• Team Finuprise

Why To Invest In Circular Economy Companies

“Imagine children reading the word garbage in their history books in 2050 and asking their teacher ‘What does this word mean?”

Circular think-tank CRCLR [1]



Environmental concerns are one of the leading issues of this decade. NASA found that if the planet gets warmer by 1.5 degrees (on the current trajectory), countries will face severe heat waves, droughts, flooding, extreme precipitation, cyclones, loss of species and biodiversity, increase in ocean acidity, decrease in oxygen levels, disease and higher mortality for humans.[2] In today’s world, industrialisation has made it cheaper for producers to outsource labour and ship products than produce locally. This global division of labour may result in a lack of quality control, exploitation of the vulnerable, and an uneven playing field where powerful nations and a few big companies dictate the working conditions of weaker nations. Circular thinktank CRCLR found that an item in wealthy Europe is worn on average seven times before disposal, and even more disturbingly, a third of food produced globally is thrown away.[3] This wasteful model results in the average person producing 1.2kg of garbage per day. [4]


However, not all hope is lost. An innovative way of doing business is emerging: “circular economy” - a new model that is inspired by nature. There is no waste in nature. Materials are not thrown away or wasted, but instead remain in “closed loops”. Products are designed and manufactured in a way to be reused again after the end of its lifetime.


At the forefront of this transition is the Ellen Macarthur Foundation (EMF), one of the leading charities on circularity. The EMF foundation was started by Ellen Macarthur, who became famous in 2005 for breaking the world record for the fastest solo circumnavigation of the globe. Macarthur reflected that on her time on her sailboat, she had everything she needed to sustain herself. In fact, she had to be mindful about her resources, as carrying any additional weight or not being aware of what resources she had could mean the difference between life and death. She carefully curated her items, repairing them again and again and prolonging their use. Once back on land, she created a butterfly model on how products can be similarly designed to be good for the environment.



Figure 1: The butterfly model from EMF [5]


In the butterfly model above, materials are separated into biological (left wing) and technical (right wing) components. Most products today are disposed of at the end of their useful life. However, under the butterfly model, the technical components of products can be restored, and the biological components can be put back into the earth to increase value and close the loop. The hallmarks of circularity are carefully designed products using the best materials for a long quality of life, and modular design in order to be decomposed for zero waste and repurposed easily.



Circular business models


Circular companies have come up with innovative circular business models that focus on either the revenue or cost side.


  • On the revenue side, there is a product-as-a-service leasing or rental model. A classic case of this is the Philips light-bulb. Philips redesigned their product as a service, by offering lighting solutions that are leased. The company maintains the lighting solutions and pays for maintenance and the customers never own the lights. At the end of the useful life of the lighting solutions, Philips reuses materials from the product to repurpose waste. A very apt question to reflect upon for customers is: “why would you want to live in a world where a light bulb costs 2 euros… if it was made in a sweatshop with unsustainable materials with a dangerous disposal process down the line?”. By having these conversations on why current light bulbs are so cheap and disposable, it leads to a new innovative product where you use the same light bulb for life and invest in quality lighting solutions instead of the disposable type.


  • On the cost side, circular initiatives can introduce cost efficiencies for companies. An example of this is the Kalundborg Symbiosis. It is a partnership made of 11 public and private companies located in Denmark, where waste from one company is used as a resource at another.[6] It is the world’s first industrial symbiosis with circular closed loop cycles, benefiting both the environment and the economy. The Ørsted power plant produces steam as a by-product, which is then supplied to the general power turbine for the electricity grid, which supplies energy to the other partners at the Kalundborg Symbiosis, as well as households in Kalundborg City. The steam, which would otherwise be wasted is reused.


Where is the greatest impact?


The Circularity Gap Report found that construction is one of the world’s greatest polluting industries.[7] Of society’s seven needs and wants outlined by the Circularity Gap Report, ‘housing and infrastructure’ represents the largest resource footprint, accounting for ~44% of total material footprint.[8] Therefore, if you want to have the greatest impact as a consumer, supporting housing and infrastructure companies that create zero waste products using circular initiatives is the best place to start. Many companies are starting to reuse waste materials, separating bio and technical components, so bio waste can be reused or put into earth at end of lifecycle, and technical components can be repurposed.



What are the criticisms of circular economy?


The biggest criticism of circularity is that it is still too early to tell the true impact. Since it is such a novel business model, even companies that are pioneers in the space acknowledge it will be another 5-10 years before they see customers returning products in order for the companies to repurpose the products at the end of the life cycle. It is yet to be proven if this is a financially sustainable business model ultimately. In response to the critics, it is only a strength of the model that it will take time before we see the impact, as a longer life cycle of products speak to the quality of craftsmanship, and lesser impact on the environment. In a time when we cannot afford to keep the wasteful status quo, companies cannot afford to not innovate, consumers cannot afford to not support circular initiatives. The easy answer is, yes, you should invest in circular economy companies and support them not only financially through your investments, but on a governmental level to push for policies that help companies in transitioning to a circular business model.


The last criticism is that, as with other eco-innovations, you need to look beyond the surface level to determine if a company is as circular as they say. Avoid greenwashing by supporting companies that truly separate out the bio and technological components in their products, and have closed the loop. For instance, there is a furniture company that brands itself as a circular company. However, upon further research it's clear that the company is greenwashing. They use ocean plastic that is blended with wood palettes and synthetic dyes. This means there is no way of unblending the material. At the end of the product life cycle, the furniture will get downcycled (recycled with loss in quality, which is energy intensive). In the worst case scenario, the materials in the furniture will get thrown away in the traditional way when it cannot be downcycled anymore. A truly circular company would not blend in the wood palettes with plastic, and instead keep bio and technical materials separate, so they can be fully repurposed at the end of the product life cycle. Certifications like the cradle-to-cradle will help in determining the legitimacy of circular products.



The final takeaway


Yes, supporting circular businesses is a fantastic way to have a positive change on the environment. For the largest impact, consumers should support circular construction / housing / infrastructure companies. According to the Circular Gap Report, only 9% of the world is circular.[9] In order to transition to a new sustainable society, new ways of design must be informed by new values outside of profit, with sustainable practices and creative conversations.


 

[1] CRCLR. (2020). “Circular economy”. https://crclr.org/de/ueber-uns/zirkulaere-wirtschaft

[2] NASA (Sonntag, J). (2019). “Selected Findings of the IPCC Special Report on Global Warming”. https://climate.nasa.gov/news/2865/adegree-of-concern-why-global-temperatures-mattera/

[3] & [4] CRCLR. (2020). “Circular economy”. https://crclr.org/de/ueber-uns/zirkulaere-wirtschaft

[5] EMF (n.d.). “Circular Economy Infographics”. https://www.ellenmacarthurfoundation.org/circular-economy/concept/infographic

[6] “Exploring the Kalundborg Symbiosis”. (n.d.). http://www.symbiosis.dk/en/

[7], [8] & [9] Platform for Accelerating the Circular Economy (PACE). (2019). “The Circularity Gap Report. Closing the Circularity Gap in a 9% World.