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Sustainability - March 2020

26 Feb 2020

Preparing for a circular economy

By Dr Kaushik Sridhar

According to Circle Economy’s Global Circularity Report released in 2018, only nine per cent of the world’s resources are cycled back into the economy after use.

The concept of the circular economy left the realm of academic theory and entered the world of business a long time ago. The price of natural resources and materials is increasing, and in response to volatile markets and increasing competition, developed nations are examining this alternative economic model.

A circular economy is one that exchanges the typical cycle of make, use, dispose in favour of as much re-use and recycling as possible. The longer materials and resources are in use, the more value is extracted from them. This could contribute towards reducing Australia’s dependence on critical materials including cobalt, fluorspar or gallium, and also reduce overall demand by recovering the resources, nutrients or energy contained in products at the end of their useful life.

Extending the life of products and materials prevents the over-generation of waste and recovers the full value of products. This would create new business opportunities and revenue streams while minimising the environmental impact of mining, resource extraction, refining and manufacture.

The global consumer sector is expected to grow five per cent per year for the next two decades, but environmental and social problems pose a real threat. It is estimated that more than half the value of some of the largest companies in the world depends on their projected growth, which is vulnerable to issues such as drought, government limits on greenhouse-gas emissions, and reputational damage from a lack of attention to pollution and safety.

Here are three ways the broader Docklands community can prepare for a circular economy:

1. Understand the “why” behind your decision

The starting point for any circular economy effort is to ask, “why should we do it?” Re-tooling business operations (and mindsets) to produce environmentally sensitive products takes time, money and commitment. Companies launching circular economy programs cannot go down this path lightly. It is vital to gain input on any potential plan from internal and external stakeholders. The last thing one wants is to appear to be “greenwashing,” so it is important to know if sustainability programs under consideration would be viewed as meaningful or meaningless by customers, citizens and key stakeholders.

2. Consider new business models

Economic growth in emerging markets has helped to raise living standards, but inevitably, it has also generated massive consumer and industrial waste. Many municipalities in these markets spend up to half their budgets on solid-waste management.

The traditional linear model most businesses still use has always stressed the idea of ownership. Once a product is produced and sold, the manufacturer hands over responsibility for it. Then it is up to the owner to maintain, dispose and ultimately replace it.

In the circular economy, however, ownership is no longer a key consideration. Product service models begin to come to the forefront, enabling customers to use products through a lease or pay-for-use arrangement rather than the conventional buy-to-own approach. 

Innovative businesses, however, drawing on circular-economy principles, are finding ways to convert trash into income streams. By aggregating volumes substantial enough to justify business investments, they can create the infrastructure to organise and manage waste supply chains.

3. Explore supply chain opportunities

With the old linear manufacturing model, companies take resources from the planet and shape them into products that sit in warehouses until they are ready to ship to customers across sometimes vast distances. Each of these steps carries costs, creates waste and can adversely affect the environment.

When managing their sustainability performance, consumer companies often start with their own operations. The largest opportunities for improvement, however, can be found in supply chains, which typically account for 80 per cent of a consumer business’s greenhouse-gas emissions and over 90 per cent of its impact on air, land, water, and biodiversity.

In the circular economy, disruptive technologies such as 3D printing will shorten supply chains, reduce carbon emissions and eliminate production waste and overstocked warehouses by bringing production closer to the point of consumption. It will also eliminate the need for larger, energy-consuming warehouses as it shifts production to more of a just-in-time (JIT) inventory system.

Today’s take-make-waste economic model is not fit for purpose. Embedded in this linear economy tradition lies a toxic cocktail of negative consequences, ranging from social inequality to depletion of natural resources, environmental pollution, and worsening of the risks and effects of climate change.

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