New greener business models
What can business do to speed up the transition towards a more sustainable society? And how can it be made profitable for them? Experts discussed recent innovations and experiments, as well as the challenges still to come, during the Green Week session on ‘New business models for sustainable lifestyles’.
“Ecosystems set an absolute limit on our resource use and offer a compelling argument for a circular economy,” said Hans Bruyninckx, Executive Director of the European Environment Agency, setting the scene. “To live well, within the limits of the planet,” he said, “we need the circular economy, where nothing is wasted.”
He talked about the possibility of selling services rather than products, using the example: “I don’t need a drill – I need a hole in my wall.” He also suggested modifying the waste hierarchy to reflect the desirability of reduced consumption: before we think about “reduce, re-use, repair and recycle”, we should start by thinking, “refuse”.
New business models promoting this approach are already emerging, he said, noting trends such as “collaborative consumption” that change the relationship between producer and consumer, and the growing importance of “urban mining” – extracting materials from old cars, electronics and other devices no longer in use.
Johnson Yeh of the Environment Initiative at the World Economic Forum (WEF) detailed the advantages of a more circular economy. The WEF has estimated that materials worth $1 trillion could be saved per year by 2025, generating $500 million in benefits within 5 years – and creating 100 000 new jobs.
But while technology has helped to increase labour productivity, significant improvements in resource productivity have yet to materialise.
“The circular economy has not become mainstream,” he said, blaming a lack of connections between industries and along supply chains. “We need a multi-stakeholder approach.” This would bring the next industrial revolution, he concluded.
Retailers and consumers
Bart Goetzee of the Philips International Senior Group on Sustainability explained that his company was already committed to the circular economy.
Philips is now using more recycled materials, and operating 'trade-in schemes' to collect used products and harvest re-usable components from them. Philips is also looking at service and repair models, which favour renovation over replacement.
Design for modularity and repair is a challenge for engineers and designers, as is the need for innovation in packaging to cope with product returns and supplying spare parts. The company is also exploring models that emphasise access rather than ownership, and sees some opportunities in the business-to-business sector. Social housing corporations, said Goetzee, could include a menu of shared appliances for residents in the rental agreement, making the latest models more accessible and easing collection and returns.
Increasing the durability and lifetime of products has clear advantages for consumers, according to Carina Törnblom, Head of Unit for Consumer Strategy, Representation and International Relations at the European Commission’s Directorate General for Health and Consumers (DG SANCO). She stressed the need for rental business models that represented a good deal for consumers.
“Consumers are often less informed and assertive than we assume,” she said. When it comes to environmental labelling, “only 22% can correctly identify the meaning of logos on products”.
She cautioned against legislative gaps that opened up as the distinction between producers and consumers became more blurred in some new business models. The energy sector, for example, is likely to see an increase in micro-generation, collective switching and energy cooperatives, but consumer protection legislation has yet to catch up. There is also a grey area, she said, when people are selling energy back to the grid: “When do you become a business?” she asked.
Collaborative consumption is another interesting model, she continued, but it requires careful monitoring and analysis. The circular economy must avoid “rebound effects”, where consumer savings lead to an increase in spending on other goods with a significant environmental impact.
The biggest challenge for Philips, said Goetzee, has been convincing retailers of the value in new business models, as many of them resist the extra work involved in offering product collection schemes. For Yeh, the challenge was how to ensure that consumers appreciate real improvements, and how to get companies to collaborate on changing their supply chains.
Bruyninckx felt that public funds and EU pressure should be used to get circular economy thinking into the mainstream – by removing environmentally harmful subsidies, for example. He reminded the audience that 35-50% of GDP flows through the state in European countries, and this is a powerful lever. Yeh agreed that shifting subsidies and using public procurement, as well as standard-setting, was the way to go. Industry also needs cross-governmental, public-private dialogues, he said.
As a large company, Philips has the power to push circular economy models through their own procurement, said Goetzee. He also noted new insurance and ownership issues raised by the leasing economy, and suggested that people consider “sell and buy-back” approaches, or contracts that specify “repair first, then replace” with a second-hand product, and only replace with a new model after the full term of the lease.
“We need to green the whole economy,” Bruyninckx concluded, to avoid money being pushed into negative activities. “We need to focus on greening the fundamental system of production and consumption.”
He finished with an ambitious plea: “We have to move away from incremental changes, and towards systemic change,” he said. “We can make the car engine more efficient, but if we don’t change our system of mobility, specifically re-thinking private car use, we’re not going to reach the decarbonisation of our transport system.”