06 June 2017
John Elkington identified several years ago a concept known as the ‘Triple Bottom Line’1, which then became popular in management books and corporate responsibility statements. While traditionally the only bottom line is that of ‘Profit’, we have instead ‘People, Planet, Profit’.
The assumption is that it is possible to design and implement governance and initiatives that respect all three, by taking into account the impact not only on the pockets of the enterprise, but also on society and environment of the economic activities in any enterprise, both quantitatively and qualitatively.
The relatively new concept of circular economy fits within this world view. It starts from observing how everything circulates within ‘Starship Earth’: almost every bit of living matter returns to the environment and then becomes life again, in an endless cycle. There are no externalities, outside of the energy provided by the sun and the heat radiated out naturally by the planet. There is no waste. Why then, some ask, can’t this be applied to our human economy? We can reduce waste or feed it into other production processes, upcycle materials, repair, share and restore: overall resources are kept for as long as possible2. Not only can this type of thinking preserve our resources and environment, it can increase profits too by allowing for more sales, less expenses and greater security from ‘shocks’3 4. McKinsey estimated that Europe’s benefits could tally up to €1.8 trillion by 2030 if its economy started a transition toward one that is more circular5.
In this post we will explore the principles of the circular economy and how they are applied concretely in some specific cases, with the prospect of giving an idea on how entrepreneurs can apply disruptive innovation in this framework. The Ellen MacArthur Foundation summarises the circular economy in three principles and this division will be used in this post, meant as a rough and broad overview6. It will mostly look at the economic side of things, although some schools of thought indicate that considerations of human sustainability must also be made.
The first principle states that “Natural capital should be preserved and enhanced”. This means a better utilisation of natural resources, and the use of technology and policies that allow for their regeneration, or avoiding their use and the generation of waste in the first place. One example in the drink industry is that of the omnipresent plastic bottle. Manufacturers have been trying to push for alternative materials and for improved recycling, trying to tackle the waste problem at the end of the line. In answer to this, Skipping Rocks Lab developed the Ooho, an alternative (and edible) bubble container for drinks, made from biodegradable materials. This means that it’s not necessary to use plastic in the first place and also removes the need to collect and recycle the container, with the consequent energy expenditure and pollution that comes with that. Another case is that of Tomato Masters, a firm that integrated tomato agriculture and aquaculture, which allows them to integrate energy and resources streams, enhancing both these natural resources and therefore making the venture more sustainable by avoiding the heavy water pollution that aquaculture often brings. Waste here becomes a resource for another part of the process. The removal of a resource from the flow can also be implemented through the virtualisation of a service, such as Netflix for video rental (no more plastic VHS lying around and slowly decaying) or Dell consolidating customers into virtual servers, which eliminates the need for a large number of physical ones7.
The second principle is to ‘Optimise resource yields’, which means allowing tight loops between those who make and those who use, repairing and sharing. This often involves changing the model of ownership and most importantly the relationship between the manufacturer and consumer, by tackling the mode of product delivery, product care and offering opportunities to extend the lifetime of a product. The sportswear company Patagonia pioneered this field by not only offering repairs for the lifetime of a product, but even actively partnering with non-profit organizations to help users repair their products at home8. Similarly, Splosh disrupts the usual model by which shampoo and shower products are bought in throwaway containers. The company sells these products in the form of concentrates, allowing the user to save the bottles for multiple uses. Washing machines are one of the staples of modern consumer society, and Hans Rosling even stated it was the greatest invention coming from the industrial revolution, for the social role it had in freeing women from the chore of doing laundry. A company called Bundles certainly is trying to disrupt this heavily consolidated type of ownership. Bundles does it by leasing the washing machines instead of selling them. They have different options that allow the user to pay per wash, taking care on their end of all the maintenance and upgrades. This innovation is also proposed by large manufacturers. As an example, Philips refurbishes its medical machinery, changing a minimal amount of components to provide up to date medical equipment and allowing for leasing and other models of ownership9. Furthermore, we talk about “cascading use”, meaning that a raw material should be used multiple times. However, this means more reuse than recycling, and it is often said that recycling should be the last resort in a circular economy, as it is energy intensive and degrades the quality of the base materials, such as for plastic or electronics, whose recycling often involves further pollution. This is exemplified in Re-tek, which takes in electronic and IT devices that would otherwise be thrown away, and recovers up to 80%, making it available to other markets and often recovering individual components and materials10.
The third principle, ‘Foster system effectiveness’, can be summarised as dealing with inefficiencies and removing negative externalities by design of process or product. In a relevant case, the Balbo Group in Brazil manages large scale intensive sugar cane farms that eliminated many small inefficiencies. This allows them to return organic matter to the soil so that external inputs are needed less, thus regenerating rather than depleting the soil11. A reduction of inefficiencies also means a reduction of materials discarded in transport, and of the frictions in the system. This can also be done on the small scale by many different individuals and SMEs, resulting then in very large gains. The Courtauld Committment is a voluntary commitment from the hospitality, food and drink industries in the United Kingdom to tackle inefficient use of packaging and food waste. Through an advisory programme and assistance in supply chain management, it is estimated it will have saved over £20 billion by 202512.
These three principles are only a small overview the circular economy, and in fact several examples appearing in one section could as well appear in the others. This should only show how tightly integrated these principles are, and how management and technology can at the same time benefit on multiple levels both the wallet and the planet. However, implementing these principles is a challenge in itself. Cultural and regulatory obstacles are present, and policies in some cases are not fully tackling them13. Furthermore, circular economy enterprises must also make convincing cases even from the perspective of the classical linear economy and overcome the resistance of those in the market14. Concepts of circular economy are finding an audience in both government and the corporate world, so it is highly likely that innovators and inventors will have plenty of opportunities to disrupt and contribute to the expansion of a more sustainable economic model.
About Haidin Rashid (Founder of Materialize.X)
Haidin Rashid, a design and engineering student at Imperial College London and founder of Materialize.X