Over 1700 representatives from 105 countries were gathered in Helsinki early June to discuss how to better adapt to limits of earth´s resources. A bunch of environmentalists and tree huggers? No, but a group of world’s top business leaders, policymakers, researchers and innovators who realize that this is not just about corporate responsibility, regulations or financial resources.
We are moving towards an era which requires new thinking and companies play an important role as a game changer.
It makes perfect business sense to incorporate circular economy requirements into corporate strategies for many reasons. Firstly, resource and energy efficient business processes mean cost savings. Secondly, Extended Producer Responsibility (EPR) is becoming more widely applied in many countries. Thirdly, people are increasingly conscious about their choices and willing to change their consumption patterns. And finally, the way we live, travel, eat and do business is already undergoing a radical change. The new everyday life will be based on sharing economy – using services instead of owning things.
Digitalization provides an excellent platform for circular economy solutions and business models. For example in B-2-C, Mobility As A Service (MAAS) will offer many new business opportunities as the young generation is already shifting away from personally owned modes of transportation towards mobility solutions that are consumed as a service. It is estimated that cars are parked over 90 % of their use time. Many city dwellers in big cities choose not to own a car and use mobile applications for ride-sharing. In Helsinki, City Car Club offering flexible use of rental cars, EcoRent for electric cars or popular City Bikes provide services for this growing consumer group.
In B-2-B, industrial internet is paving the way for investment goods manufacturers to move more towards services business, which provides them new ways to retain long term customer relationships. Sensors in machinery like MacGregor cranes or Kone elevators help to detect equipment failures early and minimize unplanned downtime, maximize product durability or maintain their resale value. Win-win for both parties, manufacturer and customer. Opportunities of digitalization and IoT is also leveraged in LeaseGreen´s smart energy management solutions for property owners and Enevo`s sensor technique for waste management – both being on the list of most successful start-up companies in Finland.
Transition from linear to circular solutions does not happen overnight and many of these examples are just steps towards it. On a broader level, systemic changes will be needed. For an industrial company, a closed loop manufacturing system is in most cases not viable but needs an ecosystem where one entity´s waste becomes valuable raw material for another one. E.g. Metsä Group´s new bio-product mill in Äänekoski is 100 % self-sufficient in energy production, aims at chemical cycle which is more closed than before and will create an ecosystem of smaller companies on site which can make use of production side streams such as biogas. Industrial symbiosis, partnerships and ecosystem play will be an important way to achieve a circular economy.
Market disruptions related to digitalization, IoT and AI are already included in Board room agendas, but there is another disruption based on how to best use the earth´s limited resources which companies will be facing. RRR, “reduce, reuse and recycle” should be complemented with another R for “rethink”. How well set are we to adjust to changing market environment and consumer behavior? Dutch ING Bank described in WCEF how circular economy will affect the financial services sector. Many banks have already stopped financing coal plants and are looking for new, promising areas to put their money into. One is “asset ownership” which is becoming an industry of its own, boosted by transition to shared economy. Value chains and barriers between different industries may look quite different a few years from now.
There are also financial reasons why Boards should stay on top of developments in this area. It has been estimated that by 2030, added value provided by circular economy for Finland’s national economy could be at least 3 billion € per year. Product innovations for more resource efficient solutions, and at best closed loop systems, which are scalable will open almost unlimited new business opportunities globally. According to a McKinsey report, adopting circular-economy principles could not only benefit Europe environmentally and socially but could also generate a net economic benefit of €1.8 trillion by 2030. This only gives many good reasons to analyze how our companies will be affected and whether we are likely to be one of the winners or losers. In both cases, there will be a need to assess the viability of current strategies and business models.