Circular business models are very well possible

03/02/20

Circular business models are now proving themselves in practice, says Taco Bosman, PwC's circular economy expert. Together with Jan Willem Velthuijsen, Chief Economist at PwC Netherlands, he co-authored a report which shows how the circular economy is now becoming the ‘new normal’. Jan Willem Velthuijsen adds: 'Our study describes ten strategies with examples that organisations can work with.'

The circular economy means organising our economy in such a way that it is attuned to the productivity of natural systems; that is the essence of circularity in the words of Taco Bosman. He is convinced that a healthy global economy can respect the laws of nature. 'That it is indeed possible, as is now evident from a multitude of practical examples. And it's very clear that we need to work towards that goal.'

Ten strategies for circularity

Jan Willem Velthuijsen refers to a figure from the study The road to circularity: why a circular economy is becoming the new normal presented today. The matrix shows ten strategies that organisations can apply in order to become more circular. It is a starting point for a discussion on how circularity can be put into practice within any organisation. The report answers the questions that organisations are asking us: what can we do concretely to become more circular? What is possible in our industry and in our specific context? This figure shows that there are many ways to move from a linear model to a circular one.

CE initiatives	Definitions

1	Circular sourcing	Replace finite resources / materials with renewable, bio-based, or recycled materials in the production process.
2	Sustainable design	Design products such that they can be effectively disassembled, reused, repaired and up-cycled.
3	Resource efficiency	Optimise usage of raw materials / resources - minimise waste - in the production process.

CE initiatives	Definitions

4	Product as a service	Provide a service in areas that were traditionally sold as products; increase the product lifecycle through repurposing at the end of usage.
5	Sharing / virtualising	Share durable assets such as cars, rooms, appliances, and digitise products to increase their lifetime.
6	Usage optimisation / maintenance	Increase performance / efficiency of a product and prolong life through maintenance.
7	Reuse / redistribution	Purchase and sell second-hand and previously owned products.

CE initiatives	Definitions

8	Refurbishing / remanufacture	Remanufacture products or components for a new usage, instead of down-recycling.
9	Industrial symbiosis Recycling from manufacturing	Waste or by-products from manufacturing become the inputs for another product.
10	Recycling from consumption	Recycle discarded materials after the end of consumption.

Ten case studies

Ten strategies are presented and clarified in this latest report, which also contains examples of how organisations can apply them. Encory, for example, a joint venture between BMW and recycling organisation Alba has streamlined the logistics, processing and marketing of used car parts. Bosman: 'This is an example of remanufacturing. This is an important strategy, because when products are at the end of their first life cycle, you want to retain as much of their built-in value as possible by remanufacturing rather than recycling or discarding. Most of the value can be found in products such as car parts that have a medium-term lifespan and are relatively complex. If you know how to make use of that product again, value is retained and there are obvious benefits to both the environment and to the organisations behind it.

Economic benefits of sustainability

In the Encory example, we see that IT solutions are crucial to enable a reverse supply chain. In this sense, circularity can be a driver of digitisation in organisations. It can be an enabler for digital innovations that benefit both the business and the environment. Another economic benefit of circularity that it increases the attractiveness of a brand. One other advantage is that organisations with a circular business model are naturally less sensitive to increases in the price of raw materials and to the pressure of regulations.

Time to act now

Bosman talks about the work he does for clients. Product and process innovation, setting goals, measuring progress and impact, are all part of the transition to a circular system. Taking all this on board is a rather complex task. But as Ellen MacArthur concluded in her TED talk on circularity in 2015: "Now we can do anything, and more importantly, now we have a plan": there are now point of views on recycling for every sector, clear dots on the horizon with strong business cases. It’s not without reason that we see the circular idea rapidly becoming the new norm for large parts of the business community, for governments and for citizens worldwide.

Circularity is necessary

The need to close loops in our current production system is explained in the first part of the study. Bosman refers to a figure with the earth's nine planetary boundaries. People are inclined to think about sustainability in a compartmentalised way rather than at a systems level. But the plastic soup in the ocean, climate change and the decline in biodiversity are interrelated consequences of a linear production model. We are now also seeing solutions that contribute at the system level. For example, take the new plastic economy based on recycled and biodegradable plastic: it consumes less energy; it therefore emits less CO2 and causes less pollution of the ocean and of the food chain.

Economic and cultural pressure

Velthuijsen: 'The increasing environmental degradation and the subsequent scarcity of raw materials in the linear system have economic consequences. Europe is the only continent that has to import virtually all its raw materials. That alone is an important driver for us here in Europe to transition to a circular way of running our economy. Our environmental regulations are much more stringent than in other parts of the world and we are making serious adjustment to combat global warming. Organisations have to operate within these stricter limits. In addition, there is a generation of secondary school children who are asking us to treat the environment properly. The societal pressure to take up the subject is already great and is growing.

Hopeful observations

At the same time, the need for change is accompanied by encouraging observations, says Bosman: 'In an hour, as much solar energy reaches the earth as we consume in a year. With responsible use, nature produces enough biomass - food and materials - to meet the needs of a growing world population. And re-cycled materials, such as metals and minerals, can be used again and again as "new" raw materials for industry, thanks to smart use and reuse. In short: a circular economy is possible if we repair the design flaws in our linear economy'.

PwC Netherlands fully circular in 2030

According to Bosman, in addition to being a necessary condition for business continuity, circularity is also nothing less than an ethical issue for organisations. This awareness has also grown within PwC. PwC Netherlands has the ambition to be fully circular by 2030. We are taking many measures to achieve this. One of the most important of these is that we are pricing our CO2 emissions at 100 euro/tonne CO2 internally. That way there is room for investment and we are more inclined to opt for the sustainable alternative. We consider our circular ambition to be very important for our credibility and we invite all parties in our ecosystem to join us on our circular journey.

'There are now points of view for recycling for every sector, clear dots on the horizon with strong business cases. It is no coincidence that we are seeing the circular idea rapidly take hold worldwide with large parts of the business community, governments and citizens'.

Taco BosmanPwC