Sponsor

Circular economyNew business models that generate revenue and create sustainable growth

Management briefing

Summer 2015

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING 2

Contents

This report is produced by Innovation Forum1 Rivington Place London EC2A 3BA | www.innovation-forum.co.uk | +44 (0)20 3780 7430

Editor: Design: Images: Ian Welsh Alex Chilton Design Dreamstime.com, unless credited

About Innovation ForumInnovation Forum was founded in 2014 by Toby Webb. Making up the team are Oliver Bamford, Natasha Bodnar, Charlenne Ordonez, Boris Petrovic and Ian Welsh.

Welcome to Innovation Forum’s new report on business and the circular economy.

This is the latest in our series of focused management briefings on the key business issues.

In this report we have insight from some of the companies that are pushing the development of circular economy concepts and from commentators and NGOs. These companies are leading the way in utilising circularity to make savings in existing business models, and also to develop entirely new revenue streams from under-used resources.

Our sincere thanks to Accenture Strategy for sponsoring this report and our recent conference in London.

Toby Webb Ian WelshFounder Editor

3 The circular economy revolution Peter Lacy, Accenture

4 Valuing resources and growing economies Circularity’s market forces

6 Circular economy data digest Innovation Forum’s guide to the key facts and stats

8 The collaborative approach Risks and rewards of working with partners

10 How to grab the circular advantage Q+A with Peter Lacy

12 The EU’s new approach Ambition can lead to success

13 Upcoming Innovation Forum events

COVE

R IM

AGE:

LN

ZYX

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

A radical departure from the old linear “take, make, waste” production

and consumption models, the circular economy instead decouples growth from the constraints of natural resources and environmental impact. Better yet, it’s a virtuous circle prompting companies to double down on innovation and customer value.

As business today moves away from a mindset of doing “less bad” in terms of their sustainability practices, the question becomes, what does “good” look like?

For us at Accenture Strategy, on environment, the answer lies in the circular economy. We think of it as the ultimate virtuous circle that isn’t just the right thing to do for the planet, it also serves as an engine for growth and innovation for business.

Waste to wealthJust how much potential does the circular economy hold? According to our own research, turning waste into wealth will be worth $4.5tn in the next 15 years for businesses globally.

That’s not just waste in the tradi-tional sense of rubbish, but the enormous underutilisation of natural resources, products and assets. It’s about eliminating the very concept of “waste” and recog-nising everything has a value. While not a panacea for sustainable development, it is a major opportunity for transformation.

In our extensive research over the last two years and across hundreds of comp- anies, we uncovered five business models that not only drive profit through mitigating waste, they also drive profit by fuelling new sources of innovation, and by bringing businesses much closer to customers.

Product as a service is one such model. By putting sensors in products, a dishwasher for instance, companies can better analyse and understand performance, wear and tear and maintenance issues.

Information flows again and again back to where the most can be made of it. It’s a shift in the usual company-to-cus-tomer dynamic that brings the end consumer into much closer contact. And it allows companies to discover exactly what buyers care about and how exactly

they’re using products and services – which becomes a source for improvement and innovation.

Digital: edge of the circleJust as the steam engine powered the industrial revolution, digital is powering the circular revolution. Across every link of the value chain from the backend (providing the technical platforms that allow data gathering and sharing) to the front end, (payment, customer service, etc) cloud, mobile, social, machine-to-machine communication and big data analytics allow for new levels of automa-tion and coordination.

Adopting the virtuous circle of circular practices is about gaining competitive advantage by doing away with the broad concept of waste. Yes. But as important – or perhaps more – it’s about gaining unprecedented insight into consumers by adopting business models engaged in every link of the value chain. Along the way, gaining an edge from the circle means getting much more agile, adaptive and aligned to customer need. ★

3

Circular economy benefits

The virtuous circleThe circular economy may be the biggest revolution in the global economy since traditional production and consumption models were forged in the industrial revolution, says Peter Lacy

Turning waste into wealth will be worth $4.5tn in the next 15 years

Peter Lacy is global managing director of sustainability services at Accenture and a member of the Accenture Strategy leadership team. He is co-author of Waste to Wealth: Creating Advantage in a Circular Economy, published in 2015 by Palgrave Macmillan.

