top of page
Search

The Economic Benefits of Embracing Circular Practices

Updated: Aug 22, 2023

Introduction to Circular Practices

Sustainable circular economy

A sustainable circular economy keeps materials, products, and services in circulation for as long as possible. Circular practices, also known as the circular economy or circularity, are a set of principles and strategies that aim to create a more sustainable and regenerative economic system. This differs from the linear practice of a "take-make-dispose" pattern, where resources are extracted, used to make products, and then discarded as waste after their useful life. The United Nations’ International Resource Panel has found that natural resource extraction and processing contribute to about half of all global greenhouse gas emissions.


There are two types of cycles that allow products and materials to be kept in circulation, The Technical and The Biological Cycle. This can be further broken down by specific technical cycle sectors such as e-waste or plastic packaging.


In the technical cycle, products are reused, repaired, remanufactured, and recycled.

In the biological cycle, biodegradable materials are returned to the earth through processes like composting and anaerobic (air) digestion.


Below is a diagram that illustrates how all these cycles and strategies interact


Technical and biological cycle

Cost Savings through Resource Efficiency


Cost Savings through Resource Efficiency

Embracing the sustainable circular economy and its practices can bring about several economic benefits for businesses, communities, and society. Savings can be achieved through several ways.


Lower operating costs by reusing, refurbishing, or recycling product. Focus on those that can be easily reused within the manufacturing process. Embrace lean management principles of maximizing value and reducing waste. These practices lead to lower material purchasing costs, manufacturing and labor expenses as well as energy usage. For example, corrugated boxes can have up to 50% recycled content and maintain their strength. Producing cans with recycled materials can reduce energy 95%. Right sizing product containers directly impact the amount of raw materials used. Repairing and refurbishing products can often be more cost-effective than producing entirely new items.


Optimized operations through B2B reusable packaging containers such as reusable pallets, crates, foldable boxes, pails, drums, and various alternatives to plastic pallet wraps. Transport packaging and dunnage is often reused but reuse can happen within the supply chain. CHEP’s pallet circular business model is based on the pooling concept of “share and reuse”. With the CHEP pooling system, pallets, intermediate bulk and other industrial containers are supplied on a rental basis. This eliminates the common GMA one-way pallet to a retailer. Sharing and reusing these containers makes them more sustainable among all users and brings economies of scale for distribution and logistics.


Improved user experiences from a higher quality product by investing in repairable and multifunctional products. The designs can then have an improved look, feel or functionality to reflect a higher-end appeal. The initial production cost and engineering can then be divided over many uses beyond single use.


Reduced waste management costs by minimizing waste and promoting recycling. This translates into lower waste management costs for businesses and local governments.


Creation of new market opportunities by adopting reuse and other circular practices. This creates new revenue streams and business opportunities. Companies that design products with longevity and recyclability in mind can tap into markets for repair services, refurbished goods, and recycling technologies. This leads to new industries focused on sustainability and circular economy principles.


The Circular Practice of reusable plastic packaging is a USD 10+ billion innovation opportunity that can deliver significant user and business benefits. *

*Source - Reuse rethink packaging from Ellen McArthur Foundation


A lower environmental impact reduces the need for resource extraction, energy consumption, and waste generation. This leads to a lower overall environmental impact which can mitigate potential costs associated with pollution and resource depletion.



ESG Investor Interest and Reduced Liability Risks


ESG Investor Interest and Reduced Liability Risks

Investor interest and access to capital will be enhanced by companies who embrace circular practices. Adhering to ESG principles improves the companies' appearance to socially conscious investors. It can also enhance a company's reputation, making it more attractive to all stakeholders, including the talent pool and reducing internal employee turnover.


Health and Environmental litigation exposure can also be minimized by utilizing natural organic and recyclable-type packaging, ingredients or materials in products. There have been multi-billion-dollar settlements by 3M and Dupont because products were introduced into the environment that did not break down. This significantly impacts share price and investor interest.


Finally, a commitment to sustainability and other ESG issues allows a company to differentiate itself from its competition and assures investors that the company has a strategy in place to mitigate risks.



Brand Differentiation and Reduced Supply Chain Risks


Reduced Supply Chain Risk

Improving brand recognition by designing higher value products with longevity and repair in the design will increase sales and profit margins. Consumers are looking for quality products. Companies should strive to make products durable, easy to maintain, and repairable. Classic examples of this application include the Levi jeans and Maytag washer brand appeals to durability. Robust designs extend product lifespan and reduce the need for frequent replacements. Additional sales can be generated through higher markups for replacement parts of wearable components. This practice elevates the brand name in the marketplace with a very loyal following of customers discouraging competition.


