The Circular Economy – Keeping Capital In The Loop

A significant shift away from finite resources

The circular economy is a different way of thinking about business. Unlike the traditional linear economy – where things are made, used and thrown away – the circular economy signifies a shift away from the consumption of finite resources. With the world’s population predicted to reach 8.5bn by 2030, pressure on our planet is only set to increase. Changing to a more sustainable business model, then, has got to be a good thing?

Moving from extraction to conservation

The circular economy redefines growth away from the traditional extractive industrial model. Its proponents believe that there can be a completely different way of doing business, which is renewable, sustainable, and comes with its own unique benefits. Central to this is the conservation of capital within a circular economic system. Manufactured items are not simply made to be thrown away, positive social values are upheld, and the natural environment is respected.

Within a circular economy there are two different kinds of cycles: technical and biological. In technical cycles, products and components are restored. Manufactured items are reused, repaired, and remanufactured, in order to conserve capital. In this model, recycling is a last resort, where no other viable economic value can be gained from an item. Biological cycles, on the other hand, do involve consumption. Biological materials – such as food – are consumed, but are then composted back into the system.

Businesses are coming around

As we move into a more environmentally and socially conscious business arena, more and more companies are acknowledging the importance of sustainable economic activity. The Ellen MacArthur Foundation works with businesses to accelerate the transition to a circular economy, and has spearheaded campaigns such as the UK Plastics Pact, and Make Fashion Circular, involving some of the biggest players in policy and industry.

In many ways, transitioning to a circular business model now – or at least acknowledging its key principles – is a way for companies to get a head start on the inevitable. As the world’s population grows, there will be more pressure on finite resources, not to mention economic downturns due to the growing impact of environmental issues. In this age of increased connectivity and social awareness, a business must demonstrate corporate responsibility in order to protect its brand. With the recent public backlash against plastics, several large corporates have done just that, with companies such as Mars, M&S, and The Coca-Cola Company pledging to fully switch to reusable or recyclable packaging by 2025. It’s a promising start.

How technology can help

Technology has an important role to play in the circular economy, and will also help to get us there. As a start, the increased connectivity of the internet has made it possible to find new homes for unwanted items in recent years with marketplace sites such as eBay and recycling communities like Freegle and Freecycle.

Whilst these portals have been around for some time, the disruptive technologies of today offer even greater potential to the circular economy. Virtualisation through Virtual Reality and Augmented Reality has had a significant impact on dematerialisation – meaning that fewer physical items need to be made, saving energy and minimising waste. The recent boom in companies offering products as-a-service is testament to the value of this business model. The UK sharing economy – as championed by successful startups Uber, Airbnb and BlaBlaCar – is predicted by PwC to be worth up to £140bn by 2025.

Improved data collection and analysis from technologies such as Artificial Intelligence and the Internet of Things also limits waste by providing accurate insights into demand and real time consumption. What’s more, whilst its practical application may be a few years away, blockchain technology enables greater transparency in supply chains. Radically improved monitoring capabilities can ensure ethical commodity provenance as well as minimising waste within economic activity.

A combination of modern technology and attitudinal change, then, will be key to the success of the circular economy. Whilst businesses and individuals have historically been slow to reform, adapting to sustainability is becoming less of an option, and more of a necessity. If we transition to a fully circular economy in the future, business activity will look radically different. However, if it means that we can protect the environment and human capital whilst maintaining economic growth, it will be a very welcome change. In fact, we will all stand to gain in the long term.

Could your company transition to a circular business model? What are the main stumbling blocks to instituting the circular economy? To what extent should we prioritise sustainability over profit? Share your thoughts and opinions.

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