Coming round to the circular economy

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The concept of the circular economy has been around for decades, but Peter Lacy – global managing director, Accenture Strategy, Sustainability Services – believes it is now gathering momentum, thanks to the digital revolution and the disruptive strategies that many companies born in this era have adopted.  

He defines the circular economy as the decoupling of economic growth from the extraction and consumption of constrained natural resources – that is, scarce resources with negative footprints, such as fossil fuels and hard-to-recycle metals – where dependency creates a competitive disadvantage over time. ‘Circular’ approaches keep resources in productive use in the economy for as long as possible. 

The circular economy goes beyond the more familiar, such as recycling, and embraces the more obscure. Lacy’s book, Waste to Wealth, identifies four forms of waste: resources (materials and energy that can’t be regenerated); life-cycles (products with artificially short working lives); capability (products sitting idle); and embedded values (components and materials not recovered from disposed products). His stated ambition is nothing if not bold – “to empower executives to make the circular economy a transformation comparable to globalisation and the digital revolution”.

 “I see the circular economy as an interwoven concept with digital and globalisation rather than an alternative; it’s the way you think about globalisation or the way you use digital technology,” says Lacy. “It’s a fundamental re-engineering of our global economic system and a fundamental redesign of the way we think about fuelling prosperity at a macro level. It’s how we frame the delivery of value to customers and citizens at the micro level, and decouple that from wasted or scarce natural resources and their impact.”

While he admits it is extremely ambitious, Lacy also believes it is possible. “It is achievable in the sense that we have never heard anyone seriously say that we couldn’t do it. We have the technology and science available – you hear people say ‘we won’t do it’, but that’s a choice; it’s a policy design choice; an investment design choice; a business strategy design choice. 

“So I’m a big believer that if we can do it – and look at human history and necessity and need – then we will do it. It is possible; we haven’t designed our global economy or business strategies in the right way.”

Waste to Wealth is the product of the work Lacy had started when setting up the World Economic Forum task force on the circular economy around four years ago, plus his involvement with the Young Global Leaders community. Research he carried out for this led to the finding that there is a potential $4.5tn reward (or the value of lost growth) in turning current waste into wealth by 2030. Lacy’s model predicts this will grow to reach $25tn by 2050.

To push this concept beyond a few visionary business leaders and sharing-economy start-ups, however, it needs to be widely adopted – and the current business focus of short-term shareholder needs must play second fiddle to broader societal and environmental needs. So how can this short-termism be counteracted?

“The book is written with a view to understanding the next 15 years of business and marketing opportunities that firms can go after in the existing paradigm. The $4.5tn opportunity to 2030 doesn’t even factor in a serious price on carbon,” says Lacy. 

“We’ve assumed ‘business as usual’ trends and come up with strategies that can create genuine competitive advantage through revenue growth and new markets, new products, new services, cost reductions, better risk management, brand impact and differentiation.”

He says some governments are starting to experiment with policies – ranging from product passports to waste credits to resource responsibility. While Lacy thinks visionary leaders will always have a role to play, he believes the more potent driving force for the circular economy will be innovative, disruptive businesses that decouple their value from resources, whether or not they call it the circular economy. 

“You could make a very good case that Airbnb is one of the biggest contributors to the circular economy in the world – although it’s never used the term, and probably never will. But it is fundamentally changing the use of a very big, resource-intensive asset that people have and under-use, and has found unique ways of creating customer value without building new hotels or new houses,” says Lacy. 

“The potential of the digital revolution to be a circular revolution is enormous. It’s not automatic, but – if we’re smart – we can orient the digital advances to be radically resource productive, resource effective and resource efficient.

“If someone said to me: ‘why are you hopeful now about the circular economy, rather than 10 years ago, given that the concept has been around for 30-40 years?’ I’d say digital technology is the potential game-changer.”

Five models that any business can consider and take inspiration from have been explored in Lacy’s book, along with real examples of businesses implementing them:

The circular supply chain – introducing fully renewable, recyclable or biodegradable materials that can be used in consecutive life-cycles to reduce cost and increase predictability and control.

Recovery and recycling – creating production and consumption systems in which everything that used to be considered waste is revived for other uses.

Product life extension – by maintaining and improving products through repairs, upgrades, re-manufacturing or re-marketing, companies can keep them economically useful for as long as possible. 

Sharing platform – creating new relationships and business opportunities for consumers, companies and micro-entrepreneurs who rent, share, swap or lend their idle goods. 

Product as a service – when consumers lease or pay for products by use, performance trumps volume, durability tops disposability and companies have the chance to build new relationships with consumers. 

“Rarely what you see is a pure play; instead people blend those models. But it’s really understandable to executives,” says Lacy.