Accenture Strategy is a sponsor of this report and of Innovation Forum’s June 2015 circular economy conference.

Peter Lacy

First the easy part: the concept of the circular economy is now well

understood. Its basic principles have been taken onboard by many large companies thanks to the work of organisations such as the Ellen MacArthur Foundation and its Circular 100 network, which is spreading the word to senior corporate management.

Also, market forces are providing a strong following wind that is pushing companies in the direction of the circular economy. Global competition means resource scarcity, and in some key strategic areas, such as energy, there are supply security concerns.

This means that even the least sustainability-focused companies are having to consider their options. It makes sense for all companies to think about how they can get more value from the resources at their disposal, rather than allowing that value to end up in an incinerator or landfill site.

Dustin Benton, head of energy and resources at think-tank Green Alliance and co-author of a recent study on the circular economy in the context of smartphones and other devices, says that

moving to a more circular approach is a “classic change problem”, and for some companies, “change is going to feel scary”.

But “the market signals are scary already”, he says. The main obstacle companies face in going circular is “simply thinking that you can continue doing business the way you did in the past”.

Help at handTo help companies, there are established circular economy business models that they can opt for, depending on their particular circumstances and what suits them best. Moreover, there are plenty of examples, pilot projects and case studies to inspire executives. “There are lots of evolutionary, relatively easy things to do,” Benton says.

Some sectors have been doing the circular economy for years. Many businesses, from photocopier suppliers to shipping, are based on leasing, meaning that the owner of the asset has an incentive to reuse it continually. Michelin, for example, has leased tyres on a “pay per mile” basis since the 1920s, giving the company a reason to make tyres that are as durable as possible.

Jakob Rutqvist, sustainability manager at Accenture Strategy, says that “one of the key arguments in favour of the circular economy is that it’s easy to get started. Not only that, often you are doing something already.”

Rutqvist, along with Accenture Strategy’s global managing director of sustainability services Peter Lacy, is author of a forthcoming book on the circular economy that details five business models companies can look at.

Model approach The first of these is circular supplies, or the use only of recyclable, renewable and biodegradable inputs in the production system. The second is resource recovery, under which end-of-life products are collected and returned to the value chain. This may involve cradle-to-cradle processes with, for example, old carpets being reused to make new carpets, or may imply use of waste in other processes, such as the conversion of food waste to energy through anaerobic digestion.

Third, companies could focus on product-life extension, or generating value from repair or remanufacturing of products, rather than simply their replacement. This could evolve into the fourth model of product as a service – the classic leasing model in which the company does not give up ownership of the product in the first place.

Finally, companies could investigate sharing platforms, or use of under-utilised capacity. This is being done currently with car-sharing schemes, and by new businesses such as Airbnb, which uses the underutilised capacity of people’s spare rooms to provide accommodation.

There may be sub-models and subtly different models in different sectors. For example, Dustin Benton highlights six models being used for smartphones, tablets and laptops. For these products, a variation on the product-life extension model would be “software-led longevity”, or better contracts for provision of software updates to devices to prolong their useful lives.

However, the starting point, Rutqvist

4

The thoughtful route to circularityBy Stephen Gardner

Moving to a circular-economy model of business could be both easier and harder than many companies think

Market forces are pushing companies in the direction of the circular economy

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

says, should be to “do an overview of activities that you are currently doing and the performance of those” in the context of the possible business models. This can help companies “understand where the focus should be in terms of wasted capacity and identify what to do”. Companies might be surprised what they find.

Challenge aheadSo far, so straightforward. Most companies should be able to find starting points that at least lead to some improvements. But now comes the difficult bit.

