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Planet needs circular economy. Are businesses listening?

Some industry verticals have an influential customer segment that advocates affirmative action against climate change. They buy brands that behave responsibly and are vocal about their choices.

Having spent a fair amount of time in a remote village, I had a revelation of sorts. This wasn’t some Eat Pray Love moment. But something rather mundane. I had piled up a significant amount of plastic waste despite my attempt to lead a simple life. Ironically, Amazon delivery could reach where a municipal truck could not. So, every time I ordered some bare necessity, like food or hygiene products, I essentially ordered more plastic. It’s when the municipal truck does not roll in that the full magnitude of the plastic waste problem becomes apparent. It just keeps mounting. The challenge of treating plastic waste in an environmentally safe manner became an obsession for me. I could fully appreciate the importance of transitioning to a Circular Economy (CE).

Studies show that the shift to renewable energy can only fix 55 per cent of greenhouse gas emissions; the balance 45 per cent comes from how we make and use food, clothes, cars, and products of daily use. Circular economy offers a clear path out of the climate mess.

It has been more than nine months since I first wrote about Circular Economy. Since then, the chatter on adopting CE practices has grown, signalling strong gusts of change. The year 2021 saw an unprecedented momentum for CE and not the least because of Cop26 held in Glasgow late last year. Goals were set, pledges made, reports published, and conferences attended.

Yet, did words translate into action? Have businesses started to build regenerative systems to design out waste? What does the CE scorecard look like for businesses?

Early signs include a sustainability report and the appointment of a CE manager. The job role tells you the general intent of the organisation. The Circular Economy paradigm demands a rethinking at a fundamental level. The task ahead appears daunting because we need to transform production and consumption mechanisms; how we create and how we use; how we build and how we consume, how we treat and reuse our waste.

A widespread adoption of CE practices is yet to happen. In each industry vertical, a few companies, possibly leaders have embarked on a CE journey. But CE can become mainstream only if entire supply chains make a transition.

Sociology suggests that organisational isomorphism occurs because of coercive, mimetic, and normative forces. Coercive pressures typically come from regulation, compelling companies to take action to avoid penalties. Current regulations have forced organizations to recycle, treat effluents, and adopt clean energy. Nearly a fifth of 2,000 public companies globally have committed to net zero, which involves reducing or offsetting emissions by green initiatives. The targets set by these companies are not always backed by the ‘how’. This attracts criticisms of green washing.

Agri-food businesses are doing away with single use plastic for consumers. Yet, while Amazon delivered my food items in cartons and brown paper, the individual food items came in plastic bags. I wish I could have returned the packaging through the delivery person for the seller to reuse. Can food containers be designed for reuse? Can the customer be incentivized to use reverse logistics? This will happen when normative and mimetic pressures come into play.

Normative pressures come from social norms. Consumer expectations borne out of climate change awareness is one such example. Some industry verticals have an influential customer segment that advocates affirmative action against climate change. They buy brands that behave responsibly and are vocal about their choices. Industries such as fashion have taken small steps to address take-make-waste practices. It is not uncommon to find tags on clothes stating the percentage of the product that came from recycled or reused material.

Energy companies are already being pressured by investor and climate activism because of a disproportionate reliance on fossil fuel, especially coal. Energy companies have, however, largely focused on plastic waste management as opposed to transitioning to renewable energy. Some are merely looking to spin off their coal assets rather than dealing with them responsibly. Recent acquisitions of Synova by Total suggests that Tech Startups will play a major role in helping energy companies transition to CE.

These are still baby steps because normative pressures are not strong enough. Not all customers are open to used products. Consumer attitude towards used products could range from strong aversion to mild hesitancy, especially when the pandemic hasn’t ended. However, consumer mindset is shifting from ownership to usage and performance. Imagine buying 1,000 wash cycles in a washing machine. Bosch is educating customers to use its DIY tools to upcycle old material into garden fixtures.

Lastly mimetic pressures involve imitating industry best practices borne out of shared concepts and beliefs. Once companies begin to feel mimetic pressures, we will see a more widespread adoption of CE practices.

A recent study (Tommaso Calzolari et al) suggests that end-of-life material recycling, greater dependence on renewable energy and resources utilisation efficiencies are the most common CE practices. However, not much has been done for product reuse. This is mainly because of the tight interdependencies in the supply chain. But we can expect supply chain innovation for the right reasons.

Why would businesses take the trouble to cooperate in transitioning to CE? While currently institutional pressures outweigh other drivers for a vast majority of businesses, economic drivers will provide the major force for an industry-wide shift. Unless it makes business sense, companies are not going to budge. A key economic driver is to extract maximum value out of products by keeping them in use. Additionally, companies are looking at extracting maximum value from materials such as aluminum, steel, lithium, even after reaching product end of life. This reduces risks related to material price volatility and supply chain disruptions.

Businesses need to take a long hard look at the problem of waste. The goal set by the Paris Agreement on climate change requires Circular Economy. Many factors need to converge for Circular Economy to go beyond a conceptual framework. When the perfect storm arises, no company would want to be left behind.

Shalini Verma is CEO of PIVOT technologies, a Dubai-based cognitive innovation company.