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Circular Economy Approaches: Take Action Towards Profit and Purpose
Building and sustaining a healthy, resilient and profitable business requires long-term thinking, a clear purpose and a focus on creating value for people and planet.
Successful businesses are developing strategies for both profit and purpose, with action plans to chart a path from ‘take, make, waste’ to regenerative, circular sustainable approaches.
'Business as usual' is over
As we navigate our way through the global pandemic and local lockdowns, many of us are trying to imagine the ‘new normal’. People around the world are questioning things we’d taken for granted over the last few decades, and conversations are opening up new possibilities.
Leading thinkers, businesses, politicians and activists make statements like ‘capitalism is broken’ and ‘business needs a purpose beyond profit’.
This isn’t entirely new. Back in 2016, Mark Carney, Governor of the Bank of England, warned that people were disillusioned with capitalism, and unless something was done to help those left behind by globalization and the previous financial crisis, people would reject free and open markets.
Now though, we face more than an economic crisis. Our feeble response to the emergencies of climate change and biodiversity loss is in a giant mash-up with a global health emergency, creating a ‘ super wicked problem’. Crucially, all three problems are interlinked and global – the wellbeing of all of us rests on our collective response.
In other words, if we don’t do enough, we all lose out. Our future success depends on choosing a different mindset: a mission to do better for people and our planet.
Making the case for mission-driven 'moonshot' strategies
Economist Mariana Mazzucato says we need ‘mission-oriented’ policies for which the business case must go beyond cost-benefit analysis. Mazzucato reminds us that humans would never have walked on the Moon, had the Apollo space programme evaluation depended solely on financial benefits.
It’s becoming clear we need to change direction, and design a road map to harmonize the needs of people and planet. Rather than using up resources and damaging the earth systems we depend on, we must prioritize regenerative natural solutions and find ways to nurture both our living planet and our communities.
A mid-2020 survey of more than 3,000 people across eight countries found that, despite the pandemic, people are more concerned about addressing environmental challenges. People want to see aggressive action on the environmental front. In the survey, more than two-thirds of respondents said economic recovery plans should make environmental issues a priority.
People want to contribute individually, too, with 40% reporting that they intend to adopt more sustainable habits in the future.
People want businesses to 'do more good'
Business leaders are realizing that their stakeholders - customers, employees, suppliers and investors -want them to ‘do more good’. People are pushing for a shift away from the ‘linear’ model: where we take materials, make a product, use it and then discard it. When we think about the impact of those models, we see exploitation, destruction and waste at every stage.
Modern business models rely on fossil inputs (including fuels, plastics and petrochemicals), and are responsible for the use and release of ‘novel entities’ (e.g. organic pollutants, radioactive materials, nanomaterials, and micro-plastics). That, combined with the waste and pollution from modern industrial processes, disrupts the natural cycles that keep our critical earth systems in balance – providing conditions to help us survive and thrive.
According to UNEP’s Global Resources Outlook 2019, the extraction and processing of materials, fuels and food causes 90% of water stress & biodiversity loss and is responsible for over half of global greenhouse gas emissions.
Full circle back to stakeholder capitalism
Klaus Schwab, founder of the World Economic Forum, reminds us that stakeholder capitalism goes back a long way. Writing about his new book, Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet, Schwab says that ‘in the 1950s and 1960s, it was quite natural for a company and its CEO to consider not just shareholders, but everyone who as a “stake” in the success of a firm.’
He explains there was ‘a strong linkage between companies and their community, and people and organizations could only prosper if the whole community and economy functioned'.
As he says, that is the core of stakeholder capitalism: where companies optimize short-term profits for shareholders, and seek long-term value creation, by accounting for the needs of all their stakeholders, and wider society. It’s a reminder that business is a subset of the planet – not the other way around!
Writing for Inc.com in 2019, Maureen Kline suggests the business case for creating stakeholder value is already proven. Kline says ‘without creating value for a variety of stakeholders, and without mitigating the risks associated with subtracting value from stakeholders, a company can't deliver profits to shareholders anyway, at least not over the medium to long term. Creating value for stakeholders, when managed strategically, doesn't take away from enhancing profits for shareholders, it adds to it. It is part of good management.’ She reminds us that ‘this is not a zero-sum trade-off.’