Moving to a circular economy implies major change. Stephane Arditi, products and waste policy manager with campaigners European Environmental Bureau, says that the circular economy will be a society-wide undertaking. “In the perspective of the systemic changes required by the circular economy, we all

have to cooperate,” he says.There will need to be “education

and awareness at local level to challenge consumption patterns, development of innovative and creative business models, fiscal and financial incentives to support them, regulatory and economic framework conditions to secure investment and create legal drivers [and] enforcement of those, and forward-looking research and academic development for technical and social innovations,” Arditi says.

It will be the scaling up to this new model of the broader economy that will be the really challenging part. Huge multinational companies will need to implement changes across their entire operations. “We now have a narrative that works,” says Rutqvist.

But it is yet to be seen if the circular economy will really work at scale.

There will be losers of course.

Companies that rely on selling hard-to-recycle low-value products with little reuse value could be particularly vulnerable. “Much more value will be created in the market working with the installed base of products, rather than selling new products,” Rutqvist says.

Pick the right pathAnd companies must also be careful that adoption of circular economy business models actually does lead them along the path of greater environmental and business sustainability. Shifting value creation from new products to servicing and managing the lifecycle of existing products does not necessarily mean a lower environmental footprint.

Companies “want to grow resource-lite or asset-lite,” Rutqvist says. They should seek “ways to grow the business that do not increase the footprint, and should do it in a way that does not just lead to another exposure to risk”. ★

5

Scaling up will be the really challenging part

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

ÝWasted

revenue

streams

KLIC

KMR/

DREA

MST

IME.

COM

A group of over 50 UK-based retailers, IT companies and TV manufacturers is hoping to reduce the collective carbon footprint of electronic and electrical products by 15%.

Members of the recently launched electrical and electronic sustainability action plan also hope to generate an additional £800m to the UK economy by applying circular economy principles to five main product areas: televi-sions, laptop computers, vacuum cleaners, refrigeration products and washing machines.

Over £21bn of electrical and electronic products are sold annually in the UK each year, using around 1.4m tonnes of materials in over 180m products. Consumers discard a similar amount of products every year, with only 7% being re-used. Adherents to the new plan, which is coordinated by waste charity Waste and Resources Action Programme (Wrap) and includes the likes of Sainsbury’s, Dell, Samsung and Sky, repre-sented two-thirds (66%) of television sales in the UK.

The circular economy could help generate over 200,000 new jobs in the UK over the next decade and a half, according to the influential non-profit Waste and Resources Action Programme (Wrap). Fresh employment opportunities would be presented in potential fast-growth sectors such as recycling, reuse, remanufacturing and biorefining, according to research by Wrap.

Published in association with the Green Alliance, the report indicates that regions of relatively high unemployment, such as the English northeast and west midlands, are best placed to benefit. Furthermore, it is anticipated that the greatest impact on job creation will be low to mid skilled occupations where job losses are projected for the future. In the most optimistic scenario, the research projects the creation of 517,000 jobs by 2030.

According to previous research by the UK’s Department for Environment, Food & Rural Affairs, UK businesses could benefit by up to £23bn per year through the implementation of

circular economy principles. The UK govern-ment department has a vision of reducing material inputs into the UK economy by 30m tonnes by 2020. It also hopes to reduce waste by 20% (equivalent to around 50m tonne less waste) and recycle 20m tonnes of additional materials back into the economy.

6

Circular economy data digest Innovation Forum’s guide to some circular economy facts and stats

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

Ambitious electronics plan

200,000 circular economy jobs in UK

Electrical and electronic products sold annually in the UK use around 1.4m tonnes of materials in over 180m products. Consumers discard a similar amount of products every year, with only 7% being re-used

The circular economy could help generate over 200,000 new jobs in the UK over the next decade and a half

HAY

WIR

EMED

IA/D

REAM

STIM

E.CO

M

Plastic packaging ‘roadmap’

The development of an authoritative, 20-year roadmap for the transition of packaging to a more circular system forms one of the main objectives of a programme by the World Economic Forum (WEF).

Annual material demand for polyethylene terephthalate (PET) and polyester, which is used in plastic bottles and the textile industry, totals about 54m tonnes, of which roughly 86% leaks out of the system. It is estimated that $4bn (£2.66bn) could be created from the better use of PET alone.

