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1

WORKSHOP

24 May 2016

NEDERLANDSE VERENIGING VAN

COMMISSARISSEN EN DIRECTEUREN

13.30-13.50 Plenary presentation by Circle Economy

Basic principles and business models of a circular economy

and Netherlands as a Circular Hotspot

13.50-14.30 Examples of circular innovations and business models

FrieslandCampina, Interface, Fairphone, Valley

14.30-15.15 Finance workshop by Circle Economy

15.15-16.00 Governance workshop by Allen & Overy

16.00-17.00 Bites and drinks

AGENDA

Netherlands as a Circular

Hotspot

PLENARY PRESENTATION

INITIATORS

AMBASSADORS & PARTNERS

NETHERLANDS CIRCULAR HOTSPOT

#NLcircularhotspot8

SHARING INNOVATION

CAMPAIGN

Vision Magzine NLCH

TRADEMISSION 140 PARTICIPANTS FROM 20 COUNTRIES

CIRCULAR HOTSPOT 2017

LUXEMBOURG

Basic Principles and Business

Models in a Circular Economy

PLENARY PRESENTATION

Sourc

e: A

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rom

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ntist. W

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orld B

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013

Linear risks have adverse long-term effects on the economy,

society and environment

1750 1800 1850 1900 1950 2000

Population

CO2 Concentration

Ozone depletion

Water use

Species extinction

Northern Hemisphere

average surface

temperature

Foreign investment

Loss of tropical rainforest &

woodland

Fisheries exploited

GDP

Paper Use

Motor vehicles

2050

CONTINUED LINEAR INVESTMENT IS UNSUSTAINABLE

The circular economy is an

economic system that is waste-

free and resilient by design,

mimicking natural ecosystems in

the way we organise our society

and businesses.

By following circular strategies

and principles, companies can

ensure the highest level of

economic and societal value is

attained while minimising

planetary impacts.

THE CIRCULAR ECONOMY OFFERS A SOLUTION

BASIC PRINCIPLES OF A CIRCULAR ECONOMY

Tesla opened all of its electric car

patents to outside use in the spirit

of collaboration and open source

development


Airbnb is the world's largest

accommodation provider, yet it

owns no real estate, since it uses

innovative sharing models


Levi’s Water<Less™ jeans reduce

the use of water in the finishing

process by up to 96% for some

styles, creating more with less.


KWS produces PlasticRoad, a road

surface made from 100% recycled

plastic which can itself be recycled,

replacing asphalt.


Philips actively informs, engages

with and enables employees to

implement circular economy

principles in the organization


Since the 1950s, Desko uses a

buy-back scheme to sell and get

back its furniture three times, so its

furniture lifetime is expanded


WITH THE CIRCULAR ECONOMY VALUE IS PRESERVED

TAKE THE EXAMPLE OF A CAR

“Circular Support” ModelsManagement, Support

Retail

Assembly

Manufacturing

Extraction

repair/maintain

reuse/redistribute

refurbish

remanufacture

recycle

“Optimal Use”

Models

Product as Service

Lifetime Extension

Sharing Platforms

Takeback

“Circular

Design” Models

Product Design

Process Design

Circular Materials

“Value Recovery”

Models

Recapture / Recovery

Refurbish / Maintenance

Recycling

CIRCULAR BUSINESS

MODELS

incinerate/landfill

X

FRIESLANDCAMPINA

X

INTERFACE

Towards a restorative

enterpriseThe circular economy in practice

NCD / 24th. Of May 2016

Geanne van Arkel

Head of Sustainable Development

Inventor of the Heuga

carpet tile

• Turnover $ 1 billion

• 3500 employees

• 110 countries

• 5 production locations

• Nasdac

Part 1:It starts with ambition

‘…There is only one

institution on earth

large enough, powerful

enough, pervasive

enough, influential

enough to really lead

humankind in a

different direction. And

that is the institution of

business and

industry…’

Paul Hawken

1 No Waste

2 Benign Emissions

3 Renewable Energy

4 Close the Loop

5 Resource-Efficient Transportation

6 Sensitize Stakeholders

7 Redesign Commerce

System Thinking in seven fronts

2014

1996

Our absolute GHG emissions reduced by 90% in

Scherpenzeel from 1996 to 2014.

Sustainability is financing itself

Part 2:It works throughout the value chain

Embedding sustainability in your product

Look at the

context!Glue free installation system,

Based on gekko-feet

Performance based economy

Providing an inspiring interior

design, a pleasant working

environnement and a better

indoor climate.

