EnterpriseInnovation: From Waste to Wealth – Capturing a US$4.5 trillion circular economy

0 Posted by - November 30, 2016 - Uncategorized

by Peter Lacy, Global Managing Director, Sustainability Services, and Ynse de Boer, Asia Pacific Managing Director, Accenture Strategy, | 2016-11-30

Exploitation of the world’s resources is taking its toll on the environment. However, the rate and nature of our consumption is now starting to choke economic growth. As much as US$4.5 trillion will be at stake by 2030 unless we change the relationship between natural resources, customers and the market.

The growth of urban population and middle class consumption have led to intense shortages of many resources while putting others, such as water and fertile soil, under great stress. As a result of wasteful practices, prices for tin, iron and copper have risen by between 150 and 250 percent since the start of the new millennium. This is part of a structural shift in the economy towards scarcity and volatility in certain key commodities despite the cyclical ups and downs that can be driven by short-term economic slowdowns, overcapacity and geopolitical factors—such as what we see at the moment.

Markets respond by driving efficiencies and innovation, and we have seen that with the rise of shale gas or solar energy. The “take, make, waste” linear model remains on track to cause a shortfall of US$8 billion in constrained resources by 2030 – what the United States consumes in a single year and which translates to US$4.5 trillion of lost growth.

Radical business models, most underpinned by technology advances, allow some companies to enjoy high rates of growth by finding value in resources, assets and products that have been, until recently, vastly underutilised. While circular business models are emerging, it will take major changes in mindset, organisational structure and strategy to implement them.

Many of the pioneers successfully enjoying a circular advantage are independent start-ups free of the legacy linear thinking.  This is particularly visible in the sharing economy. But incumbent companies are starting to change their strategies in radical ways. Some are delivering products as a service, which requires shifting from selling to owning assets. This, in turn, encourages companies to design greater reliability and longevity into products that support the provision of services, from renting out industrial equipment or cars, or even art.

The re-use of material is also becoming mainstream. The Singapore-based company Greenpac has placed their bet on “design for recyclability”.  Their “Revolutionary Systems Concept Packaging” solution uses Oriented Strand Board and water based glue to produce the world’s first nail-free wooden packaging design that is 100 percent reusable and recyclable. The new design also saves 60 percent of material and therefore reduces the weight of the packaging, saves transport costs and reduces carbon emissions.

Perhaps the most challenging circular business models are those that transform the supply chain, extend the life of products, or re-use waste and materials in new ways.  In an effort to create circular supplies, Singapore-based tyre manufacturer Omni United has tied up with US footwear company Timberland to create a special line of tyres that can be easily recycled at end of life into crumb rubber to be used by Timberland for making shoe outsoles.  This innovative partnership overcomes Timberland’s earlier issues of not being able to get a steady supply of recycled rubber in a consistent quality.

The ability to harness data to manage resources through value chains is at the heart of some of the most successful circular business models.  Even if companies are making progress, they are still not close to making the circular economy mainstream.

While governments become more active in penalising waste, reducing fuel subsidies and implementing environmental standards, stronger policy intervention is required to bring transparency to the content of products and to reward the repurposing of materials. Above all, governments need to stand back and recognise that the circular economy needs to be put on an equal footing with today’s linear economy.

According to an Accenture and United Nations study, 89 percent of business executives in ASEAN believe governments need to step up their efforts to provide an enabling environment for business efforts on sustainability.  These CEOs call for active intervention by governments and policy makers, in collaboration with business) to align public policy with sustainability including enacting important measures on regulation, standards and taxation.

Some governments are taking initial steps to that end.  For instance, Singapore Packaging Agreement (SPA), a joint initiative by the government, private sector and non-governmental organisations to reduce packaging waste from consumer products and the supply chain, has saved US$20 million over five years on locally-consumed products.

On a global level, The Circulars is an initiative of the World Economic Forum and administrated in collaboration with Accenture Strategy. The Awards encourages the growth of the circular economy, as the programme recognizes companies and individuals that break new ground with circular practices.

Without a doubt, the environmental impact of industrial activity is now being taken seriously.  Yet it is the positive economic impact of the circular economy that will provide a more appealing way to incentivise responsible use of resources by businesses.  After the Paris Agreement in 2015, we may soon see effective carbon pricing that reflects the externalities such as pollution and harmful impacts factored into markets, providing more incentives to transition to the circular model to capture the US$4.5 trillion opportunity.

Read original article: http://www.enterpriseinnovation.net/article/waste-wealth-capturing-us4-5-trillion-circular-economy-584662205