The only economy to embrace is the circular economy — but it’s not happening fast enough.
Since the Ellen MacArthur Foundation coined and defined the ‘circular economy,’ numerous organisations have adopted circular economy principles throughout their businesses, and circular economy “innovators” have emerged. In fashion, since 2019, and despite the COVID-19 pandemic, seven rental and resale platforms have reached valuations above USD 1 billion.¹ Therefore, proving that circular business models can be scalable. These models are expected to grow as customers increasingly adopt new ways of accessing fashion, motivated by affordability, convenience, and environmental awareness. At the same time, global supply-chain disruptions due to the recent pandemic have further accelerated interest in the circular economy as crucial to “build back better”.² Yet, many businesses, institutions, and organisations still have to fully understand and embrace the circular economy as part of their core business.
What is a circular economy?
The circular economy is a systems solution framework. It is a bigger idea. It goes beyond treating the symptoms of the current economy to tackle the root causes of global challenges while providing opportunities for better economic growth that benefit businesses, people, and the environment. It has three principles, all driven by design: eliminate waste and pollution, circulate products and materials, and regenerate nature. As such, it is the opposite of the current linear economic model. The linear model exploits natural resources to make things we typically use for short periods and end up in landfills. It is wasteful of embedded resources, energy and labour. Plus, landfilling causes further pollution and GHG emissions.
There are many open questions about the circular economy. In the first instance, people question its economic viability and scalability. Then, the role of different actors when accelerating the transition. Finally, people wonder how much or when it will be enough.
Let’s start with the first one.
Is it economically viable? Does it make business sense?
The current model is intrinsically linked to virgin materials. The more materials you get, the more products you make and sell, and the more money you make. The problem? The source of these materials, arable land, can end. Therefore, these materials are finite; we are extracting them and using them as if they were infinite. Globally, land-use change (i.e., how humans modify the natural landscape) for commodity production is the leading driver of terrestrial biodiversity loss. Human activity has already altered nearly 75% of the Earth’s surface.³
Business as usual does not work. BlackRock Vice-Chair Philipp Hildebrand clearly articulates that continuing business as usual would mean losing about 25% of global GDP over the next two decades.⁴ So, does the linear model make business sense? The answer is, increasingly, no. And we are in dire need of an alternative. As Hildebrand states, the real sacrifice is to do nothing and experience a world with a dramatic loss of profitability, wealth, and health.
Where there is a will, there is a way.
It took three years of collaboration to create the Napapijri Circular Series jacket. To make products easily recyclable, these need to be made of a single material. Napapijri quickly realised that such a challenge required a joint effort by material scientists, designers, and sourcing teams. The task did not stop at creating the 100% recyclable jacket. They partnered with Aquafil to process the jacket once it reached the end of its usable life. Therefore, ensuring the jacket was going to be recycled in practice. Designing a jacket for a circular economy implied thinking beyond the usual design boundaries to consider an entirely new business model. They even built a dedicated internal “Infinity community” and created a digital take-back programme to trace and recycle each jacket into new ones.⁵
Similarly, Eshita Kabra-Davis, founder of By Rotation, quickly realised that getting and managing a diverse enough inventory was the biggest challenge to developing a fashion rental business. So, she came up with a new peer-to-peer fashion rental business model. By Rotation provides access to fashion without holding any inventory or physical retail space. It is a mobile app. Users upload their items, connect and By Rotation, get a percentage of all transactions.
As the Napapijri and By Rotation examples illustrate, creativity flourishes when businesses are determined to make the circular economy viable. Not the other way around.
OK. But is it scalable? We need regulation to make it work.
Yes, and policy needs concerted actions from businesses, institutions and every other stakeholder. New regulation emerges through incremental regulatory activities and consensus.
For example, France was the first to ban the destruction of unsold non-food products under its anti-waste and circular economy law introduced in 2020. Rather than landfill or incinerate unsold goods, companies will now have to reuse, donate or recycle their unsold products. It is important to highlight that France has been working on waste reduction policies since the 1970s, with the Extended Producer Responsibility (EPR) voted in France in 1975.⁶ Yet, only in 1992 did France apply this law to household waste for the first time. It took seventeen years for France to work in its reverse logistics infrastructure to make that law possible between the vote and implementation. These same laws in the 80s would not have had such a success story. Back then, the reverse logistics and processing infrastructure was not in place for companies to comply whilst keeping their licence to operate.
Today, we don’t have another seventeen years. So, two-way communication and collaboration between businesses, government and all other stakeholders is essential to accelerate the transition. Plus, it is worth mentioning that existing anti-waste and EPR laws are unlikely to prevent such waste at source. As such, these merely offer a solution to the high volumes of waste in the linear economy. EPR is only one step forward towards a circular economy for textiles. Addressing the root causes of the current wasteful system requires profound transformations on the level of product design and business models.⁷
So, when is it enough? When are we fully circular?
As mentioned above, the linear economic model is intrinsically linked to virgin materials. Then, by definition, the circular economy is precisely the opposite. A circular economy is not linked to virgin materials. It generates multiple revenue streams per product, making more money and creating more job opportunities without making any more new products. This is crucial to allow nature to regenerate and prevent further biodiversity loss.
In a circular economy, organisations think systematically about their activities. They understand the implications of sourcing their raw materials, processes, and what they ultimately put in the system. Even if they focus on a specific circular economy principle (e.g., circulating products and materials), they acknowledge that they are not alone in the system. They know they can create something that can become food (or poison) for other players. Their objective is to generate capital while leaving the system in a better stage than they found it.
So, for organisations to be considered ‘circular’, they need to demonstrate that their revenues are not directly proportional to placing more new products in the market. Reusing (e.g., resale and rental) is at the core of all business activities.
Typically, not solely and neither always. Resale is a way to generate revenue without making something new, but it is not the only way. It is hard to imagine every retailer implementing their resale or rental model. Indeed, as organisations realise, what makes business sense for one company might not make business sense for another. There is no one-size-fits-all solution. Those who find the most creative ways to make money without making more products will thrive. The economic and environmental benefits multiply when different models are combined. For example, re-introducing “take-back” products through rental and reselling them only after they have been rented out a few times makes the model more profitable. It is about creating a new system and finding innovative ways to make the economics work.
As time goes on, humans will develop more technologies, and more circular economy solutions will emerge. As systems become more complex, they also become more prosperous. The circular economy creates a positive and diverse innovation cycle with endless possibilities for creativity and capital. The circular economy is, in essence, a journey of discovery with endless opportunities.
Sources:
- Depop, Rent the Runway, The Real Real, Vinted, Poshmark, Vestiaire Collective, and thredUP
- OECD Policy Responses to Coronavirus (COVID-19), Building back better: A sustainable, resilient recovery after COVID-19 (2020)
- IPBES, The Global Assessment Report on Biodiversity and Ecosystem Services; Summary for Policymakers (2019); United Nations Sustainable Development Goals, 15 Life on Land.
- The New York Times Climate Hub, How to Fix the Economy and Finance the Transition (2021).
- More on the Napapijri story in Ellen MacArthur’s Circular Design for Fashion Book (2021).
- Jacques Vernier, « Extended producer responsibility (EPR) in France », Field Actions Science Reports [Online], Special Issue 23 (2021).
- Read more: Building a circular economy for textiles supported by common rules on Extended Producer Responsibility (EPR) in the EU.