Establishing a set of simple design rules to govern the chemical additives and inks used in paper-based product packaging represents

another new focus of the WEF’s MainStream project. Of the 480m tonnes of paper and paperboard that is expected to be produced by 2020, it is estimated that 130m will be wasted, representing an economic value of $10bn.

The third stream of the project will focus on so-called “asset tracking”. This is designed to resolve the information gaps that currently prevent better decision making on what to do with a product when a (first) user is finished with it. The three initiatives were unveiled at Davos in January and will be overseen by a steering board of 11 chief executives, including those of Suez Environmental, Philips and Kingfisher.

US technology giant Dell is 2015’s Circular Economy Pioneer of the year. Awarded the prize at the Circular Economy Awards in January 2015, the Texas-based firm was commended for its rollout of the world’s first computer – the OptiPlex 3030 – made using certified closed-loop recycled plastics.

Other winners at The Circulars included the Danish Business Authority (Economy Cities), Danish Cloud-based invoicing firm Tradeshift (Digital Disrupter) and US home and fabric care manufacturer Method (Entrepreneurship).

The awards are run by the Forum of Young Global Leaders in collaboration with global consultancy firm Accenture. In June 2014, Accenture published a joint paper with the Ellen MacArthur Foundation in which it argued that the global consumer goods indus-try could save $700bn (£465bn) by adopting a circular economy. Consumer goods account for about 60% of total consumer spending and 35% of material inputs in the economy, the report found. At present, only about one fifth (20%) of consumer goods materials are recovered, largely through recycling.

Novelis, a US-based aluminium rolling and recycling firm, recently completed an automo-tive scrap aluminium recycling facility at its Oswego facility in New York state. The $48m (£32m) recycling plant will enable the company to process up to 10,000 tonnes of recycled scrap per month.

Together with other investments, Atlanta-based Novelis is on track to have a global production capacity of 900,000 tonnes of automotive aluminium sheet by the end of 2015. The company’s products currently feature in over 180 vehicle models. ★

7INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

Annual demand for (PET) and polyester totals about 54m tonnes, of which roughly 86% leaks out of the system

Novelis’ new $48m (£32m) recycling plant in Oswego, New York will enable the company to process up to 10,000 tonnes of recycled scrap per month

Dell was commended for the world’s first computer made using certified closed-loop recycled plastics

Circular economy leaders

$48m aluminium recycle centre for Novelis

Collaboration will be at the heart of the transition to a more circular way of

doing business. The implementation of circular-economy business models is not an activity for a company in isolation, but for the whole value chain.

Companies will need to know more about what happens to the materials that go into their products at each stage of the value chain. They will need to extend the value chain to the collection and reuse of materials at the post-consumer stage. Then they can make the necessary adjust-ments to make the whole operation more sustainable. For example, companies that put consumer electronics on the market might need to work with their suppliers to modify components so they can be more easily dismantled after first use.

Simon Hoffmeyer Boas, senior corporate social responsibility manager for brewers Carlsberg, says that this means entering into deeper partnerships with “people that you previously only had transactional relationships with, or never directly worked with at all. Every

single survey on the circular economy says it is complex and it involves a lot of stakeholders.”

Carlsberg, for example, analysed the greenhouse gas emissions from its operations and found that 45% arises from the production of packaging. This finding, along with other work, led to the establishment of the Carlsberg Circular Community, a group of partners working on packaging to make it more recyclable and, ultimately, indefinitely reusable.

The Carlsberg Circular Community involves companies that produce drinks cans and bottles, glass-bottle coatings, shrink wrap, the card that is used for multipacks, and PET (polyethylene terephthalate) beer bottles and kegs. The work being done by the partners is underpinned by a cradle-to-cradle design framework.

Cans to cars One area where quick wins could be available for many companies is lightening the weight of packaging.

Carlsberg worked in 2011-12 with beverage can-making giant Rexam – one of the partners in the Carlsberg Circular Community – to cut the weight of drinks cans, resulting in an annual saving of 80 tonnes of aluminium, according to the Carlsberg website.

