Even as the idea of a circular economy–a sustainable business theory that companies should eliminate waste by designing their business models to recycle and reuse everything they produce–becomes more popular, the traditional “take, make, waste” linear economy model is still, from sheer numbers standpoint, the standard. Just around 6% of materials bought and consumed worldwide are then recycled back into new products.
But according to a new report from The Conference Board Center for Sustainability, this represents a dual opportunity for businesses to cut back their waste and grow their bottom line: The report cited an analysis from Europe that found that strengthening investments in circular economy initiatives could result in hundreds of billions in savings and create 580,000 jobs–and dramatically reduce companies’ environmental footprints. And the report shows that, with some will power and communication, it’s not actually that difficult.
However, Thomas Singer, principal researcher in corporate leadership for The Conference Board and the author of the report, tells Fast Company that the main barrier to more companies getting on board is not an objection to the principles or potential outcomes, but rather, inertia. “Shifting a business model away from a traditional take-make-waste model to something more circular requires a real transformation in the way a business thinks and operates,” Singer says. “It takes time, and it takes communicating the value of the shift both internally to employees and externally to customers.”
Singer cites the example of Philips, the lighting company which in 2012 undertook a radical shift from selling lighting equipment as products to selling lighting as a service–offering consultations and maintenance upkeep as part of a comprehensive “lighting solution,” in which the company retains ownership and control of the product. While the model has proven successful, accounting for 8% of Philips’ total revenue and projected to double by 2020, the initial shift caused some long-term employees a great deal of angst. “If you’ve been used to doing business in a certain way for 30 years, for example, and all of a sudden your company is rethinking that business model, you’re going to take it pretty personally and may feel your job is on the line,” Singer says.
To quell the fears and concerns of companies looking to embrace circular economy initiatives, and to inspire them to do so, The Conference Board released this report, entitled “Business Transformation and the Circular Economy: A Candid Look at Risks and Rewards,” which delivers exactly that: a blueprint, drawn up via case studies of seven major companies–Dell, DuPont, HP, Interface, Kimberly-Clark, Philips, and Waste Management—which have implemented circular economy strategies, and a set of resulting best practices for making that shift.
Underlying all of the initiatives, Singer says, is a recognition that “business as usual cannot be sustained.” With the global middle class set to grow from 2 billion people in 2010 to 5 billion people in 2030, rates of consumption will skyrocket at the same time that our natural resources become more stressed: The report cites one estimate that global natural resource use is expected to double between 2015 and 2050, from 85 to 186 billion tons annually.
The first step in companies embracing the circular economy, Singer says, is for them to own up to this fact, and communicate the need to address it across the whole company. Philips, for instance, Singer says, “realized that they wanted to be in business for another hundred years or so, and to remain relevant, they’d have to rethink the way they were doing things.” To do so, Singer says, the company had to re-train its employees to not just package and sell lighting but to coordinate and carry through maintenance and consultations with customers.
But it also had to break down barriers in communication between departments that often exist in large companies. “Forming strategic alliances and collaboration is a key enabler of success, but it’s a challenge because these initiatives just can’t succeed in silos,” Singer says. Take Dell, for example. When the technology manufacturer launched its product recycling initiative in 2005, it set up both a new retail venture and a partnership to support it. When customers return used products–either direct to Dell or through designated collection points set up in partnership with Goodwill Industries–the company refurbishes 90% of them and resells them through the Dell Outlet at a slightly lower price. The products that can’t be refurbished and resold are sent out to the company’s recycling partners, who use them as a source of plastics and precious metals. The company’s closed-loop recycling initiatives required a heightened level of organizational collaboration and communication to be effective: In addition to the engineering and marketing teams working closely together, the services group (which runs the Goodwill partnership) and the supply chain group (which oversees product take-back) had to be closely coordinated in order for the program to scale.
Dell was a success, and when programs fail, Singer says, it’s mostly due to breakdowns in communication and lack of transparency when working with partners to establish these initiatives. When HP, for example, partnered with a group of hospitals to look into sourcing discarded polypropylene surgical wrap as raw material for ink cartridges, it looked like a promising move—the quality and consistency of the material that could be recovered aligned with HP’s needs. But only after they dove into the process did they realize a new technical step needed to be added to account for the fact that their recycling partner mainly dealt with rigid materials, which the polypropylene was a fabric. The recycling partner raised the costs beyond what was economical, and HP had to abort the program. This failed example demonstrated the need to thoroughly communicate all requirements and logistics before funneling money into an untested initiative.
But the availability of these learnings, like “fail fast,” from companies that have been there, done that, Singer says, is the reason why The Conference Board compiled this report, Singer says: By aggregating the experiences–positive and negative–of businesses that have embarked on these initiatives, Singer hopes the report will inspire more to do the same. “There has to be a tolerance for experimentation and failure as companies undertake these initiatives,” Singer says. “If there’s not, then many of these initiatives simply won’t get started.”