Mounting pressure and a bettering business case drive the circular economy transition

In the US, the economy is facing the same resource scarcity as other nations, but the consumption levels are significantly higher. This discrepancy means that Americans - both companies and consumers - stand to feel the impacts of supply disruption much more precipitously unless the business models shift to be less resource intensive.

This is already being felt, with the recent supply chain issues exacerbated by the pandemic and ‘just-in-time’ manufacturing. The familiar system of taking resources, making products, consuming them, and throwing them away is rapidly depleting finite resources and producing immense quantities of waste.

Business-as-usual is not advantageous

Applying the laws of supply and demand, Americans are in a clear ecological deficit; we are using resources faster than we can replenish them or absorb the waste associated with their use. This is inherently unsustainable.

The Global Footprint Network data shows that if all global citizens lived like those of the US, we would need the resources of five planets each year to satisfy the demand. Countries in an ecological deficit are sure to experience increased product scarcity and higher prices as resources become more limited.

According to the UN, the extraction and processing of materials, fuels and food contribute half of total global greenhouse gas emissions and over 90 percent of biodiversity loss and water scarcity. Additionally, regulators have begun to understand that we don’t have the resources of multiple planets, and the regulatory landscape on this topic is rapidly turning from theory to reality.

While gaining a first-mover advantage implies taking some risks due to potential uncertainties, what is certain is that continuing business-as-usual is not prudent. To manage the risks, companies must be deliberate in determining which circularity approaches best suit their business models and when to introduce them.

There is an alternative way

When trying to explain the circular economy, the nostalgic images of glass milk jugs or soda bottles being reused are often referenced. It helps people understand a closed loop example of packaging where there is no waste generated, and many modern industries are embracing these types of models. Beyond reusable packaging, there are plenty of examples of new circular business models, from bike shares to smartphone leasing.

These two examples avoid individual consumers having to own, maintain, and importantly, properly dispose of resource-rich items like bikes and phones. Instead, there is a company that is managing the repair, replacement, remanufacture, and eventual recycling of these products and profiting along the way.

In addition to new circular business models, it will be necessary to use materials more efficiently that have equal or improved physical properties. There are already sustainable material examples emerging. The circular economy decouples economic growth from resource exhaustion and offers new business opportunities for companies.

It is time to protect your business

The business opportunity includes but goes beyond ensuring compliance, appeasing investors, and meeting current customers’ demands. Transitioning to closed loop materials or renewable alternatives can improve the resiliency, supply surety, and price stability of material inputs.

Shifting from traditional models to products-as-a-service can increase customer retention by building long-term relationships. Embracing repairability and incentivizing product takeback allows companies to generate revenue from repair services, remanufactured goods, or proper recycling/upcycling of materials. Adopting circular approaches can grow existing operations, mitigate external risks, and unlock new product and customer segments.

Outside forces are accelerating the transition to the circular economy

Many companies are reacting to outside forces and transitioning with urgency. Several of those could be mentioned here, but we’ll focus on two major drivers:

EU regulations: The EU has outlined the Sustainable Products Initiative which references a digital product passport that will communicate comparable environmental product information at the point of sale to consumers. Recent announcements around the Corporate Sustainability Reporting Directive explain that companies will have to disclose metrics to external stakeholders & investors related to their circular economy transition plan, among other sustainability metrics, as outlined by the EU Taxonomy. One drafted reporting requirement is the amount of the materials used in their primary products & services that are reused, recycled, and renewable.

Customer demands: The globalized economy means that even private, US-based companies are feeling the impacts from their broader customer base who have their own targets related to the circular economy. For customers to fulfill their goals, they need suppliers to be aligned to their sustainability strategy which may require increasing recycled and renewable content, improving repairability, or decreasing waste.

The path forward requires a focused, tailored strategy

In order to create resiliency for your business in the rapidly changing markets and regulatory environments, it is necessary to determine how circular principles can be incorporated into existing operations.

Given the breadth of the circular economy and increasing pressures, clients are often unsure where they should start. They understand they must do something but seek an outside perspective to assess where to focus and the specific actions needed to implement the change. An initial project phase can include:

This information is distilled as part of a materiality assessment that prioritizes where a company should focus their efforts for the greatest impact. These assessments provide insight into what the company needs to immediately enact, clarity on the reason why (upcoming regulations, customer demands, etc.), and a foundation for a roadmap outlining how these new objectives can be achieved.

The look and pace of the circular economy transition will vary across sectors, but the approach of assessing the landscape, focusing on the priorities, and tailoring the implementation will move companies in the right direction to achieve their desired outcomes of a compliant, profitable, and robust business.

About the author

Grace Cook is a Senior Consultant with Ramboll Management Consulting in the US where her work focuses on the circular economy transition. She develops solutions for clients from materiality assessments and target-setting to implementation and change management. She incorporates circularity principles across the full product lifecycle and value chain to prepare clients to drive change.