At the core of the work, Boas says, is understanding that a more integrated approach could bring business benefits all along the value chain. “We need to find mutual value in investing in the circular economy,” he says. “The circular economy is based on the economy and you shouldn’t forget that.”

Rexam’s group sustainability director John Revess says that “what the circular economy and cradle-to-cradle has helped us to do is think more strategically about where our resources come from and what happens to them after they leave our factory”.

For Rexam, part of this is looking more widely at the market opportunities for recycled aluminium. Drinks cans have a high global recycling rate of 70%, according to the company.

“Thanks to the circular economy, our perspective has changed from thinking about making a can back into a can, to a much better understanding of the metal-to-metal loop,” Revess says. One example that he cites as a potential market opportunity is use of recycled aluminium in the car industry. “Many markets need used cans as a resource,” he says.

Risks of partnership?But while the application of circu-lar-economy principles should lead to efficiencies and benefits for all participants in a value chain, some issues could be raised that might cause some companies to hold back.

From the lower reaches of the supply chain looking up, the main concern might be about handing over proprietary information. Carlsberg analysed its packaging down to the ninth tier of suppliers and some were wary, Boas says. “They were very reluctant in the beginning to share information. They were afraid we were just trying to take their recipes.”

8

Circular economy collaboration conundrums By Stephen Gardner

The logic of the circular economy is a more collaborative business model. There are risks in this – but also rewards

Circular economy business models are for the whole value chain

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

RAW

PIXE

LIM

AGES

/DRE

AMST

IME.

COM

Dutch carpet-makers Desso, which has a goal to make all of its products according to cradle-to-cradle principles by 2020, requires its suppliers to provide very detailed product declarations. Desso says that this “goes beyond what [suppliers] would need to do for any other compliance requirement”.

It is, Desso says, “quite a lot of work to pull the information together,” and some suppliers “might ask why they need to do it”.

But in most cases, suppliers “end

up being more than happy to provide the composition details relating to the chemical ingredients of their materials”. They “come to agree on our sustainability and environmental vision,” and they also realise that the exercise can benefit their own businesses.

Desso acknowledges that the process can be tough on suppliers. The company says that they “depend on their suppliers as well, further down the value chain where we lack any control or direct involvement. However, we hope that this

process has a beneficial and cascading effect eventually, as more players in the value chain need to adhere to the cradle-to-cradle information requirements.”

Where commercial sensitivities do arise, Desso says that suppliers “sometimes prefer to have the protection of non-disclosure agreements and to send the information to an independent third party” – in the Desso case, the cradle-to-cradle consultancy EPEA (Environmental Protection Encouragement Agency).

Carlsberg also uses third party assurance, where necessary, to reassure suppliers that the aim of circular-econ-omy initiatives is streamlining the value chain, rather than poaching suppliers’ knowledge.

Looking from the top of the chain back down, meanwhile, the implication of the circular economy is that companies such as Carlsberg, that are prepared to pay for value-chain analysis and for circu-lar economy initiatives, will potentially hand out freebies to their competitors. Suppliers will be able to share with their other customers the advantages gained through initiatives such as the Carlsberg Circular Community.

Free-rider potential Boas says that the intention of Carlsberg’s circular economy work is that “our partners should take what we’ve learnt and implement [the findings] in their businesses”. On the potential for free-riders to latch on, he says that “this was of course a discussion we had to have internally”.

However, Carlsberg considers that the advantages outweigh the potential subsidising of competitors. “We get the benefit from being frontrunners,” Boas says. “We want the world to know.” Carlsberg is also looking long term, taking the view that it is better to upgrade its operations now, rather than be forced to in the future.

Because of rising resource and energy prices, and increasing environmental regulation around products, “we believe that in the future the less sustainable products will be more expensive,” Boas says. ★

9

The aim of circular initiatives is not poaching suppliers’ knowledge

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

Handing

out freebies?

KLIM

OVIG

OR/D

REAS

MTI

ME.

COM

In simple terms, why has the linear business model reached the end of the road? For decades supply chains and products flowed in one direction: from manufacturing to consumption to landfill or incineration. In a world with limitless resources, this model worked and served as the foundation for business growth.

