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Circular economy. A new buzzword or the future of business?

16.05.22|6 min
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Sustainability, circularity, CSR, ESG and GRI – the business world is overrun with new catchwords. It is hard to steer your way through the maze of new terminology, and there is less and less time to learn. Now is the last moment to start acting. 

 

Article by Katarzyna Śliwa, CEO of Ergodesign, in cooperation with the EY Academy of Business. For more about the benefits of circularity for businesses and the full version of the article go here 

Background 

The term sustainable development has been with us for nearly 30 years. Looking at reports on the state of the environment and the fact that potential for continuing the present model of production and consumption is exhausting, a different approach needs to be found. The term growth is being replaced by development, and the pursuit of rapid financial results by the search for a balance of goals. That is why even the giants in the strategic sectors are working on increasingly green and more far-reaching strategies. 

The term corporate social responsibility made its way to dictionaries over a decade ago. It has been used to describe any activity aimed at creating non-financial value. On the other hand, CSR has sometimes been viewed as merely a PR and marketing tool, thus actually giving itself bad PR, similarly to superficial pro-environmental activities taking the form of greenwashing.  Fortunately, actions committed to sustainable development are verifiable – they have been defined and can be measured. 

A United Nations resolution has laid the cornerstone of contemporary sustainable development policy by indicating 17 goals to be achieved by 2030 (UN 2030 Sustainable Development Goals). These goals were adopted by all 193 member states, and their implementation is being monitored. Corporate responsibility now has the form of a coherent ESG (Environment Society Governance) policy subject to reporting in accordance with the international Global Reporting Initiative standard (GRI), the principles of integrated reporting and the guidelines of the European Commission.   

A future to come 

Simply put, financial reports show how a company has done in the past, but unfortunately they only consider the financial perspective. ESG reports say more: how the company is doing now and what potential it has for the future.   

Modern consumers and employees are looking forward to ESG actions too. Generation Z, which will account for 60% of the labour market and over 30% of purchasing power in the next 5 years, says: “I don’t want to know what product you’re selling. What I do want to know is what your business is doing for the world”. 

You could write a separate article or even a whole book on motivations for change. Ultimately, what counts is the outcome: a departure from Friedman’s principle of creating value for owners and shareholders only, in favour of an increasingly popular belief that businesses are expected to create value for all stakeholders: Priorities? People, planet, purpose, profit. In this order.  

Circularity or ‘circular economy’ 

  1. Just as sustainable growth is the new goal in business and an ESG policy is a tool for defining and measuring progress, the principles of circularity are a tool for creating innovation and real change –  to translate sustainable development into reality. Circular economy is a new strategy of economic development taking into account environmental factors.   It involves a departure from the linear model of production and consumption (take, use, throw away), inefficient from the business perspective and harmful to the Earth, and a shift towards a circular model (take, use, reuse) where waste becomes a raw material again, reducing losses and maximizing the use of resources.  As we get on track with circular activities, companies no longer see creating value for all stakeholders as merely an additional activity to offset their negative impact (as was often the case with CSR activities). Creating positive impact lies at the heart of the business model. It makes money.  The three basic pillars of the circular economic transformation are:  
    1. Clean energy 
    2. We need it for the ongoing, but also the expanding consumption which is following the technology revolution of the years to come.
      Consumer electronics, automation, robotics, communication, artificial intelligence and electromobility are going to generate more demand for energy. As far as transition to renewable energy sources is concerned, the EU countries are making progress. So far, they have managed to meet the 2014 target which was to produce at least 30% of energy from renewable sources in the European Union countries by 2020 (the average rate for all EU countries; the target for Poland was reduced to 15%). The minimum target for 2030 is now set at 40%, which was announced in July 2021 as part of the Fit for 55 package.  
    3. Circular material bank 
    4. It is estimated that environmental pollution caused by the misuse or abuse of energy generates about 1/3 of the negative environmental impact. The remaining 2/3 is the misuse or abuse of materials. The circular approach aims to manage raw materials and materials that have already been put into circulation, and to process them multiple times without any losses or emissions to the environment. We are just beginning this chapter of the transformation. 
    5. Systems of products and servicesThey are innovations created based on circular business models and innovation strategies. This is where a physical product meets a digital product, products meet services and technology meets user needs. This is the area with the greatest room for innovation. 

Is circularity, a term coming up more and more often in debates, going to be a passing trend? Certainly not, as all well developed economies and economic regions around the world rely on it in their long-term strategies. For the European Union, the strategy is known as the European Green Deal and it indicates the development priorities of the European Community by 2050.  

The transition to a circular economy is a complex process. The European Union is taking action to transform our present linear economy into a circular one, known as the EU Circular Economy Action Plan. 

This change is going to affect every business.

If you want to learn more about circularity, we invite you to read our report “Impulses of Circularity”. You can download it here.

 

 

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