“Externalities are outpacing profits.”
That’s the new reality, according to Martin Stuchtey, who spent the better part of two decades advising companies on sustainability, as the former director of the McKinsey Center for Business & Environment. For years, sustainability pundits like Stuchtey, along with trailblazers like Paul Hawken, Amory Lovins, and L. Hunter Lovins, have been beating the drum about how companies should more closely consider their effect on the environment and the environment’s effect on their bottom line, with the novel idea that this consideration could unlock opportunity. This new thinking has many going in circles—and mostly, that’s a good thing. Today, companies of all sizes and industries are not only motivated by potential opportunity, but driven by necessity, to reimagine ways to radically re-invent their value chains.
Linear ‘take-make-waste’ industrial processes and the lifestyles that feed on them deplete finite reserves to create products that end up in landfills or in incinerators. The circular economy describes an industrial economy that produces no waste or pollution, in which material flows are of two types: i) biological nutrients, designed to reenter the biosphere safely; and ii) technical nutrients, which are designed to circulate at high quality in the production system without entering the biosphere. Restorative and regenerative by design, the circular economy represents one of the most significant sea changes in the global economy in history. New research by Accenture and Deloitte points to the many business opportunities these new approaches can unlock. For the second year running, the U.S. Chamber of Commerce Foundation has advanced this new discourse, taking the topic as the theme of its sustainability forum. Bringing together corporate executives and thought leaders, this year’s event sought to help companies more effectively operationalize their commitments to shift from linear to more circular business models.
Over the course of two days, leaders in the circular economy shared their best practices and approaches to help others join the movement, yielding five critical lessons in circular economics.
Research by Deloitte explains how companies can operationalize the circular economy.
Cradle to Cradle Must Become the New Normal
“Ultimately, a regulation is a signal of design failure.”
Speaking in the first panel of the day, Tim Conway, Vice President of Global Accounts at Shaw Industries, described what drove his company to embrace the circular economy. He was quoting William McDonough, one of the fathers of the Circular Economy, and the author of Cradle to Cradle: Remaking the Way We Make Things. Describing how the company arrived at its decision to pursue a Cradle to Cradle product, Conway and his team worked to reposition the problem: “We don’t have a recycling problem,” Conway said, “We have a manufacturing problem.” Shaw is the world’s largest carpet manufacturer, and a darling of the Circular Economy for its commitment to Cradle to Cradle® certified product, one of a few companies choosing to get ahead of regulation by adopting a forward-thinking methodology.
Shaw Industries’ circular economy production pipeline.
According to McDonough, a regulation “is what we call a license to harm: a permit issued by a government to an industry so that it may dispense sickness, destruction, and death at an ‘acceptable’ rate.” Cradle to Cradle design stands in contrast to “Cradle to Grave,” believing that materials, if suitably protected, can circulate perpetually through regenerative production systems. A biomimetic approach that models human industry on nature’s processes, the framework fosters a holistic economic, industrial, and social framework that seeks to create systems that are not only efficient but also essentially waste free. Cradle to Cradle products are complex to produce because they often require a producer to retain control of its supply chain from end to end, and ensure that materials used in production can be easily reintegrated back into the supply chain.
In closing, Conway encouraged all businesses to embrace the Cradle to Cradle concept. “Don’t be afraid to experiment,” he said. “Use Cradle to Cradle as your production framework.”
Innovation in Water Management Will Save Humanity
George Hawkins, the CEO of the DC Water and Sewer Authority is working to solve a nearly impossible problem. His city, like more than 750 cities across America, is built on a combined sewer system in which the median age of the pipes is 79 years (meaning half of them are older) and many of the city’s water mains date back to the American Civil War, pipes that see more than 95 million gallons of drinking water a day. In addition to antiquated infrastructure that desperately needs to be replaced, extreme weather, restricted revenue, and an antiquated business model are exacerbating the challenge. Water bills in the district have more than doubled in the past seven years, even as one third of the city’s capital improvement dollars are spent on the water system.
Speaking to the group of business leaders gathered at the U.S. Chamber, Hawkins reminded the audience of the urgency of his mandate. “Circular economy is the right thing to do for a whole host of reasons,” he said. “For the water industry, it’s survival.” An experienced innovator in environmental and utility management, Hawkins has architected numerous innovations in water management that stand as examples to other municipalities with antiquated systems seeking to better serve their citizens. From citizen managed rainwater-collection cisterns to Cambi anaerobic digesters that turn biomass into fuel, Hawkins is working to turn DC water into a closed loop system that produces energy and organic fertilizer all while meeting the city’s water needs without wasting a drop.
DC Waters Cambi thermal hydrolysis reactors in Blue Plains wastewater treatment plant.
Recycling Isn’t as Easy as It Looks
Today, Cradle to Cradle is an optimal business model for companies that sell their products or services to other businesses. Consumer-facing brands rely much more on consumer-driven recycling to bend their supply chains from linear to circular. Raised by a militant recycler, I’ve been diligently separating my plastic, paper, glass, and aluminum for decades, blithely assuming those materials are easily making their way back into my refrigerator months later.