Gaining competitive advantages. Consumers are increasingly conscious of sustainability issues. Companies with environmentally responsible practices may attract more customers and build stronger brand loyalty. The Wharton School of the University of Pennsylvania found that consumers’ reason to purchase sustainable products and brands was their intention to improve the environment (30%), reduce production waste (23%), reduce their carbon footprint (22%), and be concerned with animal welfare (17%).


Lower material supply risks and supply chain disruptions by having less need for scarce materials subject to fluctuations in price. This issue drives innovation to increase resource efficiency of renewable materials or alternate designs which are not subject to material disruptions and cost variations. For example, computer generated designs that optimize material based on advanced modeling programs or utilize alternate renewable materials will lead to less dependence on scarce materials reducing risks from the global supply chain.


Amazon's approach to material reuse is a best practice. They state, “The best way to reduce waste is to avoid creating it in the first place through waste-prevention programs and optimized inventory management.” Recently they announced plans to update their supply chain standards in 2024. This new plan would require regular reporting and emissions goal setting for Scope 3 Market and Locational based large suppliers. In addition, they and Walmart have announced they will phase out padded bag mailers containing plastics in favor of recyclable alternatives.

Amazon's approach for material use

Common Obstacles and Challenges to Transition to a Circular Economy


Challenges to Transition to a Circular Economy

Transitioning to a circular economy can be a complex and challenging process that requires significant changes in business priorities, policies, and marketing approaches. Each organization is unique with its own offerings of products or services so there is no one size fits all. Some of the common obstacles and challenges faced during this transition include:


Concerns that the organization loses focus on its key product or goal initiatives and diverts valuable internal resources away from achieving its business objectives.


Cost considerations: Shifting to circular practices may require upfront investments in new technologies, processes, and infrastructure. This could be perceived as more costly in the short-term. Businesses need to recognize the long-term benefits and potential cost savings associated with circular economy practices.


Lack of awareness and understanding: Many stakeholders, including businesses, consumers, and policymakers, may not fully grasp the concept and benefits of a circular economy. Raising awareness and providing education about a sustainable circular economy is crucial to gaining support and commitment for the transition.


Lack of communications and collaboration within the supply chain: The linear economy is characterized by a fragmented value chain with intense competition among various component suppliers to the manufacturer. This discourages collaboration and sharing of best practices.


Limited technological infrastructure: Circular practices can require advanced technologies for recycling, material recovery, and remanufacturing. In some regions, the lack of appropriate technological infrastructure can impede the adoption of circular practices.


Consumer behavior and preferences: Consumer habits, such as the preference for new products over repaired or refurbished ones, can pose a challenge to circular economy adoption.


Lack of incentives and business models: Companies operating within a linear single use model might not see immediate financial incentives to adopt circular practices.


Access to finance: Transitioning to circular practices might require substantial capital investments. Access to finance and funding opportunities for circular economy initiatives can be limited, particularly for smaller businesses and startups.


Lack of a change management communication plan: Company norms and employees can be deeply ingrained in their current practices and resistant to change. This makes it challenging to shift attitudes and generate enthusiasm towards a more circular mindset.


The U.S.recycling system also faces a number of challenges. They include confusion about what materials can be recycled, inadequate recycling infrastructure which has not kept pace with today’s diverse and changing waste stream, reduced markets for recycled materials, and varying methodologies to measure recycling system performance.

The EPA’s National Recycling Goal to increase the recycling rate to 50 percent by 2030. The Strategy is organized by five strategic objectives to create a more resilient and cost-effective national recycling system:

  1. Improve Markets for Recycling Commodities.

  2. Increase Collection and Improve Materials Management Infrastructure.

  3. Reduce Contamination in the Recycled Materials Stream.

  4. Enhance Policies to Support Recycling.

  5. Standardize Measurement and Increase Data Collection.


Summary


Addressing these challenges to create a sustainable circular economy requires a collaborative effort between businesses, supply chains, governments, and consumers. A shared and proactive commitment to sustainability practices is needed. With a positive approach and a willingness to embrace innovative solutions combined with systemic changes can create a more circular and resource-efficient economy.

Talk to an ESG Consultant

89 views0 comments

Comments


bottom of page