Five Megatrends that Will Unleash Business Value in the Circular Economy
Leading companies like Veolia, DSM and SAB Miller are beginning to shift from the traditional linear “take, make, dispose” business model to a more regenerative circular economy framework. This transformation employs a systems level approach and intentional strategy to design waste out of the system and to manage materials for longer circulation and greater re-usability as pictured.
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The goal is to generate more value and economic opportunity with less material and energy consumption.
Value from the Circular Economy is generated using 4 principles:
- The Power of the Inner Circle – staying in the inner loops to save in terms of imbedded resources and impacts.
- The Power of Circling Longer – keeping materials in play through multiple cycling or by lengthening cycling duration to save on virgin material inputs.
- The Power of Cascaded Use – transforming materials across product categories to offset the need for virgin material inputs.
- The Power of Pure Materials – designing better products to facilitate reverse logistics and maintain material quality.
The business case for making the transition to circular economy and unleashing these values is strong. And here are five megatrends, as described in Retail Horizons (a joint project of Forum for the Future and the Retail Industry Leaders Association), that should help bolster the Circular Economy.
1. RESOURCE SCARCITY AND WATER INSECURITY
Today we consume resources 50% faster than they can be replaced. There won’t be enough supply for certain metals, like copper, to meet the growing global demand. By 2030, half the world could live in water-stressed areas. Obviously, these factors will lead to increases and volatility in material and energy prices.
Companies that use the circular economy “powers” will keep raw materials in play through maintenance, re-purposing or transforming them into entirely new product categories. For example, SAB Miller is turning brewing bi-products into inputs for other manufacturing. Veolia is using wastewater to produce bio-plastics. And DSM is promoting “circular supply” through development of cellulosic bioethanol from agricultural bi-products. The circular economy could generate over $1 trillion of annual material savings globally by 2025.
Over half the world lives in urban areas and that trend will continue to grow. In the US, the urban population increased by over 10% from 2000-2010 and by 2025 the largest US cities will generate more than 10% of global GDP growth. By 2030, more than ½ the global population will live in emerging market cities with even more concentrated urban growth in countries such as China.
According to the Ellen MacArthur Foundation’s “Towards a Circular Economy” Volume 3, concentration of populations in urban areas will unlock economies of scale needed to enable collecting and treating post-consumer materials for re-deployment. Urban concentration should also allow the cost of asset-sharing services to decline and thus expand opportunity for the collaborative economy and its associated “power of the inner circle.”
3. EMPOWERED CONSUMERS
With greater access to data and social media, consumers will have more information on product impacts and greater expectations around product sustainability performance. Havas Media’s “Meaningful Brands” reported the majority of consumers believe brands should help solve social problems and improve quality of life. The World Economic Forum’s “Engaging Tomorrow’s Consumer” show that millennials prioritize environmental impacts in their buying decisions. And the Regeneration Roadmap study highlights a large class of consumers they term “Aspirationals” that like to shop but don’t want to harm the planet in the process.
Consumers with a consciousness and access to the right information could become powerful assets in building the demand for the “power of pure materials,” products that are toxic-free and easier to reuse. They can be engaged to use and dispose of goods in more sustainable ways, and participate more effectively in the reverse logistics system. They can be instrumental in co-creating products and services that are designed to eradicate waste. Today’s consumers can become tomorrow’s suppliers in the circular system.
4. RISE OF THE SHARING ECONOMY
According to Retail Horizons, “Rather than buying new products to consumer, people are increasingly sharing or renting things…this trend could grow and continue to create a new form of consumer economy in which experiences and access to items are more desirable than ownership.” In the US alone, there is already a $26 billion sharing economy and globally more than 1/3 of millennials are using an asset-sharing service. Where there is excess capacity, trust, critical mass and technology to connect markets, this trend should continue to grow.
The sharing economy leverages the “power of the inner circle”, keeping products cycling in the market for as long as possible. Crowd Companies™ “Collaborative Economy Honeycomb” illustrates market opportunities emerging in this space. Consumers’ acceptance of renting or leasing versus owning products will create markets for businesses that offer services in place of goods. Companies adopting this “green servicizing” business model will have greater opportunity to manage the material flows of their products, create new business value and eradicate waste from the system.
5. COMMUNITY RELIANCE
Retail Horizons describes the trend of self- and community reliance where people “cherish the things the build more than the things they buy” and strive to provide more of their own basic needs rather than depending on multinational corporations and institutions. The increase in farmer’s markets and community gardens and makers markets are just some of the signals of the movement.
Moving towards more localized and self-contained markets offers great opportunity for people to live the Circular Economy founding principle of “Waste is Food” first-hand. Presumably, as people grow, make, use and dispose of more products on their own, they should have greater incentive to extract as much value as possible from their materials as possible. Technologies that enable people to be more self-reliant can also enable closing the loop. For example, in 3-D printing, even difficult-to-recycle waste like plastics can be used as inputs for customized, home-made products. Companies thinking about ways to serve households and communities to activate local circular economies will be ahead of the curve.