Here’s a pop quiz for anyone curious about one of the most interesting yet least understood sustainability strategies being talked about today: What do the following scenarios have in common?
- A manufacturer of packaging machinery and materials sends teams to a customer’s plant to replace the now-obsolete electronics in aging equipment, thus extending the useful life of the machines.
- Under its “energy-as-a-service” lease program, a maker of lithium-ion forklift batteries helps customers optimize energy use, then finds new uses for batteries once they have outlived their original application.
- A maker of reusable plastic pallets and totes follows products through their lifecycle, then takes them back for remanufacturing or reuse and gives customers a credit they can apply to new containers.
The answer: All are examples of the “circular economy” business model, a sustainability strategy that is all about decoupling economic growth from resource consumption and the increase in global greenhouse gas (GHG) emissions, waste and other forms of environmental degradation that go with it.
Think of the linear economy—the traditional “take-make-waste” business model—as a straight line from the extraction of virgin resources to the production and use of a product to its disposal into the landfill. In contrast, the circular economy deploys a variety of strategies to eliminate or minimize resource consumption, waste and associated emissions under the mantra of “Reduce. Reuse. Recycle.”
To date, it’s not a strategy that has been widely embraced. In a survey by Gartner’s supply chain research practice, companies implementing circular economy said less than 17% of their product portfolio reflects the strategy. But the need for more companies to start thinking circular is clear.
Natural resource extraction and processing accounts for 70% of global GHG emissions, according to the 2021 Circularity Gap Report published by the Platform for Accelerating the Circular Economy (PACE). The private-public initiative, which launched its first report at the World Economic Forum in Davos in 2018, estimates broad adoption of circular economy strategies could shrink global GHG emissions by 39% and demand for virgin resources by 28%.
The conclusion seems inescapable, and Gartner states it bluntly in a recent research note: “Net zero is unattainable without circular economy.”
Growing focus of regulation
Beyond helping companies meet net-zero emissions targets, supply executives say circular economy principles and practices make good business sense and can provide cost savings, new revenue streams, more secure supply chains and enhanced competitiveness.
If those benefits aren’t incentive enough, new regulations and pressure from customers and other stakeholders could make circular economy a sustainability strategy that businesses ignore at their own peril:
- The European Union’s Circular Economy Action Plan includes standards that require consumer products and high-impact products, including lithium-ion batteries, to be easily recyclable, able to be “revalorized” into new products, and contain recycled materials.
- The Environmental Protection Agency launched its own Circular Economy Strategy in 2021, which the EPA describes as a “transformative 10-year vision that embraces circularity and sustainable materials management.”
- New legislation limiting use of virgin resources and taxing products based on emissions will provide added incentive to go circular. The EU’s proposed “Carbon Border Adjustment Mechanism” would be the world’s first tax on the carbon content of imported goods.
- Experts expect more “extended producer responsibility” regulations requiring manufacturers to take financial or physical responsibility for the handling of products once they reach the end of their useful life.
- Customers increasingly are pressing suppliers to reduce emissions, not only in their direct operations but throughout the corporate value chain.
Not just ‘the new recycling’
Although the circular economy concept dates to the 1960s, the nuances of the business model are not widely understood, said Laura Rainier, senior director and analyst in Gartner’s supply chain practice, which has conducted extensive research on the topic.
“Many people interpret it as ‘the new recycling’—they think it’s the same thing as recycling, it’s just taking it back and reducing waste,” Rainier said. “What I find really important is to educate that it’s much broader than that, that it is really the system solution, so I think that’s one of the key opportunities and challenges around circular economy.”
Strategies for implementing a circular economy model include reducing the size and weight of materials used in making products; sharing or leasing products through product-as-a-service arrangements; reusing materials to give them a second useful life in new products; designing products for easier repair, refurbishment, “parts harvesting” and recycling; adding more recycled content in new products; and creating take-back programs to reduce the amount of material entering the waste stream.
“A circular economy uses things rather than uses them up,” said Rainier, paraphrasing philanthropist and circular economy advocate Ellen MacArthur.
Reduce, reuse, then recycle
MHI member Orbis Corp. has focused on reducing the amount of material in its reusable plastic pallets and totes, customizing containers to maximize pack density for more energy-efficient transport, helping customers manage and track their containers so they can be recovered and reused, and regrinding worn-out materials for use in new products, said Norm Kukuk, vice president of sales and marketing.
“Our goal is to reduce the amount of packaging used by making it lightweight yet durable enough to be used and reused over its lifespan,” Kukuk said. “The last resort is recycling. You’re not sustainable if you’re (just) recycling. First you have to look at reducing, reusing and then recycling.”
Rainier agrees. “That’s a key of circular economy, how can we reuse before we recycle, because less energy is applied in the reuse phase than in the recycle phase.”
At MHI member Felins, reducing and reusing are familiar circular economy principles the company puts into practice. The provider of packaging machinery and materials said its banding solutions used to unitize products help customers reduce packaging mass up to 95% by replacing bulkier packaging such as corrugated boxes, bags and void fill. This results in less packaging to dispose of and also helps customers reduce their own GHG emissions associated with shipping and transportation of products.
Felins also extends the life of its packaging machinery by replacing worn-out components so that the equipment can continue to provide service rather than being landfilled, said Ben Vlieger, Felins’ chief sales and marketing officer. A team from Felins recently traveled to Honduras to replace obsolete electronics on 16 machines for a customer.
“You hate to throw a machine away because the controls on it are 15 years old and you can’t find the parts for those controls anymore,” Vlieger said. “We are actively going onsite to rebuild customers’ machines or buying back machines so we can refurbish them and then sell them to other customers that might want them.”