Why is Circular Economy hard?
In our prior post, we gave a simple definition of Circular Economy. Today, we will explore what makes the transition to Circular Economy hard.
The VIBE challenges framework helps understand why it is hard to implement.
Value
Infrastructure
Behaviours
Execution
Let’s look at each of these concepts more closely.
VALUE
Currently, value is only assessed with the lens of financial capital or economic profits. Concepts such as human capital, social capital, and environmental capital are often overlooked. Additionally, negative externalities (pollution, damage to health) are not typically quantified in the economic profits of companies. Finally, given the stock-exchange paradigm, businesses only win in the pursuit of perpetual growth.
Perpetual growth requires continuously increasing profits, which demand selling more products, which implies producing more (MAKE), extracting more resources (TAKE), and ultimately ending up in landfills (WASTE). Hence, we currently operate in the so-called ‘Linear Economy'. People often say: 'Take, Make, Waste'.
If we keep that mindset, then, the concept of Circular Economy can seem in direct conflict with this paradigm. The first objection would be: “How can we pursue growth if we need to reduce production?”. One way is to evaluate the opportunities for creating additional revenue streams with the Circular Value Chain. It is unfortunately not a silver bullet, and requires efforts and investments to implement. Finding the right circular business model still remains elusive now.
Finally, it is true that decoupling continuous economic growth from natural resources extraction may not be straightforward. Yet, it is possible (if not easy). In fact, in its Global Resources Outlook 2024 report, the UNEP International Resource panel explores pathways to a livable planet and demonstrates - for the first time - that decoupling is possible subject to the implementation of integrated policy action. It is a concept that needs to be explored more.
INFRASTRUCTURE
Infrastructure refers to 3 concepts: physical infrastructure, technology and policy. These elements represent the context that only changes with a certain level of inertia or latency.
The problem here is three-pronged:
Investments are required to change physical infrastructure. For instance, infrastructure must be built to collect reusables, or to recycle materials.
Investments are required to support technological innovation beyond the valley of death of start-ups, from ideation, to proof of concept and scaling.
Policy must create a favorable environment for these investments (tax credits, and other incentives), to stimulate innovation (grants, awards, and else) or change practices by setting new standards (procurement requirements, reporting requirements, etc.). The issue here? Policies and regulations vary from country to country, and even more locally (state, regions, cities). Finally, nobody necessarily agrees on what really needs to be done, and sometimes, well-intended policies may backfire. Leveling the playing field is the name of the game here.
BEHAVIORS
Here, we look at both the relationship dynamics within companies, between companies and actual behaviors.
Transitioning to a circular business model requires entrepreneurs (sustainability managers, designers, supply chain managers) to overcome internal resistance to change and figure out how to defend the business case in favor of the proposed change. As you can see, this is linked to the Value problem and to the Infrastructure problem… There can also be a need for a change of mindset at the C-suite level.
Companies need to align interests along their value chain and beyond: suppliers and distributors alike must adhere to new processes requested by the “anchor” company and share data. The intermodality of data becomes a problem: each company started collecting and structuring their data on different premises, and now, they need to track and share new data: how do you justify this additional investment and effort? Another important element is the need for collaboration between competitors to level the playing field, a delicate concept that typically raises alarms, as competitive collaboration is usually a 'no-no' for antitrust laws. How can you justify such a move, circumvent the obvious barriers and still doing things within the scope of the law?
Consumer behaviors. It is often touted that you need to change consumer behaviors so that they can accept to pay more for more sustainable products, choose more circular products, recycle well, and so on. Alas, you don’t change behaviors by telling people to change their behavior… try and tell a kid to stop painting on the wall and see how it works… And do you know the funny thing? In some places, circularity, the effort to keep products in use as long as possible, the practice to return old glass bottles used to be the norm in many places, or the default scenario (especially where resources were limited). All that to say, maybe it does not have to be that hard?
EXECUTION
Here comes the hard part… Knowing your goals and understanding the challenges are useful, but they are almost the visible part of the iceberg. Professionals are still grappling with many questions about how to execute projects in real life. There are components of decision-making, change management, change management, and digital transformation, which require to ask the detailed questions. Here are examples of questions.
How do you justify the business case for transitioning to circularity?
How do you know what circular business model is most adapted to you?
As a start-up, where do you find the right investors and grants?
Is there a way to attract patient capital (blended finance, catalytic capital) for early stage projects?
What technologies should we invest in?
What type of financing structure is right for circular economy projects?
How do you structure partnerships between startups and corporates?
How do you align interests between parties?
With prototypes and pilots, when do you know when to pivot?
How do you define and measure success in a circularity initiative?
What metrics should you track and how to collect that data?
Conclusion
Transitioning to Circular Economy is a worthy goal that can be hard to implement in real life. The VIBE framework is a handy way to remember the moving pieces that need to be tackled.
Finding ways to overcome these obstacles can be gratifying at a personal level, but they can also reap business rewards in the long run, especially when taking the wide lens of human, social, environmental, and financial capital. Why else would large companies like Caterpillar, Rolls Royce, Apple, IKEA, Adidas, PepsiCo take a stab at it?
J4Change, in collaboration with the Circular Disruption Thinktank, will endeavor to raise awareness on the topic, facilitate connections to create a community of practice, and build capacity to overcome the execution challenges of the transition to Circular Economy.
By the way, the Circular Disruption Thinktank is conducting research to know your concerns, questions and aspirations regarding Circular Economy. Please fill out this short 5-question survey, whether you are a knowledgeable practicioner or just curious about the topic.
