A thoughtful and integrated approach is crucial in moving from the traditional “take, make, waste” economy to a circular approach that prevents environmental harm that products and packaging may cause. Four imperatives are necessary for organizations to bring a circular economy to fruition.
1. Understand the material impact and externalities of the business.
Organizations from all sectors seek to accelerate their sustainability journey, but the key factors driving environmental, social, and governance impacts differ among industries.
Waste, water, and packaging all affect the food industry, but organizations need to consider topsoil degradation as well. Food companies must look beyond visible issues such as recycling to include regenerative agriculture as a pillar in their corporate strategy.
The global fashion industry accounts for up to 10% of carbon emissions, 20% of global wastewater, and 100 million tons of nonrenewable resources each year. Applying circular principles to every phase of a garment’s lifecycle could revitalize and reimagine the industry and divert substantial landfill waste. Some organizations are exploring fiber recycling for both natural and synthetic materials. Recommerce — the resale of worn or returned consumer products—offers an estimated $80 billion market opportunity: its simplicity for consumers and its cost-effectiveness as a circular solution contribute to its growing 16 times faster than the global apparel market.
2. Design processes that mitigate business externalities and build cradle-to-cradle applications.
After an organization has done a materiality assessment, it can design products and processes to mitigate key externalities. Employing circular design principles at the front end is critical to reducing waste and facilitating logistics at the end of a product’s lifecycle.
While many sustainable technologies are still at an early stage, some can be applied now, such as advances in materials or research and development capabilities. Other design initiatives may not prove economically viable for years. Investing in several technologies to determine the viability and cost-effectiveness of a lead technology could help organizations establish the focused investment and partnerships they need to scale the technology and secure the materials that go into a product.
While organizations need to continue to design away waste at the product-creation stage, reverse logistics and redistribution of used products are critical to a circular economy. Organizations and markets are at varying stages of implementation: some are building reverse logistics as a competitive advantage and investing millions in advanced robotics downstream, while others are still defining their own reverse-logistics strategy and reacting to changing market conditions.
3. Scale circular processes with a broad ecosystem of partners and advancing technology.
After an organization has designed and demonstrated circular applications and associated processes, it must scale them to drive lasting effects. This will require change across the organization’s ecosystem: a mindset shift from “competitive advantage” to “industry solution” will be critical in how it views its peers and competitors. The full workforce will need relevant expertise and mindsets to adapt, and collaboration with peers and across the value chain will require companies to manage risks and costs, especially in procurement, and drive greater demand.
While scale and cost are critical to justifying investment, traceability is another key concern. Companies and their partners can use a growing range of tools to track raw materials, goods, and services, including radio frequency identification, QR codes, internet of things, watermarks, and blockchain. Such technologies enable more transparent supply chains, simplified returns, reverse logistics, a better user experience, and more efficient management of redundant materials and products.
4. Engage consumers to participate in the circular economy.
Strategies such as recycling, reusable packaging and product rentals have one thing in common: they only work with consumer engagement. Whether renting a dress or using a recycling bin properly, consumers are essential players in achieving circular outcomes.
Consumers are increasingly focused on sustainability. EY Future Consumer Index finds an emerging commitment to a simpler, more balanced life incorporating sustainable choices. More than half of those surveyed are paying more attention to the environmental (62%) and social (56%) impact of what they buy: 43% of consumers said they always try to recycle or reuse packaging, and 69% said they are trying more to repair products than replace them. This consumer trend toward sustainability is growing across geographies, including developed and developing markets.
Consumer products and retail companies need to engage and educate consumers and make their experiences as seamless as possible. The chemical recycling of flexible plastic requires consumers to sort it, municipalities to offer single stream curbside recycling, and sorting systems to get the material to a chemical recycler. Brands must provide informative labeling, encourage good recycling habits, and help provide infrastructure for the customers’ convenience.
Squaring the circle
To achieve a sound circularity strategy, organizations should consider four areas of focus:
- Use circularity to define the context of your sustainability goals. A holistic, materiality-based view is critical. Reducing greenhouse gases, minimizing water use, and other sustainability goals fall within the remit of circularity and are as crucial as landfill avoidance.
- Consider multiple strategies and options to determine how to build circular applications. With technologies evolving quickly, evaluate various options and develop a roadmap with key decision points as development progresses to scale-up.
- Take an ecosystem approach. Collaboration across value chains is essential. Organizations must lead mindset shifts from “competitive advantage” to “industry solution.” Partnering with competitors can drive scale and adoption and reduce costs.
- Engage consumers. After defining a solution, communicate the improvement to consumers—be clear in labeling, instructions and education—and make participation convenient.
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Jim Doucette is Global EY-Parthenon Consumer Products and Retail Leader.
Dr. Shahid Murtuza is EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP.
Olivier Gergele is EY APAC Consumer Products and Retail Leader.
Ray MacSweeney is EY-Parthenon Associate Partner, Consumer Sustainability, Ernst & Young LLP.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.