Today, in a world with increasingly constrained resources and a host of environmental challenges, supply chains need to work in two directions: to take back valuable resources to be (re)used in production and consumption loops – a circular approach instead of a linear one. In essence, eliminating the concept of waste.

What are the steps that companies can take to identify what circular economy means to their business? The journey starts by defining a circular model. There a number of ways to capitalise on the circular economy from models that entail sharing resources,

to extending products into services, creating products from fully recyclable materials, lengthening the life of a product or looping materials back into the production.

Finding which one is best is determined by looking at the current product portfolio, and more importantly, the customer base. What do customers really value? What can they do without? How much will they be willing to pay if a product offers changes through co-ownership or sharing? Or if products are 100% recyclable? To what extent does the approach require take-back of products? To see some of the companies getting it right – including Dell, Novelis, Method and Kingfisher – visit, www.thecirculars.org.

Are there any typical pitfalls to be avoided in adapting circular economy practices? How can these be best avoided?There are two big ones that come to mind. First, when companies focus too

strictly on resource efficiency instead of building a business case with customer value in mind. So instead of zooming in on cost reduction potential (which can be tantalising), companies need to see the circular economy as an opportunity to understand and shape a more attractive customer proposition.

The second one could be called “pilot paralysis”. That’s when circular efforts never get out of the testing phase. Instead of scaling throughout an organisation, efforts get stuck in a pilot trap and never gain commercial viability.

Is developing niche initiatives first and then scaling circular economy across the business a good way to go? Yes and no. The “yes” first. In some cases, it makes sense for a company to start small and focused – using a new model as a pilot in a specific area of the business and then scaling it opportunistically.

And now for the “no”. While niche plays reduce risk, they also limit the extent to which the new model can positively impact a business. In the worst case, pilots will suffer underinvestment and lack of ownership. (See the answer about pilot paralysis above.) In the best case, a few high-potential pilots are identified and scaled with great success.

What are the next generation of business models that excite you? What can they achieve and how? Our research identified five models that have proved to be successful and scalable:

• Circular supply chain Provide renewable energy, and bio-based or fully recyclable materials in place of traditional inputs to enable regenerative use of the same resources again and again. One example. Natureworks, a joint venture between Cargill and PTT Global Chemical, offers commercially available biopolymers derived from 100% renewable resources.

• Recovery and recycling Recover useful resources or energy from disposed products

10

Q&A

Circular advantages and how to achieve them Peter Lacy explains why circular economy models are here to stay and gives some tips on how to implement them

Supply chains need to work in two directions

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

BORZ

AYA/

DREA

MST

IME.

COM

or byproducts, effectively turning waste disposal costs into resource management revenues for any business. One of the most well-known examples comes from P&G. The consumer goods company has 45 facilities now operating on a zero-waste basis – meaning all of the

manufacturing waste at those sites is recycled, repurposed or converted into energy.

• Product life extension Extend the working life of products and components by repairing, upgrading or reselling them to

transition from product to lifecycle revenue generation. Industrial equipment manufacturer SKF Group transformed its business from product- to customer-centric as it adopted circular principles to focus on asset efficiency and product life extension.

• Sharing platform Enable, for a transaction fee or access to a similar device, increased product utilisation by making it possible for consumers and/or companies to co-use and exchange goods on a central service. Uber, which connects passengers with drivers in hundreds of cities around the world, is a good example. The circular economy angle of Uber is using one of the most underused assets in the western world: cars.

• Product as a service Offer product access rather than ownership to let customers pay for performance only, and integrate incentives to make products that last and can be effectively upgraded and serviced. One example: Michelin, the tyre manufacturer, has embraced this model by enabling fleet customers to lease instead of purchase tyres outright – effectively selling “tyres as a service”, with customers paying per miles driven.

