Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Concept,Of,Circular,Economy,With,Businessman

What if the very air we breathe becomes so tainted that we start running out of oxygen? What if water and air are reduced to being commodities?

This isn’t the conjuring of a dystopian fiction but a very real possibility today.  The climate crisis is already looming large and we are running out of time. Sustainability has to become a way of life and there is no way around it. The biggest part of the sustainability puzzle is not just about reducing the carbon footprint but closing the loop or impelling a circular economy. The latter is the veritable ‘holy grail’ for a sustainable business transformation.

Wouldn’t it help if businesses started thinking two steps ahead and worked on a circular business model right away? This is exactly why The Economic Times Global Sustainability Alliance – SDG Summit 2022 is a go to for your business if sustainability is important. A confluence of the finest minds in the industry will discuss, debate and deliberate on the path to sustainability, decarbonization and subsequently net zero.

Before we get into how a circular business model could be implemented for your business, let’s understand the scale of opportunity that exists.

A trillion dollar opportunity

According to EY,  businesses that transition from the “take-make-dispose” industrial model to the resource recycling of the “circular economy,” as estimated in a 2018 report by BCG and the World Business Council for Sustainable Development, do so by enhancing their innovation processes and have the potential to add $4.5 trillion of value by 2030. Presently, we are only beginning to tap into the $0.5 trillion in economic value that may be unleashed through circular economy business models in India alone by 2030.

In order to take advantage of this size of opportunity, enterprises must make sure that their efforts to address global environmental issues are supported by evidence and refrain from viewing circular business initiatives or campaigns as impromptu investor-attraction gimmicks. Highlighted below are the key facets of circular business models:

  • Circular business models serve to reduce the extraction and use of natural resources and the generation of industrial and consumer wastes. They represent the key activities required to transition to a more resource efficient and circular economy.
  • Circular business models use already existing materials and products as inputs and therefore their environmental footprint tends to be considerably smaller than that for traditional business models.
  • The environmental outcomes of circular business models also depend on their market penetration. However, the market share of these business models is currently limited. Recycling, remanufacturing and repair, the sharing of spare capacity, and the provision of services rather than products typically only account for up to 15% of production in any given sector.

What features should a circular business model have?

As per OECD, there are various features that a circular business should have, which are as follows:

Closing the value chain loop: Closing the loop along the entire value chain is the goal of production cycles. To save costs and improve predictability and control, they use entirely renewable, recycled, recyclable, or biodegradable materials that can be used in subsequent lifecycles. Products are effectively designed, using the least amount of materials possible without sacrificing performance.

When possible, low-toxicity materials are chosen, and biological and technical components can be easily separated, recovered, or replenished.

Recovery and collection:  The emphasis is on manufacturing and consumption systems that retain for other purposes anything that was previously seen as waste by locating and retrieving things at the “end of their lives.” Reusing waste and by-products from the production process is another aspect of this feature, as are return systems with incentives. Both up-cycling and down-cycling, which result in products with reduced value, can be a part of the recycling process.

Extending the lifespan:  In stark contrast to the ephemeral nature of the goods and services in use today, the goal is to lengthen or extend the life of items across their entire lives. This could be done by keeping up with products and enhancing them through maintenance, updates, refurbishing, remanufacturing, or remarketing. Through the design process, the effectiveness of this feature is affected, with an emphasis on design for disassembly, modular design, material selection for durability, and design for repair.

Made to order production:  Building a more individualised, long-term relationship with the client is the goal here. Closing loops, recovering materials and products, and reducing resource use are made simpler as a result. Made-to-order manufacturing reduces the number of raw materials needed and prevents overstocking-related losses. Directly “locking in” customers can avoid the need for a separate retailer and provide more insight into possible demand for the product itself or, if appropriate, the product refill.

Advent of the shared economy:  Using digital technology, consumers, businesses, and microentrepreneurs can forge new connections and business opportunities to rent, share, swap, or lend their unused items. Products that are only sometimes used take fewer resources to produce, and consumers now have a new way to earn and save money. For this functionality to work properly, both the platform and its users are required.

The idea of a business that creates supply and value chains that can recover and recycle their own products is certainly compelling. Many organizations have initiated their foray into a circular business model and in the process have brought down their environmental footprint and operational waste. However, businesses must also keep in mind that creating a circular business model can be challenging and the incorrect approach could prove to rather expensive. To garner a better understanding of how the ESG narrative for businesses is shaping up in India, registering now for The Economic Times Global Sustainability Alliance – SDG Summit 2022 could help your business get a comprehensive overview of sustainability strategies that can work.

Source: Researchgate

Authored by: Lionel Alva

Concept: Lionel Alva; Queenie Nair

Edited by: Queenie Nair

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members