Circular economy offers business transformation and $1tn of savings

It's one thing having a good business idea, but it is altogether another to show that it can transform the global economy, provide much-needed jobs, and be good for the planet.

The key supporters of the circular economy today promised exactly this when they held out the mouth-watering prospect of this new business model generating $1tn in annual savings by 2025 and creating 100,000 new jobs within five years.

The circular economy is designed to replace today's "take, make and dispose" economy with a restorative model. Products are designed and marketed in a way that components and materials can be reused many times.

A report, published in Davos by the World Economic Forum (WEF), in partnership with the Ellen MacArthur Foundation and McKinsey, says that while the prize is huge, creating a circular economy will be extremely difficult given the extraordinary complexity of global supply chains.

What makes the job particularly hard is that for the system of upcycling to work, it needs to eradicate toxic substances from products. Yet it is proving increasingly difficult to track the materials used in products as a wide range of new additives are being introduced each year.

The report says that no single company or organisation can alone take on the job of reforming the system because "the transaction costs of shifting the status quo are extremely high".

In an attempt to find a way through this maze, WEF has created a collaboration called Project Mainstream, with the aim of bringing companies together to help deal with roadblocks and help mainstream the circular economy, which at the moment, despite its appeal, consists of a series of largely small-scale experiments.

A number of companies have already agreed to take part in this collaborative project, including Philips, Kingfisher, Veolia, and DSM.

The report gives detailed examples of how the circular economy can transform certain markets. For example, smart phones could see material costs reduced by nearly two-thirds by entirely re-thinking the way they are made and disposed of.

The report also points to high-end washing machines, which it says would be accessible for most households if they were leased instead of sold. Customers would save roughly a third per wash cycle, while manufacturers would earn roughly a third more in profits.

Dominic Waughray, senior director of WEF, warns of the risks if the business sector does not embrace the circular eonomy: "Experts have calculated that without a rethink of how we use materials in our linear 'take-make-dispose' economy, elements such as gold, silver, indium, iridium, tungsten and many others vital for industry could be depleted within five to fifty years.

"If we remain in our business as usual mode, price volatility will continue to surge, alongside the probable inflation of key commodities. Business leaders are in search of a better hedge to avoid these risks, and are moving towards an industrial model that decouples revenues from material input: the circular economy."

WEF recognises that it is not just companies that need to act, but that they will need the support of research communities to re-conceive key materials flows and manufacturing processes, as well as policy makers and investors.

WEF has been inspired by the journey taken by business to mainstream the use of polyethylene terephthalate (PET) in packaging, which has driven recycling rates.

It wants to repeat this success by focussing on a "signature group" of materials stocks that are used throughout our global supply chains.

Examples would be polymers, particularly polypropylene, as well as new materials that are likely to radically change the global materials industry over the next 20 years.

These include bio-based substances, materials for 3D printing and carbon dioxide recovery, exploring how CO2 could become a valuable economic asset for other businesses, serving as a feedstock for polymers and other materials currently dependent on oil.

Ellen MacArthur, the former solo round the world yachtswoman, said: "Building on growing momentum around the circular economy, Project MainStream will leverage the convening power of the World Economic Forum and bring together a group of business leaders capable of triggering widespread innovation and employment. MainStream is about going beyond concept stage, it's about turning proven potential into an economic reality."

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