The Hidden Benefits of a Circular Economy

Sustainable LeadershipLeadershipSustainability
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Claus Fischer
12月 23, 2021
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Sustainable LeadershipLeadershipSustainability
Executive Summary
What is a “strategic circular economy” and what opportunities does it hold for retailers and producers in sectors such as #fashion and #luxury?
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"Mehr Fortschritt wagen“ ("Dare more progress") is the motto of the new German government coalition. It is a motto that should not only guide politics, but also an economy in transition. In our everyday exchanges with business representatives, we see the growing importance of a comprehensive sustainability agenda that provides answers to the most pressing questions of our time. In the face of the global climate crisis, more and more entrepreneurs are asking themselves how they can not only make their business sustainable, but also keep it economically viable or even make a profit with sustainability measures. For this reason, a concept that can be described as a strategic recycling economy or short strategic recycling, is gaining in importance. The aim here is to understand the topic of recycling not merely as the careful handling of waste, but to integrate it firmly into the corporate strategy and thereby uncover its economic potential.

Circular economy firmly established in coalition agenda

The recently adopted German coalition agreement actually contains a promising passage entitled "Circular Economy". In it, the SPD (social democrats), die Grünen (green party) and the FDP (liberal party) formulate their ambitions to noticeably reduce "primary commodity consumption" in the future and to set up a "national circular economy strategy" for this purpose. The aim is to bundle existing concepts and facilitate unified standards throughout Europe. In addition, the coalition partners are committing themselves to the introduction of a legally binding funds model that rewards "resource-saving and recycling-friendly packaging design as well as the use of recycled materials". In addition, "ecologically advantageous reuse, return and deposit systems" are to prevent unnecessary waste and establish a regenerative recycling system. Clearly, political leaders are putting more and more emphasis on the sustainable alignment of their policies and are increasingly scrutinizing economic projects in terms of their climate friendliness. Similar courage to seek more sustainability can also be observed among businesses, where more and more decision-makers want to take on ecological responsibility and turn environmentally friendly projects into potential profits. A thus strategically conceived circular economy can cover several aspects, and companies are often setting different priorities in their recycling efforts.

Strategic recycling protects the environment

Probably the most obvious reason to strive for a strategic circular economy is that it enables companies to meet their ecological responsibility goals. Produced waste is reused instead of ending up in landfills. French luxury brand Chanel, for example, has for some time now been committed not only to designing haute couture but also to the sustainable production of its fashion creations. In 2020, the group committed to the goals of the Paris Climate Agreement as part of its Chanel Mission 1.5°, and by the end of 2021, 97 percent of the company's own electricity consumption will come from clean energy sources. In addition, the bottle of the classic perfume N°5 is now made of recyclable glass that not only meets the company's high quality standards but also benefits the environment. Like many other companies, Chanel relies on the expertise of a CSO (Kate Wylie) to develop its sustainability strategy. Together with her team, she is in charge of the ecological transformation of the company.

Greater independence from external factors

Moreover, a strategic circular economy promises greater independence from external factors, such as shortages of commodities or potentially unreliable suppliers. Particularly in a globally networked, globalized world economy, dependence on external suppliers can lead to serious problems. The Covid pandemic made it painfully clear to all of us that the collapse of international supply chains can have serious consequences for the populations of countries and their economies. In the spring of 2020, for example, many places lacked necessary protective masks, the procurement of which and distribution to people took several weeks. An excellent example of an independent production strategy is that of the sporting goods manufacturer Adidas, which launched a recyclable sneaker in 2021. Once the shoe has served its purpose, Adidas plans to use the recyclable materials for in-house production, which among other things will save the group from having to procure additional resources.

Great potential for cost reduction

A third key benefit of a strategic circular economy lies in its significant cost-saving potential. If a company uses certain materials more frequently, it obviously incurs far fewer expenses than if it were to dispose of them. In 2017, for example, clothing company C&A became the world's first retailer to develop and launch T-shirts with an official Cradle to Cradle (C2C)® Gold certification. This involves sustainably developed fashion that takes into account the principles of the circular economy and, last but not least, also saves the company money through the reuse of raw materials. Admittedly, it must be stated that a strategic circular economy conceived in this way is not yet sufficiently profitable in some segments and therefore so far only represents a promising model for the future. However, it can be predicted with some certainty that both the ecological and economic potential of the concept are extremely high, given the increasing urgency in the fight against climate change and shrinking resource supplies.

More and more F250 companies appoint sustainability officers

The topic of a strategic circular economy will undoubtedly become increasingly relevant in the upcoming years and decades. However, to successfully implement such a transformation, a high level of specialist expertise is required. This message has already been understood by several of the largest companies worldwide. Our research shows that currently 24 percent of Fortune 250 companies have already appointed a sustainability manager to their C-suite team and 61 percent have at least one senior leader for sustainability, and it is to be expected that also in Europe more and more companies will adopt a similar approach. Now, it remains to be seen to what extent more companies will follow suit here and lace up their recycled shoes for the long march to a successful and prosperous circular economy.