this problem on, the MacArthur Foundation, McKinsey & Co. and WEF have formed Project Mainstream to tackle some of the most challenging materials that do not easily lend themselves to circular use and reuse. Plastics is tops on this list.

"What we trying to do is drive systemic change," she said. And it has to start from the outset, at the design stage. The collaboration is rethinking "how to redesign the system from the beginning, not try to clean it up at the end."

Consumer thinking

One could argue that circular economy thinking is a way of life. Anyone lucky enough to have grandparents who experienced the Great Depression likely has heard stories about a type of circular economy in practice.

Worn-out pants became the cloth used in braided rugs. Busted farm implements became source material for new tools; the gear shaft or blade pulled out and used to patch up and extend the life of other equipment. Leftover metal became fencing or supported a barn wall or crafted into a roof gutter.

The rare family that had a car drove neighbors to the market on shopping day, or lent out their car. 

Food waste didn’t occur. Scraps left over from meal preparation became soup for the next day.

Reusing things and avoiding waste was a way of life. A change in mindset among consumers — away from rabid consuming and throwaway thinking that dominates Western cultures — needs to take hold along with the change in product design and manufacturing.

As MacArthur said, that's "systemic change."

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