Why the circular economy is big business

The circular economy is a more sustainable way of doing business, but companies say that transitioning to this model of zero-waste and resource re-use is expensive and difficult. Here's why investing the time and effort to do so makes good business sense.

Faced with dwingling natural resources and consumer demand from an ever-growing global population, businesses are increasingly questioning the decades-old manufacturing model of “take, make, waste”.

Instead, the circular economy -  a system where materials and nutrients are reused and recycled so that no resource is wasted - has been growing as a popular alternative in recent years.

Making this concept a reality requires a major transition that businesses may find overwhelming and daunting, said experts at the Responsible Business Forum on Sustainable Development on Tuesday. 

But they should persist, because the circular economy can unlock a huge economic opportunity and social benefits for them.

Speaking to an audience of about 150 at the Sands Expo and Convention Centre, Hamid Mughal, director of global manufacturing giant Rolls Royce, said that “the circular economy is a social and economic necessity, but the scale can be daunting”. 

By tweaking manufacturing processes and developing technologies to reduce waste and keep resources in circulation longer, the British car and aerospace engine maker has boosted its efficiency and productivity, he said. 

For example, at the firm’s factory in Washington, a town in Sunderland, UK, Rolls Royce was able to halve the number of processes required to make turbine discs - an engine component.

By collaborating with more than 30 universities and research institutes, the company managed to reduce the number of steps to make a disc from 46 to 24. 

Fewer pieces of equipment are now needed to make each disc, helping the facility save money and energy. These savings in turn drive growth and profitability, Mughal added.

Using resources efficiently “is the way to think about the practical aspects which make up the circular economy”, he said.

By devising creative ways to save resources and reusing waste as a raw material, companies can also achieve ‘inclusive business’, said panellists. That is, a sustainable business that improves the lives of low-income communities while also being profitable.

Rob Coombs, Asia Pacific president and chief executive officer of carpet manufacturer Interface, cited the company’s Net-Works initiative as an example of a business model that benefits local communities while providing the firm with a source of raw material.

As part of the scheme, Interface buys used fishing nets from coastal communities in the Philippines and Cameroon, and uses the nylon to make carpet tiles. Coombs said that paying for nets that would otherwise be thrown away has reduced marine pollution, helped the company fulfil its sustainability goals, and generated enough income to provide almost 250,000 meals for local families.

Under an initiative called Mission Zero, Interface aims to have zero negative environmental impact by 2020, and has set targets in seven areas to achieve this goal. These include designing products so they can be recovered and reused, using more renewable energy, and eliminating greenhouse gas and wastewater emissions.

“The circular process is more inclusive, and offers more shared value to stakeholders,” he added. 

But for many businesses unfamiliar with the concept, “the transformation to a circular economy is a major ask”, said Mughal. A company may find it too risky and expensive to invest in research and development of new technologies that underpin zero-waste manufacturing processes.

The circular process is more inclusive, and offers more shared value to stakeholders.

Rob Coombs, president and chief executive officer, Asia Pacific, Interface

“There is a real need for partnerships between the government and private sector,” he said. For example, public agencies could lead a group of companies to carry out the necessary research, and the resulting technology could be developed as a national asset. 

This model, combined with policy and financial support, would help get the technology ready for market, said Mughal. 

Financial institutions must also change their approach to lending, he added. Banks today demonstrate “capital impatience” and want returns within six months, but “that’s not going to happen for this kind of major transformation”.

It’s going to take years,” he noted, and added that financiers need to understand this and take a long-term view.

One bank that claims to understand the potential of the circular economy as “the ultimate answer to solving the depletion and economic scarcity of resources” is Dutch multinational ING.

Leonie Schreve, global head of sustainable finance, ING Bank, told Eco-Business that currently, there is no financial model that fits the needs of clients wanting to adopt circular practices. 

In a report on circular business financing released this June, ING explained that circular models regard waste as a valuable resource, and sometimes advocate one firm to share its trash with another company. This practice raises regulatory concerns around hygiene, privacy, and other legal barriers, which may affect how banks lend to such initiatives. 

Designing products with their eventual dismantling and re-assembly in mind can also change how their value is calculated, the report said. 

There is no one-size-fits-all solution to financing circular business, but by combining in-house skills from different departments, ING is able to work with clients to develop new solutions, she said. 

Increasingly, the bank is also positioning itself not as a financier but as a trusted partner for circular businesses, said Schreve. For example, ING’s Corporate Investments arm is a 20 per cent shareholder in Dutch firm Van Scherpenzeel Group, which recycles waste into raw materials for manufacturing. 

“These are the kinds of partnerships you need for sustainability and circular economy challenges,” she said. 

The Responsible Business Forum on Sustainable Development is a gathering of more than 600 global business leaders, investors, non-government organisations and policy-makers from around the world to discuss practical climate solutions and drive sustainable development.

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