Since 1995

Carpet take-back program ReEntry

Since 1996

Evergreen Lease concept

Product-service systems

Part 3:It is about creating sustainable valuethrough cross-sectoral cooperation

Connect! Co-innovation thanks to cross-

sectoral cooperation

Open LoopsRe-designing the supply

chain with Net-Works™

• A circular inclusive

business model

• Net-Works enables

fishing communities in

developing countries to

sell waste nets back

into a global supply

chain

• www.net-works.com

The best are every where!

A way of working that connects ideas, people +

resources,

removing barriers to progress, and enabling to

achieving goals

together

Why do you start?Radical transparancy

Sustainable business is the only way to thrive

Economy is on the verge of a transformation

Circular and inclusive business models,

adressing Sustainable Development Goals

Open innovation and cross-sectoral cooperation

Speed of change is continuously increasing

The winners of the future have the ability to adapt to change!

Create internal and external engagement

Geanne van ArkelHead of Sustainable Developmentgeanne.van.arkel@interface.comwww.interface.comwww.net-works.com/nl@InterfaceInc

X

FAIRPHONE

The workshop will provide a better

understanding of the financing needs for

organisations moving towards a circular

economy. An interactive case study will

highlight ways for companies and

financial institutions to work together to

develop new financial solutions.

FINANCE WORKSHOP

“Circular Support” ModelsManagement, Support

Retail

Assembly

Manufacturing

Extraction

repair/maintain

reuse/redistribute

refurbish

remanufacture

recycle

“Optimal Use”

Models

Product as Service

Lifetime Extension

Sharing Platforms

Takeback

“Circular

Design” Models

Product Design

Process Design

Circular Materials

“Value Recovery”

Models

Recapture / Recovery

Refurbish / Maintenance

Recycling

CIRCULAR BUSINESS

MODELS

incinerate/landfill

BUNDLES “OPTIMAL USE” MODEL: PRODUCT AS A SERVICE

Washing Machine as a Service

Bundles leases circularly designed Miele

washing machines with an attached device

that monitors how it is used

Customers are charged based on how

much they wash and are rewarded if they

use the machines optimally

The time that the machine is out of order or

not working properly is deducted,

incentivising Bundles to deliver the best

service possible

However financing is a challenge!

TRADITIONAL LINEAR MODEL

What are the benefits and challenges

of a linear model?

Miele produces and

sells each machine

for €1000

Households buy and

own machines to use

TRADITIONAL LINEAR MODEL

CHALLENGES● Machines expensive to own, so

cheaper machines are bought

● Assets are not optimised

● End-of-life is not considered

BENEFITS● Short payback period

● Ownership is with the end consumer

● No complicated financing needed

Miele produces and

sells each machine

for €1000

Households buy and

own machines to use

PRODUCT AS A SERVICE LEASE MODEL

Households lease

and pay per use of

machines

Bundles buys and

leases machines and

also repairs, maintains

Miele produces and

sells each machine

for €1000


of an operating lease model?

PRODUCT AS A SERVICE LEASE MODEL

CHALLENGES● Ownership not with end consumer

● No end-of-life to retain residual value

● Hard to scale without working capital

● Longer payback period due to lease

BENEFITS● More expensive but more durable

machines become more accessible

● Assets are optimised over lifetime

● Transparency of cost of ownership

Households lease

and pay per use of

machines

Bundles buys and

leases machines and

also repairs, maintains

Miele produces and

sells each machine

for €1000

PRODUCT AS A SERVICE LEASE MODEL WITH AN INVESTOR

Households rent

from Bouwinvest and

pay per wash

Bouwinvest, a real

estate investor, owns

the washing machines

Miele produces and

sells each machine

for €1000


of a financial lease model?

Bundles is a service

company to provide

washing as a service

BENEFITS● Same as in operating lease

● Financing from real-estate investor

enables scaling of model

● Access to existing customers

PRODUCT AS A SERVICE LEASE MODEL WITH AN INVESTOR

CHALLENGES● Ownership with real-estate investor

doesn’t ensure optimisation of assets

● No end-of-life to retain residual value

● Hard to scale without working capital

● Longer payback period due to lease

Households rent

from Bouwinvest and

pay per wash

Bouwinvest, a real

estate investor, owns

the washing machines

Miele produces and

sells each machine

for €1000

Bundles is a service

company to provide

washing as a service

OTHER FINANCIAL SOLUTIONS

What are some ideas for financial structures that:

● encourage greater ownership across the chain

● enable transparent communication and collaboration

between parties

● link multiple incentives between parties

● guarantee stability of all parties involved and guarantee

consistent long-term cash flow

● ensure end-of-life recovery of residual value

● provide insurance to isolate financial and credit risks

GOVERNANCE WORKSHOP

5858

Content

‒ Introduction: some legal aspects of new business models

‒ Introduction: governance parameters relevant for Circular Economy business

models

‒ Dutch stakeholder model

‒ Strategy of the company domain board

‒ ‘Short-termism’

Dutch Corporate Governance Code

5959

Introduction: some legal aspects of new business models

‒ Exclusive use or access to service Ownership of products

‒ Services Products, e.g.