Is there evidence that consumers are becoming engaged about the circular economy? Yes. Customers are more interested and more aware of the circular economy. But whether they are or aren’t, companies shouldn’t pursue circularity based on an expected groundswell of consumer support. Instead they should focus on coming up with a better customer proposition. Better functionality. More availability. Build people a better mousetrap and they’ll buy it. Principles or not. ★

11

Companies should focus on coming up with a better customer proposition

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

Uber utilises

under-used

assets

BIGA

PPLE

STOC

K/DR

EAM

STIM

E

Peter Lacy is global managing director of sustainability services at Accenture and is a member of the Accenture Strategy leadership team.

Peter Lacy

What will the circular economy look like in practice? That, in effect, is

what the European commission is asking in a public consultation published on 28 May. The results will be used in preparing a European Union circular economy package of legislation and other measures that, according to the commission, will be published by the end of 2015.

These EU-level developments, which could ultimately include binding regulations that will apply throughout the 28-country bloc, will potentially have wide-ranging effects on many sectors and companies.

At the very least, companies will need to look at their production and waste management processes to ensure they are not putting themselves at a disadvantage by ignoring resource efficiency concerns.

Thinking change The consultation marks a change in thinking among EU regulators. Until now, EU proposals related to the idea of the circular economy have focused on waste and recycling. In July 2014, the commission published draft legislation that would have instituted requirements for 70% of household waste to be recycled by 2030, 80% of packaging to be recycled also by 2030, and sending recyclable waste to land fill to be prohibited after 2025.

However, those proposals were subsequently withdrawn. They would

have put the emphasis squarely on the public and private waste management industry to more rigorously collect and manage waste. They would have required companies to more closely pay attention to waste materials from production processes and post-consumer waste.

But they would essentially have been a tightening up of current practices.

More ambition?With its new approach, the commission claims to be more ambitious. The circular economy package, when it appears in the second half of 2015, will cover sourcing of raw materials, product design, production processes and the lifecycle of products, as well as waste management. In this sense, the impact on companies could be far greater than the original package of waste targets.

The consultation takes it for granted that the circular economy is the way to go. It would “promote competitiveness and innovation, a high level of protection for humans and the environment, and bring major economic benefits, thus contributing to job creation and growth,” according to the consultation paper.

What is at stake therefore is not so much what should be done, but how. Take product design. Better, more reusable and recyclable products can be achieved through regulation, such as mandatory standards for durability,

reusability and repairability, or companies can be encouraged and cajoled through voluntary schemes.

Voluntary vs mandatory Many companies already understand the rationale for moving towards more circular business models. They might prefer a largely voluntary approach. Environmental groups, meanwhile, are sure to call for tougher mandatory requirements.

One idea put forward by groups such as the European Environmental Bureau is that the previously-proposed recycling targets should be kept and augmented with a “preparation for reuse” target, meaning that a minimum proportion of used products should be repaired and reconditioned, rather than recycled or discarded.

This could have implications for product design, the information that companies provide about their products and intellectual property, as well as waste management.

What looks certain is that the previous target-based approach will be supplemented with a broader suite of measures covering a wider range of company operations. How intrusive these measures will be and which sectors will initially be most effected are yet to be decided. ★

12

Innovation Forum comment

Defining the circular economyThe new EU proposals on circular economy regulation, if they are properly ambitious, could have real positive impact on how business operates, and not just on corporate waste targets

Many companies already understand the rationale for circular business

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING

UPCOMING EVENTS

Measurement and valuation of corporate sustainability – does it all add up?29th-30th June 2015, London How business can tackle deforestation – Singapore28th-29th September 2015, Singapore

Ethical trade and human rights forum19th-20th October 2015, London How business can tackle deforestation – London 2nd-3rd November 2015, London

Why current consumer engagement on sustainability fails – and how to fix it9th-10th November 2015, London

Sustainable seafood – how business can source, manage and improve fish and marine resource sustainability25th-26th November 2015, London

If you’re interested in any of these events, please do get in touch:

Oliver Bamford | Tel +44 (0) 20 3780 7431 | oliver.bamford@innovation-forum.co.uk | www.innovation-forum.co.uk

INNOVATION FORUM: CIRCULAR ECONOMY BRIEFING 13