Circular economy is fundamentally about using our resources in such a way that they are kept in circulation, as opposed to being incinerated or ending up at a dump site. Other than being a sustainable way in which to run a business, the approach now also constitutes an attractive business case that can offer real competitive advantages.
Less than two years ago, the Danish Business Authority established that even though Denmark is among the top 10 countries with the best resource productivity, there is still great potential for increasing revenues and having a stronger competitive position by better utilizing raw materials in production. At the time, the potential profit for Danish industry was somewhere between DKK 5 and 11 billion if, for example, Danish industry were able to get on par with Germany and optimize its utilization of existing technologies in order to reduce Denmark's consumption of raw materials.
The potential profit for circular business models worldwide is a dizzying DKK 4500 billion according to estimates from Accenture. Denmark has a good starting point for being able to address this billion-Kroner potential, which is reflected in the Danish Business Authority's findings as well. However, this potential is not exclusive for Denmark alone, but also the Nordics. Three major initiatives from the Nordic Council of Ministers on the reuse of textiles, plastic recycling and food waste, points towards a big potential in these areas for both environmental benefits and job growth in the Nordic region.
Scarcity of resources is another major reason why top management should work more to introduce circular business models. We are seeing a heightened struggle over raw materials around the world. A struggle where access to rare minerals and metals is becoming critical. Raw materials that are crucial for developing new technologies.
Linear business models often waste a great deal of resources, neglecting to recycle or use components and materials in production to the fullest extent. We see this in the manufacture of electronics, for example, where product loops are gradually becoming shorter and shorter, and are now under two years for smartphones and TVs. This has resulted in a fundamentally "throwaway" culture. This approach has now begun to stifle economic growth due to the rising costs of supplying limited resources, combined with the unpredictable and fluctuating prices of raw materials.
Philip Wiig, Managing Director at Accenture Consultancy
When we recycle garbage, recover and recycle expensive raw materials, and use products to the fullest extent of their economic life cycle through a circular approach, businesses can strengthen their competitive position and increase revenues, while simultaneously reducing their dependency on scarce resources. In our part of the world—and in Denmark especially—this should be huge motivation in itself, as we are dependent upon buying the majority of our raw materials. A concrete example would be the wind turbine and wind pump industry. Here we have Neodymium, which is a scarce resource. The material is crucial for producing magnets, which are an important part of this technology. Today, Neodymium that is used is thrown away after products are discarded because we have not yet developed an effective process for recovering the material. Due to the rising cost of Neodymium, focusing on recycling the material will eventually become a good business case, as this will soon be more economically advantageous than buying the raw material from China, which has a firm footing on the market for this material. The same logic applies to many other raw materials.
We are going to see circular business models at all levels, and it need not be about high-tech recycling of complex raw materials—circular economy is a theme in most industries.
An example of a simple circular business model is one Danish company: Gamle Mursten. As the sole company in Denmark capable of cleaning and reusing bricks, it is saving the environment from CO2 emissions. Gamle Mursten has developed a cleaning method that makes bricks ready for reuse for new buildings that have a sound business case. In 2009, the company was named Gazelle Company of the year.
Carlsberg also experiments with new links in their supply chain that could help to make their overall business model more circular. At their Danish factory, they have introduced a new "cradle to grave" approach where they test cardboard bottles, among other things, together with DTU and the Danish Innovation Fund. The bottles are biodegradable and will therefore eliminate the need for a significant amount of resource management in the value chain.
At Accenture, we have identified five business models that propel the circular economy:
Platform sharing, which utilizes digital technology to maximize the use of assets such as hotel stays, vehicles, or consumer goods. 80% of typical household items in mature economies are typically used once a month, so there is some major potential here.
Products-as-service replaces owner models with service models, such as selling driving time instead of selling cars. These models optimize the utilization of resources and encourage businesses to maintain products longer and offer new services such as preventative maintenance or optimization of fuel efficiency.
Prolongation of product life – based on remanufacturing and repairing used products to extend their lives for existing or new customers.
Circular Supply Chains make it possible for suppliers and partners to use materials over and over again. This saves on costs and creates predictability and security in the production chain.
Recycling and reuse saves on costs and reduces the amount of waste and need for disposal. Some larger companies can now reuse 100% of the waste produced at certain factories.
We can see several of these models in Denmark even now. For example, the plastic industry is working with restoration and reuse. A company such as Philips is working with recycling plastic from household products, for example, and continually optimizing product designs to maximize the utilization of functional parts. And the businesses that have been capable of working with a focus on circular business models have a stronger position in the competition in their respective markets.