The concept of a circular economy is quickly becoming widely accepted in the business world. But, as Interface’s European president and CEO Rob Boogaard argues, there is still more conversation around the topic than action.
In a truly circular economy, instead of making products from new materials and disposing of them after use, supplies will be continuously recovered and re-used, thereby eliminating waste and making better use of resources. Aside from being good for the environment, this has business benefits too – such as cost savings and business continuity by decoupling growth from the reliance on scarce raw materials.
The concern is that many companies see the circular economy merely in terms of providing a recycling service to customers and an opportunity to produce slick brochures and case studies to showcase successes. Others try to tackle the issue by reducing it to the development of a “green product” without doing the hard work internally to eliminate any negative impact on the environment during the manufacturing process. At Interface we don’t believe that anybody, ourselves included, can make a green product in a brown company.
If business is to make meaningful progress towards a thriving low carbon economy then business leaders need to be more aspirational and focused on their desired outcomes.
Opportunities presented by the circular economy extend far beyond take-back and recycling schemes. They embrace a much wider range of activities, require broader thinking and truly innovative developments.
Below are my thoughts on how we can take current thinking to the next level:
1. A new core competence
When you adopt circular principles, your business requires a newly integrated set of core competences, including design, R&D and procurement. Not only will your existing teams be required to embrace the journey, the freshly created teams will be required to guide the company and mould this new way of working.
As an example, circular thinking starts in the design phase of a product, which must take into account the growing market of innovative separation technologies. One of the potential barriers to a circular economy is that materials get closely bound up together during manufacturing processes, often making it extremely difficult to separate them after use. Besides insisting on circular design, business leaders need to make a conscious decision to focus on finding or developing technologies to unravel these elements. Waste separation experts, Nihot, regularly create new ways to separate materials using just air and could provide an alternative view into your business and enable you to achieve a truly holistic vision.
Ultimately, a growing company needs more raw material than recycling their own product can provide. Therefore, research and development needs to go further by scavenging waste from other sources, increasing access to raw materials and reducing costs. As an example, within Interface, we examine all of our waste for re-use. We discovered Polyvinyl Butyral, a kind of resin, from laminated glass for use as a cheap substitute for latex could be used to bind carpet tile. Also by scavenging discarded fishing nets from rural communities in the Philippines and Cameroon we have found a new source for nylon. Today, around half our raw materials are recycled: a mix of our own end-of-life products and scavenged waste from others.
Supply and demand for recycled material will change the access and price so business leaders must think about establishing new core competencies to ensure they remain competitive in their market place.
2. Streams of pure material
When businesses think of recycling, they often focus on ‘downcycling’ – converting materials into a new product that is of less use or lower value. This could be due in part, to traditional contamination of materials during the recycling process however, technology is beginning to allow the purification of materials in a way that has never before been possible. As a result, there’s an opportunity to move away from downcycling and focus on generating streams of pure material that sells at disproportionately higher rates than contaminated counterparts.
In cases where this is not possible, it is important not to just think of materials in the form that they once inhabited. Many things change properties by the end of their life cycle. Old bricks, for instance, while superficially of less value than new ones, can attract high prices for their worn quality. If business leaders think laterally, commercial applications for many end-of-life ‘changed’ materials will open up the door to new revenue stream opportunities. An interesting example is Rotterzwam, a Dutch company that uses ground coffee bean waste as fertiliser to grow mushrooms.
3. Sharing idle capacity
A circular economy is about making the most of our products and infrastructure, especially when they are being left idle. The Internet makes it easier to connect the people who have something to others that need it. Organisations including Uber and Air BnB have been set-up to encourage individuals to use and re-use each other’s assets. Whilst they don’t own any of the services they are prospering, the success of their approach relies on the desire to cut down on clutter and aspire to a new way of doing business. The hugely successful, service-led economic course of these newer businesses (Uber was recently valued at $40 billion) provides a learning for leaders to examine their assets and look at smart ways of use and working.
New organisations are challenging the original manufacturers and the old service industry by enabling consumers to share their idle properties. This consumer success can be transferred into an industrial setting to unlock a thriving element of the circular economy.
The notion of idle capacity also offers opportunities for the retail sector to expand into renting or pay-per-use space. It’s known that the average drill sold remains idle for 99.9% of its life, which is a waste of resources. So how can a revenue stream be generated from this so businesses are best using their assets and the resource that went into creating it? The idle capacity scenario plays out in businesses each day, so the true innovators are the ones that examine where the disruptive opportunity occurs and how they can get the best value from it.
4. Jobs are good
Electronics manufacturers are sourcing costly and rare raw materials from a multitude of regions when they could be extracting huge quantities of those materials from old products that have already been thrown away.
There’s more density of some rare materials in old mobile phones, for instance, than there is in the mines from which those materials are currently being extracted. Companies will choose the road of least resistance, which usually means the virgin material mining option, which gives a result of greater efficiency and lower cost.
Today, labour is highly taxed while the use of energy and material gets a virtually free ride in comparison. This means that our tax system is a polar opposite of what makes a circular economy thrive; more labour, lower energy and material use. Rebalancing the tax burden is a key accelerator of a circular economy and should change the financial equation to make it worthwhile to mine end-of-life products for precious material. A founding principle of a circular economy is that it creates jobs close to home, so examining your entire value chain is essential for business to play a pivotal role in future-proofing the job market.
5. Pay for use
A circular economy promotes the commercial model of paying for use instead of ownership. Circular thinking changes the definition of residual value, so financial institutions need to work alongside the industry to bring new, innovative ways to the economic value chain and enable new use/ownership models. This should then bring a huge benefit with new financial service opportunities to the wider market and a further accelerate of a low carbon circular economy.
6. Accelerating a circular economy
Governments, both at a national and EU level, are busy negotiating targets to combat climate change. They hold two trump cards that can generate results beyond their most ambitious targets, but will they choose to play them? Firstly, Governments can insist on publishing the “magic metric” of products, the imbedded CO2 per unit to provoke competition and innovation. And secondly Governments could opt for favouring low carbon products with a differentiated tax percentage, triggering customers to change their buying behaviour.
The EU has already initiated a great example in the car industry, which now has to publish the CO2 per kilometre for each model. Differentiated tax levels now favour low CO2 models in several European countries. At Interface, we have independently certified Environmental Product Declarations (EPD) for all of our products worldwide. Tax differentiation will move the market towards our most sustainable products, beyond the customers who already today make responsible purchasing decisions.
In conclusion, business leaders must ensure we don’t reduce the circular economy to become yesterday’s old chip paper. The course of change is never smooth, but it requires you to uproot fundamental assumptions of your business, add a strong dose of conviction when you assess a business case and be determined to build a new core competence that future-proofs your organisation and the wider economy. It’s time to act now because by doing this well, business leaders can do true good in their markets.
Rob Boogaard is European President and CEO at Interface