This article was first published as editorial content on GreenBiz.com, authored by Anthesis Director of Circular Business Models Nellie Cohen and Anthesis Associate Director Michael Lenaghan.
The problem of increasing consumption
Despite the success over the last 40 years in making products with smaller footprints, we are not meeting the constraints of our planet’s boundaries. Seventy percent more virgin materials were extracted than what the Earth can safely replenish between COP25 in Paris in 2015 and COP26 in Glasgow in 2021. Today, biodiversity is declining faster than at any time in human history, largely because of the global north’s insatiable consumption habits. Global resource use has doubled since 1990 and is expected to double again by 2060, which is deeply problematic as it accounts for 50 percent of the world’s climate impacts and 90 percent of global biodiversity loss.
We find ourselves in a situation of being more sustainable, but this is not the same as being sustainable. While the impacts per product of what we make are declining, the total number of products produced is increasing even faster, resulting in greater impact overall.
To live sustainably, humanity must reduce our demand on natural resources and ecosystem services to levels our planet can permanently sustain.
To live sustainably, humanity must reduce our demand on natural resources and ecosystem services to levels our planet can permanently sustain. These “planetary boundaries” define what is and is not sustainable, and yet very few companies use them as the basis for their environmental targets. Instead, most companies set targets designed to improve their environmental performance against a historic baseline, allowing them to quantify how much “more sustainable” they’ve become, but never how close they are to achieving sustainability, the only goal that matters. It’s like judging your progress in a race by how far you’ve come from the starting line instead of how close you are, or indeed whether you’re even pointed towards the finish.
Setting meaningful sustainability goals is not an abstract process
Similar to the IPCC global GHG emissions budget, we also have a widely accepted global materials budget of 50 gigatons per year. By allocating this budget on a per capita basis, we can formulate regional budgets and then compare these to current usage to determine how resource consumption must change to meet sustainability and development goals. It’s important to note that the burden of reduction should not be shared equally. In high-income countries, the material footprint per capita is more than 10 times larger than in low-income countries and the method described above creates a just and equitable approach to saving our planet.
The role of business is to ladder up to these regional goals. But how?
Leading experts agree that the circular economy has a crucial role to play in addressing resource consumption, and by extension, all other environmental issues, including climate change. The Ellen MacArthur Foundation estimates that shifting towards renewable energy will meet 55 percent of global climate targets, but the remaining 45 percent of emissions that are attributed to the production of materials, products and food must be addressed through circularity. Similarly, the 2021 Circularity Gap Report found that if global circularity were doubled and all countries’ climate action plans were implemented by 2030, it would enable us to reach zero new emissions by 2050.
The argument for circular business models
A key component of the circular economy is circular business models (CBMs). Examples include resale, renting, leasing, product-as-a-service and subscription. CBMs encourage the least material use for the most utility through monetizing products that already exist. But beyond that, CBMs can be profitable, enabling business to largely disconnect the use of natural resources and the production of waste and emissions from revenue generation. There are few things with a greater overall environmental benefit than reducing material use, and CBMs are an incredibly powerful way to do this.
Fortunately, CBMs have become increasingly embraced by brands and consumers, as they can generate new customer acquisition, engagement and loyalty. Examples of successful programs span industries, from medical equipment to clothing to heavy machinery and office equipment:
- Circular solutions accounted for 16 percent of Philips’ revenue in 2021, up from 13 percent in 2019
- In 2019, 91 percent of eligible end-of-life returns were collected by Caterpillar for remanufacturing, totaling 153 million pounds of material. In 2021, over 8,000 remanufactured parts were made by 3,600 employees in eight global facilities
- Xerox remanufactured 6,050 office devices which included recovering 44 percent of products returned in the U.S. in 2020
- Apple directly offers a subscription model for iPhones
- Sales of used clothing in the U.S. saw record growth of 32 percent in 2021 and are expected to grow 16 times faster than the broader clothing sector by 2026.
Although these are examples of well-established CBMs, we have a long way to go toward converting linear economies to circular ones, and in turn seeing the indicators of planetary health improve. What would significantly accelerate this course is for companies to start setting true sustainability goals based on planetary boundaries and using circular business models to achieve these goals.
However, very few CBMs are establishing meaningful financial goals to replace the company’s linear revenue with circular revenue. At worst, some CBMs are simply greenwashed sustainability marketing ploys that reinforce the linear economic systems due to the poorly planned structure of the CBM. It is no longer enough, or even morally right, to proclaim that a company is circular without providing evidence that its CBM is reducing the environmental impacts of the organization.
CBMs are not box-checking exercises
Business should be applying life cycle thinking to the design of their CBMs to evaluate and measure the impacts resulting from transporting, cleaning and refurbishing processes. They also need to consider negative externalities which might result from misguided incentive structures that encourage the continued purchase of new items or continued use of inefficient products.
And it is critical that businesses fund CBMs with levels of labor and financial resources commensurate with what would be applied to developing a line of new business at an organization. Lastly, the progress towards achieving circularity should align with sustainability goals defined by planetary budgets. Specifically, this means that an organization commits to reducing production of new things with the revenue generated from a CBM.
A key strategy for achieving sustainability targets is to transition our linear economy to a circular one.
A new, sustainable economy
These recommendations have truly transformational potential. Establishing a forward-facing approach to sustainability targets based on planetary boundaries, not historical baselines, will put humanity on a path to being sustainable, not just “more sustainable.”
And a key strategy for achieving these targets is to transition our linear economy to a circular one. To build this new economy, we need businesses to develop commercially successful circular business models that dramatically reduce use of virgin raw materials. By reducing resource consumption, we don’t just reduce the environmental impact of the resources we consume; we can nearly eliminate them altogether — and not just GHG emissions, but all of them. This simple but critical shift will be a powerful enabler for living within the boundaries of our planet.