The Circular Economy
Sustainability as a Competitive Advantage
The circular economy is often dismissed as a fringe concept that is incompatible with the goals of business, but that perception is beginning to change. Lucy Ingham hears from Accenture’s Peter Lacy about how it can instead be a driver of growth and innovation
Built on the premise of maximising resources, the circular economy has long been dismissed as incompatible with the realities of modern business. However, that looks set to change.
Peter Lacy, sustainability lead, Accenture
“Accenture believes that circular economy is a $4.5tn global opportunity over the next 10 years for companies to produce the products and services that allow customers and consumers to derive the value that they need, but decoupled from scarce and harmful natural resource use,” said Peter Lacy, senior managing director of Accenture Strategy UK & Irelands and sustainability lead, in a talk at Web Summit. “And at the heart of what we're trying to do at Accenture using our core business is to provide strategy advice, technology solutions to help clients unlock the potential of the circular economy.”
The consulting giant isn’t the only company taking serious interest in the circular economy. Major brands as diverse as Dell, Timberland and Energizer are investing it its potential, seeing it not simply as a means increase their green credentials, but as a core part of the emerging fourth industrial revolution.
“For us the circular economy is an innovation concept. It's a way of thinking about how you engage with customers, with consumers, with new business models on the one hand, recovery and recycle models, extended life cycle models, sharing economy, shifting from products to services. The next generation of circular supply chains,” said Lacy.
“How, on the one hand, you deploy that with the extraordinary array of new technologies emerging in the fourth industrial revolution, and how you combine those to create an opportunity not just to drive real sustainability impacts, but to drive competitive advantage.”
What is the circular economy?
At its core the circular economy has the potential to be truly disruptive, moving businesses away from a traditional linear model and towards an approach focused on long-term sustainability.
“At the macro level, circular economy is about shifting away from value chains that we've put in place over the last 200 years since the first industrial revolution, which was based on the principles of infinite abundance of natural resources to power our global economy,” explained Lacy. “These were linear value chains; just to oversimplify, it was about take, make, throw away and waste.
“The circular economy is about thinking how we redefine the relationship between the economy, between the products and services we want with those scarce or harmful for natural resources, so we move to a take, make, take, make, take, make world and society.”
“Circular economy is not a concept that is against markets or even against consumption. This is not an anti-capitalism, anti-business agenda.”
Taking this approach, argues Lacy, enables companies to use the circular economy as a means to innovate, not restrict their operations.
“If you start from that perspective, and you start from that as an innovation concept, then the challenge is for you to start with that in mind; deliver for customers, deliver for consumers, but decouple the scarce or harmful use of natural resources,” he said.
“I think the key concept for me is the shift from products and services and the dematerialisation shift. Circular economy is not a concept that is against markets or even against consumption.
“This is not an anti-capitalism, anti-business agenda; this is a way of saying, look if we're going to create a global economy that's capable of sustaining this, we need to find ways of decoupling those scarce and harmful natural resources.”
Back to basics: taking a different approach to the cost base
The circular economy has already proved successful on a limited scale, albeit with niche brands. Luxury outdoor apparel and footwear company Patagonia, for example, was awarded the World Economic Forum’s Circular Economy Multinational Award for its efforts in this area. However, for Patagonia customers sustainability is a key concern, making the approach highly suited to the company’s brand values.
But for other more mainstream brands where sustainability is a less significant aspect of their operations, can the circular economy still provide value? For Lacy, it is about using the approach as a cost-reduction tool.
“How do you get that into businesses where maybe rather than brand affinity or loyalty or the higher end of luxury brands, when it's not that but it's about a cost proposition, where it's about perhaps a product or service that has a low attachment; just an everyday consumer good?” he asked.
“I think each category, each industry, each company needs to go back to basics and look at how circular can drive out cost in terms of wasted use of natural resources. When we're using energy, or water or materials inefficiently, unproductively, that adds to the cost of goods sold for companies. Actually re-evaluating that and actually being more efficient, more sustainable, allows companies to look at the cost base differently.”
“There are plenty of opportunities to attack the revenue line and the cost line through the radical shift of the circular economy.”
As part of this, Lacy believes businesses need to look at what could be described as the hidden inefficiencies within their business, which add costs that are often considered inevitable, if they are even thought about at all.
“[For] mainstream companies, there are plenty of opportunities to attack the revenue line and the cost line through the radical shift of the circular economy,” he said.
“When you start to look more carefully at the value that you deliver for a customer and think carefully from first principles why you have such heavy embedded natural resources in that business model, it's a way of going back to basics and doing that.”
One example is in mobility, which Lacy sees as riddled with inefficiencies.
“It clearly cannot make any sense to have a mobility system that currently functions on the basis of 1.2 drivers in each car in a situation where 98% of the time your car sits on your driveway,” he said.
“In the industry as a whole, private vehicles are operating probably between 1 and 2% efficiency. If you think of the embedded energy, the embedded materials, not just in terms of the capital cost of the actual physical equipment but then the running costs, the drag that has on productivity in cities like Sao Paolo because they're congested, you just look and say this doesn't make any sense.”
Here and now: making the circular economy work today
One common criticism of the circular economy is that it cannot be successfully implemented without further regulation. However, Lacy believes that for many companies it can work “here and now”.
“The model that we've heard from Patagonia works here and now,” he said. “There are other models in other industries where we do need regulatory intervention, where we do need externalities internalised in markets in terms of pricing, where actually the market does not clear at the moment.”
“The $4.5tn that I talked about, we believe that is an opportunity that does not depend on any regulatory policy initiative out to 2030.”
When it comes to scaling the circular economy globally, however, more work is required.
“On the one hand you need real innovators showing how to come up with models that disrupt the status quo and are far more circular, on the other hand we are going to need to get smarter at measuring what we really want in the outcome of economies disrupting the idea of GDP coming in with pricing signals and so on,” he said.
“The $4.5tn that I talked about, we believe that is an opportunity that does not depend on any regulatory policy initiative out to 2030. So that's a real opportunity here now. Now you price carbon into that, or you extended producer responsibility for the take back and flow of materials and it could be orders of magnitude more than that in terms of the opportunities.”