Companies have a crucial role in combatting resource depletion by accelerating progress towards the circular economy. However, moving in this direction is easier said than done.
Here are six challenges that companies face in moving towards circular business models.
1. Consumer demand
While a vocal, yet growing minority of consumers advocate sustainable living, there remains some reluctance to pay for it. Surveys show that few consumers are prepared to pay more for green products, let alone those that fully embrace circular principles. A lack of both accepted definitions and labelling circular products doesn’t help, but businesses certainly face the challenge of making sustainable products price competitive.
2. Counter trends
Sustainability is now a cultural trend. But sadly, there other culture trends that are still running in the opposite direction. Some business models are not merely waste-intensively linear, but actively accelerating resource use. Fast fashion has spurred rapid increases in clothing purchases and disposal, with so-far limited push back. E-commerce is fuelling a want-it-now culture of over-ordering, fast delivery and return. Moreover, the burgeoning middle class among emerging markets are embracing consumerist habits of the developed world.
3. CSR investor pressure
Businesses also face pressure from investors to "go circular" and adopt more ethical corporate and social responsibility (CSR) principles. But while this trend is growing, it is hampered by controversies over whether these principles lead to higher investment returns. Some studies show they do, but whether the profitability of sustainable principles are the cause or the effect of business success is as yet unresolved.
For many businesses it is cheaper to use virgin raw materials or produce new parts rather than embrace recycling, reuse or reassembly. The cost of repairing products has risen consistently in recent years, even while new products have fallen in price. The European Union's recent announcement of "right to repair" rules to force manufacturers to supply spare parts for up to 10 years is at least a small step in addressing this problem.
Although enlightened large corporations and idealistic start-ups are embracing circular principles, there remains a long way to go in shifting corporate cultures towards circular economy principles. In part, this is because unlike the traditional linear business model, the circular business model involves new forms of collaboration throughout existing supply chains.
Creativity is required not just around eco-design, reuse, repair and recycling, but also business processes, supply chains and market places to recycle and buy second-hand products, parts and materials. The precedent of the rapid progress in cutting the cost of renewable energy, and the development of new platform businesses, gives hope that business can help accelerate progress towards the circular economy in the longer term.
As the consumer appetite for moving towards a circular economy gains momentum, businesses will need help in rising to these challenges. If market forces alone fail to provide sufficient impetus, then the pressure will remain for public policy to respond.
Policy intervention will be needed to incentivise action through taxes and subsidies, positive advocacy and prescriptive rules and regulations.
This is an extract from an article that originally appeared on ING’s THINK.