‒ operational lease

‒ Phillips lighting: selling 20 years of light selling lightbulbs

‒ Ongoing relationship one-off

e.g. access to (leased) infrastructure, information sharing

‒ Contractually securing expected cash-flows becomes key

‒ But: some old school legal “title” issues remain, e.g.

‒ bankrupcy

‒ accession (‘natrekking’)

6060

Introduction: relevant governance parameters for new Circular Economy

business models

‒ New business models

sustainable, circular, cost efficiency elements

‒ To be reflected in the company’s strategy

and governance/organisation

‒ Long-term view

long term value creation (also in society)

e.g. from one-off sale to service relationship

time to earn back initial investments

‒ Cooperation of all stakeholders

not only shareholders and employees, but also suppliers, customers and finance providers

no predominant (short-term) shareholder results (resisting circular investments)

6161

Dutch stakeholder model offers right framework

‒ Board to act in interest of company

and its business:

‒ promote sustainable success of the

business

‒ i.e. long-term value creation for all

stakeholders

‒ Take into account the interests of all stakeholders, not only shareholders, e.g.:

‒ employees, suppliers, customers, finance providers and creditors, and relevant other interested parties, possibly society

at large

‒ Stakeholder dialogue (‘polderen’)

6262

Dutch company’s strategy domain board

‒ Management Board determines the strategy, under supervision of the Supervisory Board

‒ Shareholders have no right to prior consultation

‒ accountability to shareholders afterwards

‒ Possibility of protective measures to secure the Board’s long-term mission

‒ against hostile takeover and shareholder activism

‒ Mylan/Teva 2015

6363

Problem of ‘Short-termism’ in a listed environment

‒ Shareholder focus more and more on short term results

‒ Rapid change of shareholder base

‒ Increased hedge fund activity

wolf packs

‒ Reduced governance protection in many jurisdictions

‒ in shareholder model jurisdictions

‒ e.g. Delaware: annual elections of the full board ‘Permanent election season’

‒ often no effective protective measures

6464

Dutch Corporate Governance Code

‒ Focus on continuity company/business and long term value creation and careful weighing of all stakeholder’s interests

‒ including non-financial aspects, environment, social and personnel matters, respecting human rights and combattingcorruption and bribery

‒ Importance sustainability

‒ sustainability integral part of company strategy

‒ includes the chosen circular economy approach

‒ Culture/tone at the top

6565

Corporate Social Responsibility (CSR)

‒ Dutch Corporate Governance Code

‒ Revised Version DCGC

‒ CSR is an integral part of the daily operations of a company

‒ (Mandatory) reporting of CSR

‒ ‘sustainability report’

6666

Governance of large companies and Circular Economy

‒ Key structure governance remains

‒ One tier board:

‒ executive & non-executive directors

‒ Two tier board:

‒ Managing Board & Supervisory Board

‒ Employee consultation, e.g.:

‒ works council advice?

‒ co-determination: 1/3 of Supervisory Board members in large (structure) company regime

6767

Governance of circular start-ups/SME’s in their lifecycle

‒ Circular companies already have circular model in DNA

‒ Private company by founder and informal investors

‒ (Conditions for) subsidies by the government (EU plan)

‒ Next (venture) financing rounds

‒ Sale to a large company: Buying innovation?

‒ Initial public offering (IPO)?

6868

Some practical considerations to implement Circular Economy business

models

‒ Adjust company’s strategy to incorporate changed business model allow weighing all stakeholders interestsand effective cooperation

long-term approach also in shareholder jurisdictions (± convergence long term shareholder value with interest otherstakeholders)

‒ Reflect in programs, compliance and (reporting on) CSR / stakeholder dialogue

‒ Tone at the Top / Culture

‒ top to choose and support changed strategy

focus on sustainable/circular goals, cooperation all stakeholders

Internal organisation

– Chief Sustainability Officer: executive term (‘CSO’)

– Sustainability Governance (council/department/ committee)

– Adjust appraisal/compensation structure

– Bonus, performance criteria

6969

Questions?

“The wise man doesn’t give the right answers, he poses the right questions.”

- Claude Levi-Strauss

THANK YOU

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