When the who’s who of business and world leaders met at last month’s World Economic Forum in Davos a different industrial model was on the agenda: the circular economy.
It’s a term the average person may not have come across yet, but the idea has gained sufficient traction in business, political and environmental circles to be the subject of a report released at the Forum’s influential annual meeting and to be the focus of an initiative supported by leading companies to encourage business to embrace its principles.
Often, we are throwing away valuable resources in this “linear” model. Without change, this can only get worse as three billion new middle-class consumers enter the global market in the next 15 years.
The circular economy addresses these unnecessary resource losses.
How does it do that? More recycling is part of it but the circular economy involves much more. It is a model of industrial production which involves designing products so they last longer, so they can be repaired and upgraded, so they can be reused or resold (on eBay, for example), and so their materials can be used in remanufacture.
It is a more “restorative” process, where components and materials can be reused many times.
This will involve a shift on the part of businesses that are accustomed to generating ongoing revenue via planned or “inbuilt” obsolescence.
One example of the sort of switch that might be involved is for businesses to sell services instead of products – for example, selling “hours behind the wheel” rather than selling cars, which is what happens with car-share schemes such as GoGet, Hertz 24/7 and GreenShareCar.
This sort of change is starting to happen, but the report launched by the WEF and the Ellen McArthur Foundation at Davos last month considered a crucial issue: how to scale up the circular economy model.
Dominic Barton, Managing Director of McKinsey & Co, which collaborated on the report, spelled out the business case. The world economy is A$72 trillion in size but applying the circular economy model would lead to at least $1 trillion in savings immediately, he said, and potentially much more in years ahead.
These savings would flow from waste reduction and lower capital requirements for businesses. Other potential benefits include reduced volatility in the price of inputs, along with greater innovation and job creation.
Remanufacturing and recycling in Europe, for example, already employs more than one million people. There, companies such as Renault have found that while remanufacturing is more labour-intensive, reduced waste and lower capital expenses mean profits are maintained.
theconversation