Circular economy

Circular is not always sustainable

Strategy insights

The circular economy is hot. A growing number of entrepreneurs, policymakers and financiers use this term at every possible occasion, appropriately or not. But is it also happening? Because there is really only one criterion that decides whether the circular economy is a success: does it enhance sustainability?

There are different interpretations of what a circular economy is. A widely accepted one is that it is a society in which everything is aimed at using materials and commodities from natural sources as long and as efficiently as possible.

Is circular also sustainable?

Cycles play an important part in this. But recycling - which is often what comes to mind first - is in fact what you don't want: this implies that materials have already become waste. And that is exactly what you want to prevent. A circular economy must also be a sustainable economy. The application of so-called circular principles or business models alone is not enough for an economy to deserve to be called sustainable. Companies sometimes abuse the circular principles, which ultimately contributes to the further destruction of the planet.

Fine circular examples

Yet there are fine examples of the circular economy. Fairphone, the modular telephone designed with the aim of destroying as little material as possible and to last as long as possible. Roetz-Bikes, bicycles made from old bicycle frames. Mud Jeans, jeans that are produced from organic cotton and that can also be leased. Philips, which instead of light bulbs sells lumen - or light - to some of its customers.

Roetz bikes
Roetz-Bikes is on its way to producing circular bicycles.

All these companies are working hard at exploring small segments of the circular economy. By trying to use raw materials as efficiently as possible, by making products that can last much longer or, at least in the case Philips and Mud Jeans, by remaining the owner of products and services instead of selling them.

Not quite circular after all

But even these examples are not based on fully circular business models. In most cases only a part of their operations is circular, for instance at Philips and Mud Jeans. Often it is not possible to reclaim all the material that has been used in the product, as is the case at Fairphone. But these companies are at least moving in the right direction.

There are also examples of ‘circularity’ that are less successful. For instance, there are still people who claim that Airbnb is a circular company. Because it allows for existing housing to be used more efficiently. But that is only true in theory. In practice, its business model leads to crowding out: houses and apartments that are only used for letting. As a result, the housing shortage in inner cities is becoming more acute, air travel is increasing and tourists with wheely bags are becoming a bigger nuisance. This has nothing to do with making society more sustainable.

New circular markets

Often the easiest way of making money with circular products is by creating a new market instead of replacing non-circular products. A good example is the second-hand market for smartphones. There is a roaring trade in refurbished phones. Over the past few years, many retail chains specialising in this have sprung up.

And of course, it is a good thing when devices that were made using a lot of precious materials are given a longer life. Except, these old devices are no replacement for new devices. They are used by a different - new - segment of the market, for instance by schoolchildren. This sort of business model ultimately does not result in less but actually in more material being used.

Five tips for sustainable business models

Something that may seem very sensible on a micro level, may cause even more damage to the planet. So how can this be avoided?

Fortunately, it is quite simple to specify when circularity does result in sustainability and therefore less material use. Five tips for sustainable business models.

  1. Use less raw material. This is the easiest way of enhancing sustainability and we have already been working on that for a long time. This does not yet constitute circularity, but it does help.
  2. Substitute renewable resources for fossil resources. This will of course only work if those renewable resources do not stand in the way of the supply of food or other functions.
  3. Substitute secondary resources for primary resources. So, a refurbished mobile phone that is bought instead of a new one is good. Buying a second-hand pair of trousers instead of a new one is also good.
  4. Take responsibility for products after they have been sold. It does not matter whether you do this on the basis of a product-as-a-service model or by offering longer warranty or free repairs. As long as it makes products last longer, it enhances sustainability.
  5. Make sure that products last longer and are used more efficiently. For instance, sharing tools via a sharing platform is hugely circular. But putting thought into modularity when designing a product also helps.

The circular economy is one of the seven transition themes that guide Triodos Investment Management in the construction of its SRI-portfolios.

Read more about the circular economy Hans Stegeman’s column ‘True pricing is not enough to make an economy circular’.

This article is a translation of an interview with Hans Stegeman, published in De Kleur van Geld in November 2018.

 

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