Business sector of circular economies

Introduction

Circular economies are setting out to reform the way humans have lived for the last two centuries. As they become more popular, businesses and industries need to catch on to the idea of executing and incorporating them into their business model. The circular economy is becoming the driving force for a more sustainable future, encompassing the idea of a green economy, which has multiple benefits and considers growth and job creation as a core aspect (United Nations Environment Programme, 2020).

The Circular Economy in the Business Sector

The current linear economic model is a wasteful, consumer-driven concept that does not necessarily rely on the reuse of products within the system. The alternative, a circular economy, is based on the concept of a closed loop. Once a product enters the system, it remains there until it is rendered completely un-usable or useless. The introduction of a circular economy into the business sector will result in the greening of it, thus taking some pressure off the environment and promoting sustainable use of products and materials. It will also facilitate the current and global environmental, social and economic challenges which the current linear system is not able to tackle and has failed to address in the past (Calcasi, Kohl and Mangin, 2014). 

As an alternative to the traditional linear economic model, the circular economic model promotes a more conscious method of consumerism. “The need to shift away from a linear production model becomes particularly clear if you look at the projection for population growth and urbanisation,” remarked Astrid Schomaker in an interview with the European Union (European Union, 2018). The environmental crisis currently faced on a global level is clear indication that something needs to change in order for total collapse not to occur.

The concept of circularity is gaining major attention from the financial industry, particularly the banking industry. “Circular economy for finance means to de-risk the credit portfolio of a bank. It would be possible to decrease the risk level of the asset portfolio with a circular economy. The circular economy is a way to decouple the risk management from the asset allocation management” (Ellen MacArthur Foundation, 2019).  If companies are not able to anticipate and regulate their business in alignment with new taxes and laws, there will be problems for the company to face.

All industries need to change and adjust to different methods of functioning in order for the concept of a circular economy to develop and evolve. Amongst the many making changes, banking institutions are at the forefront of the process of change. Banks are a key aspect in the adoption and exploration of the circular economy.  Intesa Sanpaolo is one such bank: they are the largest bank in Italy by market-share and capitalisation and have got a strong European presence, with 25% of their branches being outside Italy. Intesa Sanpaolo believe they are a ‘real economy bank’ and therefore a circular economy is not only a marketing or sustainability strategy, it is a business priority, with major strategic influence on them and their clients. The bank recently developed a strategy on circular economy within the company, believing that tackling of environmental issues is possible, while boosting their client’s competitiveness.

Another concept started by the emergence of the circular economy is the increasing interest of companies in using each other’s waste. The town of Kalundborg in Denmark has become a “circular economy icon” (Kunzig, 2020) and now is home to the Kalundborg Symbiosis. The agreement, initiated in 1972, between eleven public and private companies has “developed the World’s first industrial symbiosis with a circular approach to production” (Kalundborg Symbiosis, 2020). The idea is that the waste from one company becomes a resource at another, benefitting both the environment and the economy by minimizing waste and saving money. This symbiotic relationship enables local growth while supporting a green transition.

Conclusion

The foundations for the circular economy are in place and institutions and individuals are aware of the need to move forward in its direction. The business sector needs to initiate the process in order for other institutions and sectors to follow. There are companies, such as Intesa Sanpaolo, who have started the process and spend considerable amounts of resources on the concept. Towns, like Kalundborg, are also starting to become centres for the adoption of the circular economy mentality, with multiple companies having agreed to test out the concept. The Kalundborg Symbiosis has been established, testing out the idea of one company using another companies waste as a resource in their production lines. Thus far the endeavour has been successful. The key challenge in moving towards a circular economy is the much-needed paradigm shift for the concept to gain traction and become the ‘new normal’ for industries and societies alike. This shift could potentially initiate a fifth industrial revolution. The move to a circular economy will not be an easy task, but it is not impossible. If businesses and industries make coordinated and aligned small changes, a green transition will start, benefitting both the environment and the economy.