My colleague Conor and I drafted a proposal recently on a waste management business – the business participates in something called “the circular economy”. Not knowing what this meant, I researched the market and found that the practice falls well within the ESG landscape Polestar is always talking about.
What is the Circular Economy?
The circular economy is a model of production and consumption which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended and reimagined as a circle.
The circular economy is based on three principles : (1) Eliminate waste and pollution, (2) Circulate products and materials (at their highest value) and (3) Regenerate nature.
It implies reducing waste to a minimum. When a product reaches the end of its life, its materials are kept within the economy wherever possible. These can be productively used again and again, thereby creating further value. This is a shift away from the traditional linear economic model which is based on a take-make-consume-throw away pattern. This model relies on large quantities of cheap, easily accessible materials and energy.
A key area of our proposals is to understand what drives the market. For the economy, the drivers are very similar to other markets that are aligning with ESG policies:
1. Consumer changes
Circular solutions offer new ways to engage with consumers. Sustainability is especially important for generations Y (or millennials – born 1981-1996) and gen-Z (born 1997-2012). Falling within that range, I can attest to that. Most of my peers and I pay closer attention to environmental performance of companies, bother when purchasing products but also when choosing an employer. This aspect of consumer change will be crucial for companies moving forward, as young people will make up the future cohort of adult consumers with purchasing power.
Tying into Industry 4.0, technological advancement has accelerated the development and implementation of circular business models, driving new processes, new communication channels and new operational efficiencies that enable the decoupling of resource use from economic growth across industries and on a global scale.
We are seeing this everywhere (healthtech, edtech, etc,) so the waste management industry is no different. Here are two examples I found while doing research:
Lehigh Technologies: This Atlanta firm turns old tyres and other rubber waste into something called micronized rubber powder, which can then be used in a wide variety of applications from tyres to plastics, asphalt and construction material. Five hundred million new tyres have been made using its products, earning it the Award for Circular Economy SME.
Close the Loop: This Australian company has spent more than a decade recovering value from old printer cartridges and soft plastics. Their new innovation turns these materials into roads. The products are mixed in with asphalt and recycled glass to produce a higher-quality road surface that lasts up to 65% longer than traditional asphalt.
3. Environmental Regulation
Environmental regulation has also accelerated the growth of the circular economy. As more countries are committing to a net-zero carbon goal, a circular economy development path could halve carbon dioxide emissions by 2030 In particular, the UK could reduce greenhouse gas emissions by 7.4 million tonnes per annum by keeping organic waste out of landfills.
The circular economy could result in a reduction of primary material consumption by 32% by 2030, thus improving land productivity and soil health.
4. Profit impact on companies and the economy at large
Not only will the circular economy reduce greenhouse gasses, but also the cost of production, which is a win for a lot of companies. Economic growth by GDP would be achieved through a combination of increased revenues and lower cost of production through more productive utilisation of inputs. The circular economy will also tighten up companies’ supply chains by using fewer virgin materials and more recycled inputs, reducing a company’s exposure to volatile raw materials prices.
According to the Ellen MacArthur Foundation, it is estimated that in the sectors of complex medium-lived products (such as mobile phones and washing machines) in the EU, the annual net-material cost savings opportunity amounts up to USD 630 billion. For fast-moving consumer goods (such as household cleaning products), there is a material cost-saving potential of up to USD 700 billion globally.
In addition to cost saving, the transition to a circular economy could help the economy at large the additional of new jobs. There is a positive employment effect due to spending fuelled by lower prices, high-quality labour-intensive recycling activities and higher skilled jobs in remanufacturing. New jobs will be created across industrial sectors within small and medium enterprises, increased innovation, and a new service-based economy.
The circular economy is a perfect example of an ESG focus. Not only will it tighten supply chains, lower production cost and help the environment, but it also shows a future how innovation and technology has allowed us to impact sustainability. As they say, one man’s trash is another man’s treasure!