Environment

Making the Most of Circular Economy

Published on: 30 May 2022 05:30 PM
by KnowESG

The circular economy has quickly become one of the most popular buzzwords in business literature, with many reputed publications claiming it to be the solution to the inherent conflict that exists between the profit incentive of businesses, the society they operate in and the external costs they impose on society.

What is a circular economy?

The circular economy is the idea that a sustainable economy needs to be able to support itself by using its waste for future production. Essentially, the wastage from one production chain should be used by other production chains, resulting in lower raw material usage, less energy usage, and an economy that requires fewer resources to work.

This idea has gained a lot of adherents in the past couple of decades as the fight against climate change has intensified. It is highly appealing because, unlike other ideas, it does not require a fundamental shift in the way we organise economically.

It says that business can continue, as usual. However, there needs to be a change in how we process waste and the way we acquire raw materials. In such an economy, companies would not be purchasing raw materials; they would be borrowing them. It has attracted support from a lot of businesses, and a lot of academics point to it as the way forward. However, there are many problems with the practical implementation of such an economic system.

Circular economy and a for-profit economic system

A for-profit economic system is focused on providing profits to shareholders, with other stakeholders as a secondary concern. Businesses that deliver greater shareholder value thrive in such a system and experience a rise in stock prices.

Many people believe that in such a system, it is not possible to focus on people or the planet. Businesses that prioritise profits will choose to cut corners when implementing environmental restrictions, pay fines for polluting the environment when enforcement regulations are lax and are not enough of a deterrent, and move between territories to find one that has lax rules and generally acts in a manner that allows them to skirt environmental regulations.

The argument goes that non-profit companies are ideally suited to focusing on a circular economy. Non-profit companies are focused on all stakeholders rather than a small group of shareholders, and their activities are designed to maximise welfare rather than profit.

Therefore, an economic system that focuses on non-profit companies will have most companies that use surplus resources to improve the economy or people, spend on ethical technologies, which are less extractive, and will generally place a premium on improving the environment and people.

Is a circular economy and profit inherently at odds?

Recently, there has been growing evidence that supports a more ethical approach to the environment and has been coming from a source that companies care about most, i.e., their shareholders and consumers. From a rise in ethical investing to the rise in conscious consumerism, there is a growing awareness that the current method of profit-seeking capitalism is unsustainable and will impose unacceptable environmental costs.

Companies all over the world are stressing the importance of eco-friendly policies and production with stated goals to reduce their carbon footprint. Companies with an eco-friendly focus tend to trade at higher stock prices. Consumers have roundly rejected the notion of buying from companies that focus on unethical or unsustainable practices. This is a growing movement that is going from strength to strength.

Does all of this imply that a for-profit economy is sustainable? The evidence is yet to come in, however. The only reason why we see this change is due to a rise in demand from shareholders that, in turn, is driven by consumers. If consumers continue to focus on holding companies accountable, we could see this movement grow stronger.

How can companies leverage the circular model of the economy?

Companies must first take a critical look at their existing operational footprint and the opportunities for integrating circularity within each area. The company must have a long-term idea of what technologies would be required to enable circularity and the way customer interactions will change because of introducing circularity.

The long-term vision of how the company changes will ultimately be based on the strengths of the company's business model and the capabilities it can leverage. Companies must start from this point and then create a blueprint to determine the fundamental investments they must make across their business.

An important consideration to keep in mind is the scale of the transformation that companies are targeting. Some companies may be able to adjust their capabilities to achieve circularity in their operations while others may be forced to transform their entire business model to achieve the same outcomes.

Once the framework has been created, teams that will drive the circular ecosystem across the organisation must be formed and relationships created across functions. Lastly, a system must be developed to track the progress towards circularity goals across the organisation and within the teams. Often, the biggest impediment to achieving goals is the lack of concrete measurement, and in this case, it is easy for companies to sit back and assume they have met the objectives.

Areas of circularity

Companies across the world have focused on managing water and waste from businesses. The ability to recycle waste so we can use it as the building blocks of new products is a crucial tenet for wider environmental goals and will be a part of what companies focus on to achieve net-zero environmental impact.

Managing water and the impacts of wastewater is extremely important because it directly affects communities. Water runoff from chemical factories and other manufacturing plants has directly affected communities, such as the slow extermination of the Buriganga River in Bangladesh.

Managing wastewater as a component of the entire production process will reduce the amount of water that manufacturing products take up, which is one of the principal reasons we have a water shortage in many areas of the world today. This is true for businesses in both the agricultural and manufacturing sectors.

Circular economy in Bangladesh

Bangladesh has not embraced conscious capital or the concept of a circular economy yet. We remain one of the countries with lax environmental regulations where companies choose to relocate to escape the strict regulations that have come into effect in recent years in the West.

For the circular economy to work in Bangladesh, we need to ensure a rise in not just ethical customers but also ethical companies. Companies need to be held accountable for their actions, but if they continue to skirt regulations, then it is unlikely that we will be able to embrace this concept.

Regulations must encourage companies to become more ethically conscious and dispose less and reuse more. Large professional firms have the international resources and know-how to support the transformation of local companies from extractive to ones that play a crucial role in improving the economy.

Similarly, big banks must walk the talk and put a premium on giving loans to those companies that display accountability and a commitment to circularity. We must reward those behaviours that we must see more of in companies.

Source: The Daily Star

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