Sustainability is easily one of the defining issues facing businesses today. Resource scarcity, waste, and environmental impact are problems we can’t ignore. As a result, companies are under increasing pressure to find more renewable and environmentally friendly solutions. This is why an increasing number of businesses are changing how they work to try and enter the “circular economy.”
Linear vs. Circular business models
Most businesses follow what’s known as a linear business model (or economic model). A linear model consumes resources for profit, regardless of things like scarcity or environmental impact. For instance, phone companies regularly bring out new models, while stopping support for their oldest ones. It’s a simple process - you take resources, make a product, and sell it.
But, today, we’re seeing the consequences of this approach. When we ignore the end of life for products, they end up in landfills while we seek out fresh materials. By contrast, a circular economy is one where product waste and disuse are taken into account.
It’s not just about recycling at the end, however. Instead, it’s about embedding sustainability into your business model from the ground up. Even digital-only products and services, like a graphic design suite or a phone app for business, can make these changes through focusing on their internal resources, waste products, and energy sources.
Why should companies adopt the circular economy
Many businesses are starting to enter the circular economy. Sustainability is increasingly important to consumers, and there’s also the issue of resource scarcity to consider.
Not only is there a moral imperative, there’s a profit-based one too. High-growth, financially successful businesses with good ESG (environmental, social, and corporate governance) scores outperform other top competitors according to research from McKinsey. These “triple outperformers” beat other financial outperformers in TSR (total shareholder return) ratings by 2% - and other businesses by 7%.
Source: McKinsey (linked above)
How can companies take part in the circular economy
It’s easy to start small with recycling initiatives and awareness. But to really be part of the circular economy, you need to examine every part of your company’s supply chain, as well as your corporate culture. Figuring out where to begin can be difficult. It helps if you’re using an ESG and sustainable development goals platform. But, beyond that, here are some of the commitments you should consider embracing.
Prioritize durable and long-lasting designs
Current linear economic models incentivize easy product replaceability, sometimes at the cost of apparent quality. This is most obvious with technology, where increasing complexity seems to have made our devices more delicate with each new generation. It’s also true of many of the things we buy - from T-shirts and shoes, to mugs and plates.
A return to product durability and quality assurance is essential for a circular business model. It means lower resource use and less waste.
Embrace the principles of Reduce, Reuse, and Recycle (3 Rs)
To enter the circular economy, you need to seriously reflect on how to incorporate the 3 Rs into your business model. That means figuring out:
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How to reduce consumption and waste in your business
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What can be reused, by you or your customers
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Ways to recycle materials in your products
One way to reduce consumption is to re-evaluate your package design. Is plastic really necessary, or can you use recycled cardboard? How much packaging is solely for aesthetics compared to practicality, and can you reduce this?
It’s also important to consider how you can repair or repurpose old equipment, rather than discarding it. In this way, even SaaS businesses with no physical products can enter the circular economy. For example, a company offering VoIP virtual phone number services needs server space to host their platform. Rather than scrapping old servers, they could repurpose them for testing, or as emergency back-ups.
Incorporate sustainable procurement practices
Procurement is an essential part of any business. It’s also at the heart of linear versus circular economic thinking. Your procurement practices need to be sustainable to safeguard the long-term viability of your business model.
We’ve touched on sustainable procurement already, with examples like renewable packaging. But other options include device refurbishment, sustainable farming practices for product ingredients, as well as actively seeking out reclaimed and recycled metals.
Utilize a closed-loop supply chain model
A closed-loop supply chain means re-acquiring products at the end of life and feeding them back into the logistics process. This is known as reverse logistics.
Here’s a common example. To increase reuse, some tech companies are refurbishing second-hand devices as a “like new” cheaper option, rather than just consigning them to the scrap heap. Devices too old or damaged to refurbish can be stripped for parts and materials.
How can you encourage your customers to take part in this cycle? You could award them points online for returning their old phones, computers, and tablets. They could then spend those points with affiliated businesses.
