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Circular Economy & Business

The circular transition raises a definite ecological challenge, as well as an economic one. Moving from a linear to a circular model in business involves a profound paradigm shift for long-term benefits. Linear economy vs. circular economy: what changes? What are the respective characteristics of these two models? What benefits can companies expect? These are all questions they must address when considering a potential strategic shift.

What is the linear economy?

The linear economy is based on four main stages:

  • Extracting raw materials and consuming energy;
  • Transforming these resources into finished products;
  • Distributing these products for consumption;
  • Discarding (part of) these products when they reach the end of their life.

This economic model developed considerably during the Industrial Revolution at a time when resources were abundant and mass consumption was in its infancy. With globalization, the linear economy, based on the principle of “extract, manufacture, consume, throw away”, has become considerably more widespread, resulting in a symptomatic and senseless phenomenon: planned obsolescence.

It now appears that this model is not sustainable in the long term. There are many reasons for this:

  • Resource depletion;
  • Global warming;
  • Erosion of biodiversity;
  • Increased waste;
  • World population increase, etc.

If no effort is made to further preserve the world’s ecosystems, humanity as a whole is at risk. Every year, humans are depleting the planet’s regenerative capacity earlier and earlier. In 1970, this famous Earth “overshoot day” was on December 29th; in 2022, it was on July 28th.

Fortunately, there is a communal awareness of this issue among public authorities, citizens, and companies. It was after observing this that sustainable development and then the circular economy emerged.

Understanding the principles of the circular economy

The circular economy opposes this linear model of “disposable everything”. This new paradigm focuses on and seeks to disassociate economic growth from the depletion of natural resources. It advocates both a rational use of resources upstream and a reduction of waste downstream while also limiting the environmental impact of human activities.

The idea of this process is to keep resources in the economic cycle as much as possible, from extraction to waste management. In this sense, the European Parliament defines the circular economy as “a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended” to reduce the use of raw materials and the production of waste.

The circular economy includes several policy areas, including the following:

  • Sustainable procurement;
  • Eco-design of products, for example, by using recycled materials;
  • Functionality economy;
  • Extending the duration of use, i.e. multiple life cycles, etc.

These are all potential levers that can be activated to initiate a circular transition while recognizing that a profound change in the company’s business model must occur in view of the circular economy.

Pierre-Emmanuel Saint-Esprit, Circular Economy Director of the Manutan Group, explains: “This is maybe the first time in history that we have to deconstruct a model because we have no choice […] because we need to reach a new standard in terms of producing, reduce our greenhouse emissions and so on. But still, even if we don’t have a choice, we need to build a model of desire. Our big challenge is always to explain and to prove that this change has to be systemic and we need to embark everybody internally but also externally (clients, suppliers, service providers, partners, etc.).”

The impacts of linear economy vs circular economy transition in companies

When companies make the circular economy central to their system, they reap many benefits, from purchase to sales.

Improving profitability

Using the circular economy, organizations have better control over their flows and procurement costs. This enables them to make so-called “smart” savings, as well as to protect themselves from price volatility and shortages of raw materials. Despite economic instability, companies are improving their profitability.

Reducing your environmental footprint

Organizations can significantly reduce their impact on the environment through the efficient use of resources. The benefits can be seen at all levels, whether it’s on climate, biodiversity, air, soil and water pollution, etc. The Dutch think tank Circle Economy also states in one of its reports that circular economy strategies can reduce greenhouse gas emissions by around 39%.

Achieving compliance

Circular economy regulations are becoming increasingly stringent around the world, especially in the European Union. The European Commission has clearly stated its intention to “make sustainable products the norm” and achieve carbon neutrality by 2050. By adopting a circular economy vs linear economy approach, companies comply with existing legislation, and can also better prepare themselves against upcoming legislative policies.

Contributing positively to society

By transforming their activities, companies help develop circular channels (repairs, recycling, etc.). This helps create permanent, local jobs and thus increases territories’ competitiveness. Thus, companies can have a real economic and social impact as the circular economy is expected to account for almost 700,000 jobs in the European Union by 2030.

Improving your image

It is very common to see public opinion condemning companies that have a negative impact on the environment. Companies transitioning from a linear economy to a circular economy thus have an additional advantage in the eyes of consumers; environmentally-conscious materials, products, and services make all the difference.

The companies that have embarked on this path are not unaware of all these positive impacts from sustainable consumption. However, if you want a practical, realistic view of the situation, you must also be aware of the pitfalls of such an approach, for example:

  • The technical limits of recovery, recycling, and reuse;
  • The energy consumed and the pollution generated by these processes.

Despite this, moving from a linear to a circular economy is an effective and beneficial response, which should be added to other CSR (Corporate Social Responsibility) strategy levers.

Written by Pierre-Emmanuel Saint-Esprit for Manutan – France Purchasing Experts Blog.

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