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A bold new case for circular business models



A bold new case for circular business models

The nonfinancial benefits of a circular economy are pretty clear. By centering business activity around renewable inputs, reuse and product-life extension—as opposed to the linear take-make-waste model—companies can significantly reduce their negative impact on the environment and society. But implementing circular business models can be complicated, as many chief sustainability officers who’ve tried to make a case for circularity can attest. 

A recent study from PwC Sweden may give CSOs some much-needed leverage. By conducting scenario-modelling based on extensive life-cycle analyses of electronic products, researchers projected the emissions and cost impact of three principal circular business models over the next 12 years. The study found that implementing any of them in any of four broad segments of the electronics industry would result not only in reduced carbon emissions but also in considerably lower operating costs—representing an average savings of 12% compared with a linear business model. Not all industries have the same raw-materials demands and energy-use profile as the electronics sector, of course, but the strength of the findings should provide encouragement for CSOs across a wide range of businesses. 

As the chart above shows, the product-as-a-service (PaaS) model offers the greatest potential for savings, but it also tends to be the most difficult to implement, since changes to product-ownership structure can require a major retooling of operations. CSOs need to work closely with the CFO on a rigorous cost-benefit analysis, taking into account market conditions, green taxes and incentives, up- and downstream stakeholders, and, not least of all, the type of product their company makes. PaaS works best for companies selling a complex or high-value product. (Think: renting an Italian handmade tuxedo versus buying an off-the-rack blazer.) 

Many CSOs will want to start gradually—say, shifting to renewable industrial feedstocks or other circular inputs. That kind of move can yield savings and reduce emissions without entailing big operational or strategic changes. So can sourcing raw materials locally instead of expending energy to import them. CSOs at companies with a robust decarbonisation or net-zero program already in place will likely be a step ahead, and can accelerate progress by aligning pilot initiatives with the business’s existing sustainability strategy. They should also study regulatory frameworks like the EU’s Corporate Sustainability Reporting Directive and its Carbon Border Adjustment Mechanism; circular practices implemented today have the potential to reduce future costs associated with the compliance and carbon pricing provisions contained in those regulations.

The benefits of circularity don’t end there. Indeed, with resource scarcity and price volatility becoming increasingly urgent concerns for many industries, rethinking how those resources are obtained, used and reused has become an imperative with existential implications.

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