What is the circular economy and how can companies participate?

Contributed by: Gaurav Sharma, Lead of Circularity Consulting Practice, Schneider Electric

As of 2020, the world’s resource consumption was only 8.6% circular. This means that only 8.6% of the 100 billion tonnes of minerals, fossil fuels, metals, and biomass that enter the economy are re-used annually. This so-called ‘circularity gap’ is getting even bigger, and is a result of the deep-rooted linear economy mindset, where businesses and individuals take materials from the earth, make them into products that often have short lifespans, then dispose of the materials used to create the products by sending them to a landfill.

This way of doing business is unsustainable – not only for the environment but for the economy as well. Businesses are facing the need to transform their processes to shift away from the linear model and adopt circular economy practices.

Why?

Pressure for a sustainable global economy is growing in all facets of business. Customers, investors, partners, suppliers, employees, and NGOs are demanding that businesses transform their way of working to optimize resources and reduce emissions. Building a sustainable economic model that is more circular is a key piece of meeting this demand, as almost half (45%) of global emissions come from materials and product manufacturing.

The principles of circular economy are essential, paired with renewables and energy efficiency, to realize a net zero world.

What is the circular economy?

Circularity is an innovative way of doing business that can improve both sustainability and profitability. The circular economy, as stated by the founder of the Ellen MacArthur Foundation, is a “framework for an economy that is restorative and regenerative by design”. It challenges the notion that the corporate agenda has to be wasteful, and seeks to embed principles in business that design out waste and pollution, keep products and materials in use, and regenerate natural systems.

Creating a circular economy is not just for the environment. It’s intended to simultaneously improve business competitiveness by identifying cost savings and resilience, improving relationships with suppliers and customers, and helping act on climate change and sustainability commitments. The proof is in the numbers: the circular economy has been estimated to be capable of generating $4.5 trillion in economic value by 2030 and sustainable businesses are delivering higher returns than their peers.

Source : Ellen MacArthur Foundation

Examples of the benefits of circular practices for performance and sustainability

Many times, implementation of circular economy models into business doesn’t have to come at a cost or time premium. For example, just by asking suppliers for recycled materials, many businesses find that there were always recycled options available. Economies of scale are contributing to the affordability of using recycled materials: as more companies demand recycled products, they become increasingly accessible and competitively-priced (or cheaper) compared to virgin-sourced materials.

Equipment updates and procurement through a circular mindset can also result in cost-savings. Refurbished or remanufactured components and equipment usually come at a lower cost than new equipment. This reuse also results in materials and emissions savings compared to buying a new piece of equipment. In addition, a focus on prolonging equipment life by installing sensors and monitors can help reduce downtime and make maintenance more predictable, in turn reducing the total cost of ownership and improving production schedules.

Finally, the peace of mind and lowered pollution risk that results from embedding circular practices into business cannot be discounted. Employee and public reputation, investor perception of climate-related risks, and compliance needs are continually growing in importance for business bottom-lines.

Business leaders in circularity

When beginning down the circularity path in a business, there are plenty of industry leaders to look to for inspiration:

• Signify, the world leader in lighting, has a light-as-a-service offering whereby its customers only pay for the light while they use it, while the company manages, reuses, and recycles the lighting products. Through this innovative, circular approach to lighting, Signify’s customers can achieve zero waste and reduce maintenance costs by 60%.
• Cisco closes the loop on its products through its commitment to take back 100% of products at no cost. The company is tackling the end-of-life problem in the technology space and driving value for its customers by offering remanufactured products that come with a same-as-new warranty at a reduced price—keeping millions of pounds of material out of landfills.
• Timberland, an outdoor footwear manufacturer and retailer, is a prime example of eco-innovation and the path to 100% circularity in the apparel segment. The company has recently announced its global take-back program, which will allow consumers to return any Timberland products to a store to be repaired/refurbished or upcycled/recycled. It also gave a sneak peek of its new line of shoes, designed specifically for circularity.
• At Schneider Electric, we embed circularity practices across the value chain and in the products and services we provide to our customers. From sourcing green materials, to designing ‘circular-ready’ products (Green Premium™ Program), to sustainable and returnable packaging, to lifecycle services such as retrofit/repair/refurbish/recycling, to Energy Management-as-a-Service, the principles of the circular economy shape the entire ecosystem of our operations. In 2020, 75% of all of our sales were under our Green Premium™ Program, and we avoided 157,000 metric tons of primary resource consumption through retrofit, recycling and take-back programs.
• Start-ups: there are various up and coming circular economy start-ups innovating on different aspects of circularity. Schneider Electric has recently partnered on such an initiative to accelerate start-ups.

Recommendations to outline your circularity playbook

The right principles for the right purpose

Be clear on where you want to focus with circularity and what makes the most sense for your business. The same principles or activities may not apply to every business or product line a company offers. Apply the optimum circularity methodology to wherever you are in the value chain. For a consumer packaged goods company, for example, reducing packaging and making products fully recyclable would likely be the highest priority. On the other hand, for an equipment and machinery manufacturer, the most optimum circular loops would be prolonging lifespan and refurbishing.

In the case of a circular economy, one size certainly doesn’t fit all!

Clarify the expectations of circular objectives

Do you expect to use circularity as a lever to meet your Scope 3 carbon emissions targets? Adopting circular business models could result in a reduction of your value chain (i.e. scope 3) emissions. Or are there standalone business objectives behind the need to be more circular? For some companies, business resilience motivates the need to move towards more circularity with the drivers being scarcity of raw materials or components.

In Schneider Electric’s work with ArcelorMittal Belval, both of the expectations above were met.

Establish a baseline and set goals

Understand your industry’s benchmarks for the principles you are focusing on and examine what peers in your space are doing as well as what principles the best-in-class companies are adopting. Set business goals & KPIs for these principles using an end-to-end approach from design, to manufacturing, to end-of-life of your products.

Get your team on board

Identify internal stakeholders and teams across divisions to set a roadmap to achieve the goal. Circularity goals are often set at the executive level within an organization, but the real work to achieve the goals is executed by operational teams. Once the high-level strategy is set, it’s important to work bottom-up through the business to achieve the aspirations.  

Implement governance and policies

Policies and procedures help to standardize understanding and application of circularity practices your business seeks to implement across the business. Especially for large organizations where circularity can have a huge impact, good governance tools and guidelines can incentivize and simplify engagement with stakeholders across your sites.

Engage the right partners

Don’t hesitate to engage external partners to leverage best practices and avoid reinventing the wheel (no pun intended). Schneider Electric has extensive experience in implementing circularity practices throughout our own value chain, and we have been recognized for our progress. We channel this experience in our Circularity Consulting Practice, in which we apply real-world understanding to help companies identify and capture the value of circular economy throughout their value chain.

Watch this video to learn more about how prioritizing principles of the circular economy can drive market advantages, both in terms of cost competitiveness and value proposition.