Unfortunately, recycling is much more complicated. First, not all materials are infinitely recyclable. While aluminum—referred to by one speaker as “the golden child” of the circular economy— can be endlessly re-used, plastics cannot. Polyethylene terephthalate, known in the industry as PET, is the base material of which plastic bottles and other plastic containers are made. It can only be recycled into the same plastic products four or five times before its structure begins to break down. Most bottles are made from a composite of recycled and virgin materials, to mitigate this effect. As such, whole business lines have sprung up around down-cycling—the use of base material for a simpler function—and up-cycling, the use of PET and other base material for a higher purpose. Because collection and re-use are not directly linked, there are significant market gaps in how recycled materials are used. Resinate Materials Group is a green chemistry company committed to upcycling PET into high performance, competitive, industrial materials. According to Brian Chermside, the CEO of Resinate, only one third of plastic bottles that are collected are actually recycled. He and his company are focused on green uses of PET, but there are endless business opportunities to be found in extending lifecycles of existing products or the ultimate “trash to treasure” conversion.
Landfill is the World’s Greatest Market Failure – And Business Opportunity
The United States prides itself on a waste management system that keeps streets and highways litter-free, but waste collection and management remains largely unregulated. In addition, collection and recycling is highly location dependent. In many municipalities, it’s difficult for consumers to uncover what is or is not recyclable in their area. Left to discern the number on the bottom of the packaging, the consumer is the final adjudicator. According to Jamie Bohan, Senior Director of Recycling & Technology Development at Republic Services, the eighth largest recycling and waste services fleet in the country, America has a 34 percent recycling rate. What’s more, in most markets, anything that winds up in a trash can goes directly to landfill.
Americans generate more than 250 million tons of garbage each year.
Bill DiCroce, CEO, Veolia North America
According to John Acheson, the founder of Stuffstr, Americans buy 47 billion items a year, 69 percent of which wind up in landfill. That’s the equivalent of 789 million metric tons of C02, which is equivalent to the exhaust of 140 million cars. Waste management companies alone can’t solve the world’s landfill problems. Retailers and consumers alike must pay more attention to how, when, and what they consume.
Of course, it’s not all bad news. Veolia is a waste, water, and energy company that employs 174,000 employees worldwide who generate $30.3 billion in annual revenue, $4 billion of which serves the circular economy. From wastewater treatment to landfills, Veolia has its hands in every step of the production puzzle. With more than 3,000 wastewater treatment plans and more than 650 waste processing facilities, the company serves 45 million people alone solely through waste removal. According to Bill DiCroce, the CEO of Veolia North America, the company is working “to solve both ‘greens’”—dollars and the environment. They pioneer new solutions that reduce waste—effectively processing solvents, finding alternatives to incineration, and harnessing resources like methane and thermal heat sinks from landfills. Veolia’s commitment to innovative waste management is admirable, but it’s only a tiny drop in the ocean of waste produced each year.
Everything is Energy and Chemistry in Action
To the average student, high school chemistry often seems an unnecessarily abstract discipline. Yet, as I sat listening to speaker after speaker describe the complex solutions their companies are undertaking to bend away from linear production pipelines towards circular models, I was overwhelmed by the myriad ways in which chemistry is fundamental to the Circular Economy. Methane from landfills, PET bottles to polyol solutions, the Cambi anaerobic digester converting human waste into usable energy and grade A organic fertilizer; almost every topic of discussion connected back to energy and chemistry in some way.
Energy is needed in recycling and water purification. Water is needed in plant cooling and processing. And materials all too easily wind up landfilled without regard. While some energetic runoff is inevitable, keeping the production loop closed requires vigilant, conscientious management, and that attention and thoughtfulness can unlock almost unlimited financial opportunity. As business leaders embrace the Circular Economy mindset, they should be motivated not by the need to comply with anticipated regulation but the financial opportunity in converting linear production models into circular ones. By more closely scrutinizing the places where unnecessary energy is expended in production, transportation, and collection, companies can unearth opportunities for efficiencies and cost savings. By paying more attention to the chemical compounds of which materials are made, they can source substitutes or life-extending utility, further economic resource to be uncovered and captured.
And these are only a few of the approaches that stand to create waves of change. Many leading companies, including Google, Nike, Cisco, Caterpiller, HP, Intel, Apple, IBM, Lexmark, Dow, and others are scrutinizing their supply chains for efficiencies and potential circular utility. Optoro, a reverse supply chain and logistics company, is working to better manage the 10 billion products returned to retailers every year, inventory worth $500 billion. In just six months, Optoro has increased by 15 percent the amount of returned inventory sold to downstream consumers, and decreased by 60 percent the inventory that is wasted or landfilled. DSM is using the yeast from elephant dung to more effectively convert corn husks to biofuels. Timberland is working with Thread International, a B-Corp that converts trash from communities in the Carribean into upcycled fabrics, to integrate upcycled materials into a new boot line, proving that consumer-facing brands can also become Cradle to Cradle champions.
Andrew Morlet, CEO, Ellen MacArthur Foundation
By consuming less, reusing, and recycling more, consumers can be good partners to business. But business also has to embrace the opportunity to be a good partner to all its customers, and most of all, to the earth. By realizing that antiquated business models built on take-make-waste, while historically lucrative, are environmentally unsustainable, more companies can join the growing community of organizations and individuals committed to bending the linear supply chains of yesterday into the multifaceted value networks of tomorrow.
Andrew Morlet, the CEO of the Ellen MacArthur Foundation, encouraged the audience to think in a new way about the world’s economic potential. “We need to shift the economy from being extractive and consumptive to one that is restorative and generative,” he said. In a world where business and consumers work together to get more out of less, we can all look forward to a brighter, more sustainable future.
Event photos by Ian Wagreich © U.S. Chamber of Commerce Corporate Citizenship Center Sustainability Forum Washington, DC, USA – May 16-17, 2016
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