Featured image of the circular economy in detail

The French chemist, philosopher, and economist Antoine Laurent de Lavoisier once said, “nothing is created, nothing is lost, everything is transformed.”

In biology, to describe the different cycles of nature, the term “waste” is never used. The “waste” of some becomes the resources of others, becoming part of a cycle rather than being eliminated.

The first traces of humans on Earth show us an approach to self-sufficiency. Early humans, called Hunter-Gatherers, met their needs via extraction directly from the source. These nomadic lifestyles were those of a Paleolithic society, and a millennia later, it seems obvious that a similar principle could be applicable to a modern economy.

From this emerges the concept of a circular economy proposed by William McDonough and Michael Braungart. This model is based on using materials and products in a loop.

It can be defined as an economic system of exchange and production. At all stages of the life cycle of said products, this system aims to increase the efficiency of resource consumption and reduce the impact on the environment, all the while promoting the well-being of individuals.

It is about doing more and better with less.

The circular economy of “cradle to cradle” quite literally opposes the linear economy of “cradle to the grave.”

We can no longer divide societal problems into categories such as environmental and economic. Instead, we must now bring them together under one platform and thus deal with them in a unified manner.

Industrial production causes unavoidable negative externalities that generate costs, the most common example being pollution. In this way, it becomes clear that the environment has a real impact on the economy because ecological damage causes economic expenses.

What is there to be done? What if consumption could continue in a way that leaves production intact but reduces environ-economic ramifications? It sounds absurd, yet this is the new challenge posed by the circular economy.

Infographic of the three main principles of extending the lifespan of goods

There are three main principles for extending the lifespan of goods:

  • Repair – to allow damaged goods a second life.
  • Reuse – recovering part or all of an asset in order to create another.
  • Reemployment – allowing products that no longer meet the needs of the primary consumer to be put back into the economic circuit.

One of the theories of this new economy is known as eco-design: It consists of integrating environmental protection into product design. Its objective is to reduce environmental impacts throughout the life cycle: extraction of raw materials, production, distribution, use, and end of life. Upstream to downstream, eco-design as a whole aim to reduce negative externalities throughout the product’s supply chain. The company must then consider the following: design, production, distribution, and consumption, as well as recovery.

The Principles of the Circular Economy Must Appeal to Companies in Order to Be Implemented. What Are the Benefits?

“Beyond the benefits for the environment, the ecological approach helps prevent certain risks, reduce costs and create value for the company” Matthieu Maury.

The current increasingly complex economic and demographic context pushes companies to find a reason or an opportunity to remain competitive in the circular economy.

Excessive exploitation of raw materials leads to resource depletion. Thus, supply decreases in contrast to demand which remains strong or is even growing due to the increase in population. Faced with supply scarcity, selling prices increase. On the other hand, the unpredictability of raw material availability causes a continuous variation of stocks leading to high volatility of raw material prices.

The volatility and rising prices of raw materials impact the supply costs of companies. Businesses must therefore limit their consumption of non-renewable resources to control these costs. The search for alternatives is therefore essential. At this point, sourcing renewable resources suddenly appear to be a feasible and sensible solution.

A study was carried out on French and Quebecois companies by the Product Development Institute to attempt to find out whether the eco-design of products by commercial establishments could benefit them or not.

This study uncovers that, of the establishments surveyed, 85% would have a profit margin for eco-designed products greater than or equal to the margin for those same products manufactured using the conventional methods in the linear economy. Overall, the profit margin of eco-designed products is, on average, over 12%.

Reduction of Logistical Costs

The circular economy promotes short circuits by reducing the number of intermediaries between the producer and the consumer. The costs of a supply chain are lowered, as are the supply risks. As transport generally represents half the costs of a logistics chain, the shorter the distance, the smaller the transport expenditures.

The Long-Cycle Lever

The maximization of successive cycles of a product – reuse, repair, reuse – allows companies to best benefit from a circular economy.

If designed appropriately, each additional cycle eliminates to a certain extent the direct costs – such as those for raw materials and/or labor – as well as the indirect costs – such as those for preparation of work, manufacturing of goods, and energy.

In the automotive industry, Michelin uses this technique. When the tires are worn out, Michelin accepts their return to salvage and regroove them. The company estimates this method of re-treading can halve the need and consumption of raw materials compared to those required for the production of a new tire while maintaining 90% of its initial performance.

The Lever of Cascading Reemployment

It is interesting to take an end-of-life product or component and diversify its reuse in the value chain. In this way, reuse substitutes the use of new materials.

Ready-to-wear fashion is a sector compatible with this technique. The fashion industry ranks as that which uses the second-largest amount of water in its production processes, contributing to 20% of water waste worldwide. Yet shockingly, around 85% of textiles end up in landfills or incinerated.

To reduce waste, many forms of reuse have been found. Second-hand stores, whose economy is based on the collection of recovered products, are an example. Such stores collect clothes and other items that people no longer use and resell them for cheaper than the original purchase price.

The reuse of food waste is also possible to achieve a circular economy. Food waste accounts for 1.3 billion tonnes per year or about a third of the total production of food for human consumption. To begin with, food waste can be turned into compost or biogas. The waste then becomes a reusable organic alternative in production.

This old waste, transformed into natural gas, can be used to heat homes, heat water, or even provide household electricity. The Holdigaz company, through these techniques, achieved positive results for its 2016-2017 financial year, while its net profit had a turnover of thirty-two million euros.

Motivations other than costs allow the establishment of the circular economy, thereby allowing other positive outcomes.

Improved Brand Image and Customer Loyalty

More and more companies are using socially responsible practices in their communication policies. In fact, the number of advertising messages that deliver arguments of respect for the environment multiplied by six between 2006 and 2009.

It goes without saying that the average westernized population has become more and more careful about the traceability of products. In turn, businesses have had to respond to the demands and desires of their customers. In order to keep current customers and win over new potential customers, companies must adapt by adopting economically, socially, and environmentally responsible practices.

When companies develop such practices, buyers are more likely to stay loyal to the brand, as they use their social conscience to guide their purchasing decisions. Together, both customer and brand share the same ethical values.

Synergy between Companies

The synergy between companies refers to the mutual benefits of forming “win-win” partnerships. It induces the sharing of resources and skills between different companies, making it possible to promote a circular economy.

The Renault site in Choisy-le-Roi, in the Paris suburbs, notably renovates engines, gearboxes, and injection pumps for resale. The site has redesigned certain elements in order to facilitate the unpacking and reuse of the car parts. To do this, this concessioner has entered into agreements with a steel recycling company and a waste management company.

This synergy allows the Renault site to develop expertise in end-of-life recovery and thus optimize the design of a product with recovery in mind, thereby even further reducing costs.

This synergy is not limited to just companies amongst themselves but can also occur between companies and consumers. The ready-to-wear brand H&M allows dropping off their old clothes in one of their stores in exchange for a discount voucher. This collection allows products to be given a second life by returning them to the global thrift store market. Such an initiative enables the brand to increase store visits and retain customers.

Person holding up a recycle sign overlaid with text

The Ellen MacArthur Foundation created the “Circular Economy 100” program. This program is made up of businesses, government representatives, and cities. Its goal is to encourage the coming together of companies, at all levels of the value chain, with the aim of solving challenges that could not be solved without a coalition thus far.

The desire of companies to establish a circular economy derives from different motivations. They can be economic – a means to reduce the total cost of ownership, “reactive” – intended to protect the brand image, or even “proactive” – creating new “green” products by making better use of environmental innovations.

It is becoming increasingly clear that there are various benefits gained – financial, reputational, environmental, and so on – from adopting a circular economy approach.

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