Veolia, BITC Responsible Business of the Year 2016, buys into the circular economyFebruary 2017
By Tom Idle — Talking about the so-called circular economy and all the potential economic and environmental benefits it might bring is not to speak of a distant future, says the woman leading Veolia in the UK and Ireland. Estelle Brachlianoff (pictured) argues that it is something happening here and now, and that there is a huge mine of hidden value just waiting to be tapped for businesses of all shapes and sizes.
The resource management business, which is 2016’s Business in the Community Responsible Business of the Year, has been keenly putting some concrete figures to better define the size of the pie on offer. In its new 'Imagine 2050' report, Veolia looks at a number of new business models it says are needed in three sectors if the UK is to meet the ongoing resource and waste challenges between now and 2050.
The manufacturing, pharmaceutical and chemical, and food and drink industries generate 13 million tonnes of waste, which, if properly re-used, recycled or re-manufactured, could generate £4 billion of value to the economy. “Business models and operations can be re-engineered and redesigned by 2050 so that products and manufacturing processes are completed by closing the loop,” it says. “By generating energy from renewable sources and no longer treating water as a cheap commodity, but a valuable resource, businesses will become more self-sufficient”.
As you might expect, Veolia is excited. Whenever Brachlianoff appears at an event or panel discussion, she almost always brings out of her pocket a casino chip-sized piece of bio-plastic material – made entirely from organic effluent – just to make the point. “We’re investing in R&D right now, developing solutions with our customers and building partnerships with like minded people,” she says, comparing the realisation of a circular economy to “a Galileo moment, when people realised the Earth was not flat, but round”. Businesses cannot go back to the Middle Ages, she adds.
Manufacturing businesses can benefit from £2.8 billion of hidden value in under-utilised waste streams by generating, using and recovering energy and water resources. Veolia predicts that by 2050, waste materials will be turned into tradable commodities, potentially enabling 100% recovery rates.
On top of this, there is a further £6 billion on offer just by being more efficient – using less water, energy and gas – according to Steve Evans, director of research at University of Cambridge. “Non-labour resources cost five times as much as labour in manufacturing and we need to improve skills and knowledge across the board,” he says.
In the pharma sector, there is £800 million of extra value to be had from designing efficiency into products at a concept stage and in creating new finance models that will enable medicines to be produced more efficiently.
Meanwhile, in food production, the prediction is that cost pressures will bring about major changes, with companies forced to reimagine the by-products currently thrown away. As Evans says, “We’re already growing enough to feed the future world. We just don’t feed people with it. We don’t need to grow more stuff; we just need to stop throwing away the edible stuff that we do grow”.
Easier said than done
But creating circular products, models and services is easier said than done. Brachlianoff is right: circular economy principles are being adopted right now. But examples of closed loop developments are still few and far between, despite an increase in awareness and knowledge.
For a company like BMW, asking the business to rethink the way it builds and sells cars is not something that will change overnight. “There’s no doubt, the circular economy is going to be hugely important to our business,” says Thomas Sherifi, BMW’s environmental programmes manager. “No longer are cars these beautiful, shiny things that sit on our driveways. We need to think more about what happens at the end of their life and the recyclability of all of the components – and we are doing that”.
But if building circularity into products and processes demands collaboration and partnerships between companies that might want to share waste streams and resources, as Brachlianoff suggests, the rulebook might need shredding and writing again, particularly in the car-making sector. “Innovation is what drives our business, and we are reluctant to share that,” says Sherifi. “To let that Pandora out of the box is a big decision for the big bosses”.
Collaboration is crucial
The need to find companies willing to find common ground and efficiencies together is crucial – “to find the right prince among frogs,” as Evans puts it. Without collaborating, companies will find their market share eroded entirely, warns Ravi Krishnamoorthi, Fujitsu’s senior VP and head of business applications services. “Uber exists because there was a reluctance to collaborate,” he says. “There must be a culture change from business leaders if we are to do business in a circular way.”
One thing that might help to focus the minds of CEOs is economics. “It was only when the environment lead at one of our customers started reporting to the chief finance officer that the true environmental costs of inaction were translated to the board,” says Brachlianoff. She disagrees that short-term activity translates into profits, while long-term thinking is purely about saving the planet. “Climate change impacts are taking a hold now and having an impact on quarterly performance. There’s no time to wait”.
The other likely future trigger for more companies to re-engineer their offer with the environment in mind is consumer expectation and demand. The sales proposition of all car companies is that customers must have the latest, shiny new models straight off the forecourt. In a circular economy, a car-leasing model – where customers bypass ownership – will be the order of the day. That is a big shift for a company like BMW. “We need to redefine what ‘cool’ is,” says Sherifi. Companies like Riversimple and Tesla have already stolen a march on traditional companies in the sector.
Serious innovation in business models is a tough ask for companies with a legacy, with very few unwilling to challenge their own way of doing things. The pioneers are currently experimenting in silos that sit alongside their core business, so it is far from mainstream thinking. But within the next five years, we will see a shift, predicts Evans. “Increasingly we will see companies redefining what ‘winning’ means: winning at the expense of another company, as is the case now, or winning together”.