12 Sep, 2022

Three ways the circular economy can create value beyond circular material flows

We know the linear economy is damaging our planet and impacting human health. Under the linear model, production and consumption have gone unchecked: the use of resources has tripled since 1970, putting increasing pressure on resource availability and producing more and more waste. What’s more, about 45% of global greenhouse gas emissions come from manufacturing and food production.

Imagine we were to continue along this linear path. Our demand for resources could double in the next 20 years, requiring the equivalent of 1.5 Earths. Our GHG emissions would continue to rise, and air, water and soil pollution would worsen, causing more than the 9 million deaths that already occur as a result every year.

We have reached a tipping point, and the time has come for decisive action. The interconnections between humans, the environment, and our economy have become more visible in recent economic, climate and societal occurrences. The world is looking to businesses to help drive the move to a new economic model that rebalances this complex relationship. 

Circular economy strategies have been shown to mitigate risk and harm: by rethinking our use of resources, circular approaches can cut greenhouse gas emissions by almost 40%. Beyond that, a circular economy can regenerate new forms of value creation in business and society. Despite this, in its fifth year, the annual Circularity Gap report reveals that 90% of our production and consumption activity remains the result of legacy linear processes. Why is our current economy still less than 10% circular?

Many of the ways the circular economy can create value are overlooked because it is often not seen in the context of our interconnected world and society. Recycling and circular design are not the only benefits of a circular economy: there is far broader value in terms of materials, innovation and social impact. Here are three of the most overlooked aspects, and how businesses can create value by incorporating them. 

Better chemistry means better products

To get a clearer picture of the value of the circular economy, we need to consider chemistry. Most of a product’s impacts are determined during its design and development, but this happens at a deeper level than is usually acknowledged. Rather than simply designing products to be used, reused and recycled, to be successful the circular economy needs the right materials to be circulating to begin with.

This is why chemicals are at the core of the circular economy: you get out what you put in. Before you can responsibly design products with continuous cycling in mind, you need to select chemicals as inputs that do not harm the health of people or the planet.

This has a positive impact on the products as outputs too. When manufacturers use safer chemicals intentionally, the materials entering and remaining in the circular cycle are better quality. This, in turn, means safer, better quality products, which systematically push harmful materials out of circulation and contribute to high-value cycling.

Ultimately, this opens up whole new market and revenue channels that are driven by safe, regenerative materials flows. Additionally, the more you prioritize safer, better quality inputs and outputs, the greater the potential for innovation throughout the supply chain. 

Better approaches to innovation drive growth

The tremendous waste our current linear economy produces can be turned around in the circular economy through innovation: the circular economy is currently an untapped opportunity to access more than $4.5 trillion in economic benefit, plus it has the potential to generate as many as 6 million jobs (net) by 2030.

But traditional black-box approaches to innovation will not be enough to make this a reality. Businesses will need to embrace open innovation – an approach that involves collaboration with people and organizations across and outside of the company. Open innovation can drive value creation in many ways, including by bringing together partners with complementary skills.

In the circular economy, business and society have much to gain from collaborations that focus on data sharing and the joint development of system solutions. For one thing, to face interconnected challenges, you need dynamic, interconnected solutions – the kind that are created by groups rather than individuals. Pre-competitive collaboration and partnership can accelerate these solutions and power the systems thinking needed for future-oriented innovation.

By actively continuing to embrace these open innovation practices within and across sectors and industries, you can create value for those involved and for the planet and society. 

Better distributed social value creates benefits for all

Given the urgency of our climate crisis, conversations about the benefits of a circular model usually focus on the environmental and economic benefits, while social benefits take a back seat. However, given the interconnections between these factors, circular models can have a positive impact on not just environmental justice, but also social justice.

The circular economy encourages the kind of inclusive systems-thinking that enables business to take ownership of its intrinsic social impact – and its capacity to affect positive change. But it won’t be socially just without effort – we need to take an intentional approach to designing the circular economy.

This means going beyond the usual boundaries to drive more meaningful change: instead of measuring only the quantity of jobs created, the focus in the circular economy should be on their quality. Rather than focusing solely on equitable business practices within the company, we should extend our reach throughout the value chain and into local communities.

You can maximize the value you create through a circular business model when you involve diverse communities in designing it, give them access to the solutions and distribute the economic benefits equally throughout the value chain.

As the interconnected nature of our economy, environment and society becomes more and more visible, so too do the opportunities to create value with a new circular economic model. Recognizing these often overlooked types of value creation will encourage the move towards more responsible production and consumption and help us close the gap between where we are and where we need to be, to protect our planet and strengthen society.