Profit comes from loyal customers, not 'selling more stuff'
Enlightened business leaders realize that strategies focused on ‘sell more’ are not ‘future-fit’. Reducing costs, encouraging short product lifetimes and even planned obsolescence, is not the way to build a loyal customer base.
Management guru, W. Edwards Deming said: ‘Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.’
Some businesses have ignored this. Instead, they continue to invest in R&D to develop new, exciting product releases, and sophisticated marketing to attract new customers - all with the aim of ‘selling more’ to grow revenue.
I sense that most companies don’t measure the cost of customer ‘churn’. Nor do they quantify reputation damage from disappointed or disgruntled customers, annoyed that the product broke down just after the warranty expired, and outraged that repair is costly, complex or just can’t be done. Customers may be irritated to realize your packaging consists of difficult-to-recycle petrochemical plastics – and that there’s so much of it.
A further threat is the arrival of disruptive circular start-ups, with resource-efficient designs, highlighting the excessive resources embedded in everyday products. For example, the Splosh concentrated household cleaning products shine an unwelcome spotlight on the 70-85% water content in comparable big-brand products. Splosh offers refills that fit through your letterbox, and you can choose to subscribe or use a smart ‘app’, making it even easier to refill everyday cleaning products.
Circular economy approaches to help build a better business
UNIDO (United Nations International Development Organisation), sees that ‘one approach to sustainable development has gained traction among economists, policymakers and business people’ - the circular economy.
Although there are a range of circular economy conceptions, UNIDO says ‘they all describe a new way of creating value, and ultimately prosperity, through extending product lifespan and relocating waste from the end of the supply chain to the beginning - in effect, using resources more efficiently by using them more than once.’
I believe the circular economy is the best tool we have to design a better world. Using circular approaches to guide how we design products and processes, select materials and create business strategies helps create the elements of a ‘virtuous circle’:
- We regenerate resources and living systems, by opting for recycled or renewable materials and production inputs and by ensuring these are recycled or regenerated within the lifetime of the product. This helps to draw down carbon, support biodiversity and rebalance the biogeochemical flows (e.g. phosphorus and nitrogen cycles). Circular&Co makes its reusable Circular Cup from recycled takeaway cups. Even better, it’s designed to last for 10 years and can be returned at the end of its life for recycling into a new cup.
- We design and make circular products. These are high-quality, durable and repairable, able to be remade, resold and eventually recycled. That opens up new revenue streams (e.g. for servicing, remanufacturing and so on) and create new markets for pre-used products. Patagonia partners with iFixit to help you care for your outdoor gear and repair it ‘in the field’. Its WornWear program helps you recycle old gear or buy pre-used Patagonia stuff.
- We engage customers, suppliers and employees through relationship-focused business models. These new circular commercial models include subscription, pay-per-use, product-as-a-service and performance contracts. We mentioned Splosh earlier, and subscription models are taking off across fashion. For example, OnLoan rents ‘curated designer wardrobes’ for women, and Bundlee provides rental subscriptions for high-quality baby clothes. Even industrial chemicals can be provided through leasing models!
- The result of those approaches means we build a strong reputation for ‘doing more good’, so creating a resilient, healthy and profitable business. And that means we continue to do more good, regenerating additional resources and ecosystems in the next cycle.
Take action towards sustainable profits
You may be driven by the threat of resource insecurity, being disrupted by competitors or worried about reputation risk from ethical issues in your supply chain, or excited by the possibilities of new markets, new services and stronger relationships, nothing will change without action.
I encourage my coaching clients to begin by cultivating a circular mindset. Look around and reflect on the issues affecting your organization. What trends and headwinds can you see? Ask your employees – especially the younger ones – and find out what they’d like to change.
Then, pick some ‘quick wins’ and start discussing your long-term mission to create stakeholder value, to design out waste and pollution and find ways to slow the flow of resources through our system. How could your business regenerate resources, nature and communities, to make a better world for all of us?
As Algramo (one of my podcast guests), a start-up now working with Unilever, Colgate-Palmolive and other big brands to solve the ‘poverty tax’ through selling reusable packaging, says: Be part of the solution, not the pollution!