Circular Business Models

Business Models in the Circular Economy – Getting the circle spinning

Our economy has worked very well in its linear form. An annual material extraction rate of 84 billion tonnes – and growing, and little consequences of what happens with the 1.3 billion tonnes of waste produced – has led to global GDP growth. But what if humanity can no longer operate like this – because of the finite nature of resources, of the ecological consequence of our activities and of projected population growth – 9 billion by 2050. We still need jobs and a healthy economy, but clearly, we need to change. These are the drivers towards a circular economy, which includes an evaluation of new and existing business models that can support a circular flow of resources.

A circular economy is one in which resources are retained, rather than quickly being discarded as waste.  Resources should be retained at a ‘high value’, a requirement that stops resources being systematically down-graded and therefore replaced by virgin materials.  This is, fundamentally, the waste hierarchy – but in 2018 with the progression to circular economy thinking, we should really re-brand it the materials retention hierarchy (figure 1.)

The current business landscape (political, economic, social and technical factors) does not yet widely support models that encourage resource retention strategies –too much ends up as waste – a problem rather than a resource. Circular economy concepts can only develop if they make business sense. Some business models have become synonymous with the circular economy – rental, leasing and servitisation, for example, generate income for companies while they retain ownership of the product itself. Car sharing rather than car ownership, printing services rather than photocopiers, lighting services rather than light bulbs, etc. These models can lead to greater circularity – the economic benefits of product longevity, for example, become more significant to the product owner if the drive is to sell services, not products. Decisions about what to do at the end of life can be clearer when the product manufacturer or retailer still owns the product.

Second hand shops have been a mainstay of high streets for many years, but a culture of taking used products back is now becoming more widespread – there are examples of clothes, furniture, carpet tiles, mobile phones and many more. How to deal with returned products can vary depending on factors such as product and material value, ease of disassembly, levels of contamination and markets for components or recovered materials. Upstream, at the manufacturing end of the value chain, some businesses are already looking to increase use of secondary raw materials, minimise materials use, consider materials substitution and improve design for a circular economy.

Where circularity is a business objective, a business model may have to be changed or enhanced; possibly meaning different value propositions, partners, revenues streams, costs and investors etc. Transitioning to a circular economy will instigate change – there will be opportunities for new businesses to form, for new partnerships to develop, for new products, for using new technologies in efficient ways – and there will undoubtedly be winner and losers.

Business models themselves of course don’t necessarily lead to greater circularity – maybe old products are sold off before reaching end of life, leasing might encourage consumers to replace products more often than they otherwise would, the infrastructure or markets might not exist to recover value from a product, component or secondary material, whoever owns it. For this reason, ECOBULK includes economic and environmental assessments of the products and concepts developed. Business cases will be tested, and an analysis made as to whether the new business models support increased circularity or not.

ECOBULK will first describe how models currently support the linear patterns of the products we are looking at, and how they might be impacted by circularity. We will look at how changes in the design of the pilot products will change the business opportunities arising in a circular economy. The consortium has partners of very different business sizes operating in three different sectors. This variety will provide a wealth of information and opportunity to investigate the business cases and business model aspects of circular products.