Closing the Loop of Circular Initiatives with Data
Amy Hou | April 10, 2018
If the global population reaches 9.6 billion by 2050 as projected, we would need nearly three planets’ worth of natural resources to sustain our lifestyles. The way that we’re living is, by definition, unsustainable. That’s why SDG 12, Responsible Consumption and Production, aims at “doing more and better with less.” And in the business world, one way to start is to implement circular initiatives.
The circular economy model rethinks the supply chain entirely, turning the traditional “take-make-waste” model on its head. In place of a linear supply chain that ends in landfill waste, a circular supply chain takes in raw materials, collects them in final form, and repurposes them for new use. However, because this type of business thinking is still relatively rare, standardized best practices are limited. Therefore, establishing detailed metrics to track progress now will establish a necessary foundation for the future.
Firstly, what do circular initiatives actually look like? A report from the World Business Council for Sustainable Development lays out three central types of innovation that drive circular initiatives: process innovation, product innovation, and business model innovation.
Types of Circular Initiatives
Process innovation is the easiest type and hence is generally first to be implemented. Often, circular initiatives that involve process innovation do reduce waste, but are already part of an organization’s sustainability program. Examples include rainwater harvesting, wastewater recycling, energy efficiency, and zero waste.
Product innovation has a broader impact on the value chain and on the consumer, so implementation is more complex. It involves a change in procurement of raw materials, product design, customer use, and recyclability at end of life. C&A’s cradle-to-cradle T-shirtis one example. The shirts are made entirely of organic cotton and non-toxic chemicals. If you threw one on a compost pile, it would biodegrade in 11 weeks.
“If products were designed with their next use in mind, people could more easily reuse and recycle those products,” says David Rachelson, VP of Sustainability at Rubicon Global.
Business Model Innovation
Business model innovation is the most challenging type, because it requires a behavior change on both the producer’s and the consumer’s parts. For instance, a business changing its model to leasing a product rather than selling it would dramatically extend the product’s lifetime and reduce waste, but not without some help from the customer.
Michelin recently began testing the success of selling tires as a service. Customers can choose to be charged based on distance traveled, weight transported, or number of landings made. However, it has taken and will continue to take a substantial amount of effort on Michelin’s part to educate customers. Without a clear understanding of the long-term benefits of leasing tires over purchasing, customers are often hesitant to adopt the new model.
What Drives Their Success
That said, the circular initiatives that have been successful thus far have some identifiable factors in common:
- They start with a clear definition of “circular” in relation to their business and communicate the vision.
- They quantify their ambitions and develop a business case for them (e.g. acquiring new customers, opening new markets, or strengthening existing customer relationships).
- They establish KPIs at the outset. Most companies today use ROI, amortization rate, or net present value. They’ll also track “true costs” of their goods and services, such as applying internal carbon pricing to quantify the cost of pollution.
As Dominique Debecker, deputy chief sustainability officer at Solvay, said: “Measuring environmental and social impacts is key and a means to detect potential next challenges and opportunities. It makes our strategy more robust. Solving a problem here while creating another problem somewhere else isn’t good enough.”
“Solving a problem here while creating another problem somewhere else isn’t good enough.”
Closing the Loop with Data
In order for circular initiatives to truly be successful, effective collection and sharing of data is pivotal. One startup has based its entire business model on making data more available, in pursuit of more responsible consumption in the healthcare industry. Cohealo is a cloud-based platform that helps healthcare systems to schedule, track, and share medical equipment. By providing hard data on equipment usage, Cohealo enables hospitals and hospital groups to collectively purchase equipment and share amongst each other, reducing costs and waste of underused equipment.
In short, data is crucial to educating consumers on the financial benefits of circular products and services, tracking and reporting on progress toward KPIs, and enabling a sharing economy. Once businesses master data collection and transparent reporting, they can build on their promising start and close the loop to a truly circular economy.
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About Amy Hou
Amy Hou is a Marketing Manager at Urjanet, overseeing content and communications. She enjoys writing about the latest industry updates in sustainability, energy efficiency, and data innovation.