- The circular economy aims to keep products, as well as their constituent parts and materials, in circulation for as long as possible, in contrast to our current linear model.
- There is a strong business case to be made for circular models.
- The four building blocks of a circular business model are: the business model itself; circular product design; value chain cooperation; and organizational alignment.
The circular economy aims to decouple economic growth from resource consumption. It is seen by many companies, governments and not least by the European Union and its Green Deal, as one of the key factors in combatting climate change. The EU has set up an action plan on the topic.
Today, only 8.6% of the global economy is circular. Yet the case for a circular economy is strong: 45% of global carbon emissions are material-related – and a circular economy can help tackle this issue. For Belgium alone, capitalizing on this opportunity can generate €7 billion in added value and more than 100,000 jobs. Senior leaders are coming to grips with the opportunities the circular economy holds.
93% of CEOs today claim that sustainability is important to the future of their business.
A short introduction to the circular economy
The circular economy contrasts strongly with the current linear model, which typically discards products after their first useful life. The circular economy aims to keep the products, as well as their constituent parts and materials, in circulation for as long as possible. It does this by relying on a mix of circular economy strategies: recycling, refurbishment, repair and maintenance, and making products long-lasting. The idea is to extract the maximum value from them while in use and then recover and repurpose products at the end of their life.
- There are some well-established examples in today’s market: LOOP by TerraCycle offers fast-moving consumer goods (FMCG) companies the opportunity to join its platform which distributes products in reusable packaging containers.
- HNST Jeans, a Belgian start-up, brings sustainable jeans to the market with 50% post-consumer recycled denim fibers – and offers a takeback scheme.
- Atlas Copco opens up new markets by taking back and refurbishing used compressors and reintroducing them to the market.
- Miele has a spin-off service-based business called BUNDLES, offering washing machines as a service (for rent).
For more information on pioneering companies, the Ellen MacArthur Foundation collects case studies in a comprehensive database, with multiple examples of circular economy models.
How can we make the circular economy relevant for business?
If embraced and implemented well, a circular model can open up new business opportunities for companies. Research shows that building business models around the full lifecycle of products and components can:
- Generate up to 7 times more lifecycle revenue than just focusing on new sales.
- Reduce exposure to critical raw materials and material costs, which in turn can increase profitability.
- Decrease the environmental footprint of products by 60% to 85%.
These benefits require investment, strategic thinking and understanding of how the circular economy can be adapted in industries and value chains – as well as rigorous planning and implementation.
Source : Accenture Strategy & Sitra
How to excel in circular business model implementation
Generally, we see circular economy pioneers investing efforts in four fundamental building blocks when embarking on a circular journey:
1. Business Model - Organizations are regularly putting circular products onto the market without a clear strategic rationale. These initiatives should be captured in a circular business model with three guidelines:
(i) value must be created for the customer;
(ii) the organization needs to be able to benefit financially;
(iii) an organizational model should be included, that delivers these products and services.
At Möbius, we like to use The Circulator to develop winning circular economy business models.
2. Circular product design – Products that are specifically designed to be easily recycled, disassembled or reused can bring an economical advantage (example: the extreme modular nature of a Fairphone). The Circular Design Guide gives a comprehensive overview of circular product design principles.
3. Value chain cooperation – Circular value is hardly ever realized alone. Companies are partnering up with (non-)value chain stakeholders to deliver the necessary capabilities such as: service delivery, logistics, specialized end-of-life treatment or analytics for remote monitoring of appliances.
4. Organizational alignment – Businesses should align priorities within their own organizations to structurally launch and scale circular economy ventures. The most effective measures to build circular economy maturity are:
- Developing senior leadership understanding on how the circular economy can be of strategic value by reinventing customer relationships (e.g. based on service), opening up new markets (e.g. based on remanufactured appliances) or generating recurring revenue streams (e.g. based on servitization).
- Setting ambitious, longer-term targets for circular value creation. For instance, Philips is aiming to reach 25% of circular revenues by 2025 – or public buyers setting goals for circular procurement. The impact organization Circle Economy is a help for guiding the complex network of circular economy metrics.
- Challenging yourself in leading circular economy networks, like the Ellen MacArthur Foundation CE100, a global network of circular economy pioneers.
This article was adapted from the webinar ‘How to successfully transform into a circular business’ given for the American Chamber of Commerce in Belgium on April 22, 2021.
About the author
Mathias is a circular economy expert, with over 10 years of consultancy experience at Möbius. His expertise within circular economy business models is in strategy, economic analysis and value chain design. He has driven the sustainability transformation for global leaders in both the hi-tech and the chemicals sector.