You’d just need to set up localized customer portals by country. For instance, someone logging onto your Qatar domain should be able to see Qatar-based businesses to spend their points with. That way, you’re also minimizing the impact the supply chain has on the environment - ordering from local businesses will cause much less pollution than shipping across the globe.
With this style of approach, even when a device can’t be re-used, you’re incentivizing customers to send it in so it can be broken down for materials. This reduces waste and helps you cut down on supply costs.
Educate and engage your workforce
To enter the circular economy is to look at the bigger picture. You’re not just trying to cut down individual rates of waste and consumption. It’s about trying to scale back your organization’s entire carbon footprint.
That means it’s a group effort. You won’t get anywhere without the support of your employees. Take time to connect them with knowledge resources, and show the environmental impact of procurement and production. Provide education on how a circular business model can help you streamline and become more efficient.
A good way to engage employees and get them onboard is to show how cutting your carbon footprint will benefit them. For example, investing in remote support software will allow them to work from home. Supporting remote work means you can reduce the number of employees commuting each day and lower fuel consumption. This saves them money and provides them with more options, as well as helping the environment.
Foster collaborations with stakeholders
In a time where people put pressure on businesses to be a force for good, cause marketing is key to employer branding. Choosing to enter the circular economy now, while it’s still optional, is great for your brand.
This can improve your relationship with all stakeholders. Customers are more conscious of ethical purchasing habits than ever, while employees want to feel like they work for a moral employer. It’ll also catch the attention of like-minded organizations, with whom you can form mutually beneficial business relationships.
Adhere to environmental regulations
It’s one thing to hype up your commitment to sustainability. But, if it’s not reflected in your company’s actions, the fallout can be severe. The fact that it would make your business look hypocritical is only the tip of the iceberg.
Failing to adhere to environmental regulations can land your company in legal hot water, like fines or sanctions. And it’s not necessarily just local laws, either. Even if you’re US-based, for example, international dealings could make you subject to laws such as Europe’s Corporate Sustainability Reporting Directive (CSRD).
Not to mention that sustainability and environmental impact are issues we’re grappling with in real-time as a society. As such, laws around sustainable practices are constantly changing.
Allocate resources to research and development
To create a truly circular economy, we need to push the envelope on sustainable and renewable practices. It’s important to support innovation wherever possible. This could mean finding ways to reduce the carbon footprint of existing products or developing in-house solutions to improve efficiency and cut corporate waste.
Communicate your sustainability initiatives
The best sustainability initiative in the world won’t help anyone if they don’t know about it. So, you need to keep people in the loop on your latest policies. This sort of thing is most effective when delivered from the top down. From senior leadership, through management, down to general employees.
It’s not just about internal communication, however. Try to incorporate it into any customer interaction you have. Many organizations are experimenting with giving team’s an artificial intelligence personal assistant. As well as using this as a reminder of product information, or to help manage customer queries, why not use it to encourage discussion of your sustainability initiatives too? Questions about packaging, delivery times, and similar topics can all open an avenue to mention the environmental impact behind your choices.
Beyond this, it’s something you can sell. Marketing campaigns should focus on the positive impact you’re having, and highlight the changes you’ve made. Take, for example, this Instagram post from Chilly’s:
By highlighting their contribution to sustainability (and charity), they’re both drawing attention to their own brand and the importance of those causes.
Track and share your sustainability progress
Visibility is essential for any initiative to succeed. And that’s true of trying to enter the circular economy too. When you hit an ESG milestone, you need to make sure your employees and other stakeholders know about it.
It helps to have a good sustainability platform to monitor your progress. That way, you can track your goals in real-time, and deliver the good news at the point of impact.
From the top down and the ground up
Being able to enter the circular economy goes beyond performative environmentalism. It’s about pushing for and leading change. This is why you won’t get anywhere if your senior leadership doesn’t understand the importance of a circular business model.
Old traditions are hard to break, and that includes classic linear economic models. You have to be willing to dismantle and inspect each part of your product pipeline. Only then can you put it back together again, stronger and more efficient than ever.
