Sustainable Innovation: New Business Models
How corporates are embracing circular economy practices for long-term sustainability
Applying my learnings from Circular Economy Management (CEM) from the European Institute of Innovation for Sustainability (EIIS), in this blog series on sustainability & regeneration, I’ll be exploring how circularity is making an impact on traditional business models, mapping the startups that are building innovative solutions and exploring case studies from industry.
We’re concluding our three part Sustainability and Regeneration series at Metta by taking a deep dive into how large organisations are adopting innovative approaches and implementing circular business models. In our first blog we briefly introduced how the circular economy can help companies by minimising risk, reducing uncertainty, ensuring long-term sustainability and gaining competitive advantage. Now we will look into the five business models of circularity and how these models can create and capture value, while mitigating environmental impact.
The circularity gap is widening, and companies are under pressure. In November 2023, the EU Parliament adopted the ‘Right to Repair’ law and businesses will need adapt their strategies accordingly. Current business models operate in one way: the ‘take-make-waste’ approach. Moving from resource extraction (taking raw materials from the Earth) to production to consumption and, finally, to waste disposal means that the linear economy is environmentally unsustainable — it causes the depletion of natural resources, energy use, and generates significant waste.
The Circularity Gap Report 2020 estimated that the global economy is only 8.6% circular, meaning that only a small percentage of the world’s resources are being reused (while in 2018 this was 9.1%) — so how can we move from linear to circular?
By keeping products and materials in circulation, the circular economy system ensures products never become waste and that nature is regenerated. Circular models break away from the linear approach by emphasising sustainable practices such as recycling, reusing, and reducing waste. While there are a number of ways to approach circularity, these are the 5 most common business models:
Circular Supply Chain (Circular Supplies): Introducing materials and energy from renewable resources.
Product-as-a-Service: Moving beyond a one-time relationship to a relationship that is based on a service.
Product Life Extension: Design products for repairability, upgradability, reusability, and recyclability of all components.
Recycling & Reuse (Resource Recovery): Recovery and recycling in which everything that used to be a waste is restored for something else.
Sharing Platform: The ‘collaborative consumption’ approach which facilitates the exchange and reuse of goods and services
For the purposes of deep diving into how companies are adopting new business models, we will explore the first four models. To provide a glimpse of how the last Sharing Platform model works, we can look towards the sharing economy and disruptive innovation in traditional sectors— think of Airbnb, Uber and WeWork — where individuals are sharing existing resources such as physical spaces and cars.
🚗 Circular Supply Chain
In a circular economy, renewable, recycled, or highly recyclable inputs are used in production processes — enabling partial or total elimination of waste and pollution. Waste becomes an asset, not a liability that you pay to dispose of.
General Motors has been incorporating recycled and sustainable materials into its vehicle manufacturing processes. This includes using recycled plastics in various components and exploring circular design principles. GM vehicles currently use more than £24M of recycled plastics. The challenge facing wider integration of the business model is existing regulations and standards that are often not made for the adoption of new, sustainable materials. Shifting to new materials might require changes in infrastructure, manufacturing processes, and supply chains.
💡 Product-as-a-Sevice (PaaS)
An interesting take on the PaaS model is ‘Lighting-as-a-Service’ by Signify, formerly Philips Lightning. Instead of purchasing light bulbs outright, customers are buying just the light by engaging in a subscription-based service where customers pay for how much they use. This shift not only offers financial savings but also removes the customer need to replace bulbs and think through the disposal logistics. More importantly, Philips retains control over its products, facilitating the recovery of valuable materials. This fosters a closed-loop system where products are continually used and recycled rather than disposed of.
The subscription model ensures an ongoing relationship with customers, promoting sustainability, efficiency, and a personalised approach to lighting solutions. In essence, it transforms the concept of lighting into a dynamic service tailored to the evolving needs of businesses and individuals.
⚙️ Product Life Extension
How can we ensure we are building products to last? The Product Life Extension model focuses on lengthening the time period that a product can be used before disposing of it. The goal is to maximise both lifespan and utilisation, by increasing the value extracted from products before they are discarded.
In order for the product to last longer, you need to start at the very beginning with product design and engineering. Dyson, a company known for its vacuum cleaners, hair dryers, and air purifiers, emphasises durability and repairability of its products. From the onset, Dyson engineers start with the bare minimum. Rather than adding material for strength, they use intelligent design and geometry, a process called Finite Element Analysis, to predict how a product will react to real-world forces, such as vibration and heat. For more than 15 years and counting, their engineers have designed, built and tested motors to make small, compact technologies do more for both products and owners.
Dyson provides spare parts and repair guides, encouraging users to repair and maintain their products instead of discarding them. They also offer a free repair assessment from their engineering team on Dyson appliances in and outside warranty.
🛋️ Recycling & Reuse
One company that has committed to transforming into a circular business is IKEA, one of the world’s largest furniture retailers. Their approach is through the recycling and reuse model — ensuring that waste is revived and there are new opportunities to use the materials. This involves systematically collecting, processing, and repurposing materials from products at the end of their life cycle.
IKEA aims to be circular and climate positive by 2030 where one of their main goals is to “design every product from the very beginning to be reused, refurbished, remanufactured and finally recycled”. Similar to Dyson, this involves creating items that are durable, repairable, and made from materials that can be recycled. In 2019 alone, IKEA gave 39 million recovered products a second life, 32 million products were resold through the circular hub, and more than 8 million products were repacked and sold at affordable prices.
Operating in more than 50 countries with over 400 stores, IKEA has created products that are accessible and affordable, catering to a wide demographic. The extraction of raw materials and lack of infrastructure for recycling of furniture means that the industry is currently contributing to significant resource depletion and landfill waste. IKEA’s transition to circularity and their ability to create a closed-loop system will be important and, hopefully, inspirational for other furniture retailers to follow suit.
—
How can large organisation implement circular economy business practices?
The primary challenge for large organisations is adopting the circular mindset, processes and frameworks. The transition demands not only a commitment to eco-friendly practices but also a cultural and mindset shift across all levels of the organisation. Circular models aim to minimise waste, promote sustainability, and close resource loops, which requires the reevaluation of existing infrastructure. Resistance to change, coupled with the need for significant initial investments in sustainable technologies and infrastructure, can pose barriers to adoption.
As with any innovation initiative, coordinating circular strategies across the various departments and ensuring alignment with overarching business goals can prove complicated. Overcoming these challenges requires strong leadership, effective communication, and a strategic approach to balance short-term costs with the long-term benefits of a circular economy.
It’s been an insightful 6 months at EIIS so far. Thank you to the team and our speakers including Beatrice Lamonica from Leonardo, Bettina Mirabile from Enel Grids, Vanessa Traeger from Zalando as well as many others for their insights on the circular economy transition.
For more information about Metta and the work we do, head to our website. Check out our podcast Metta Talks to hear the latest about startups, innovation, and sustainability. The team is also on Twitter — reach out to us @mettatalks.
Check out some of our other articles —
- How to make your startup both innovative and sustainable
- $10M in funding for ESG Reporting
- ESG and Sustainability Strategy
- How to “Speak Startup” in the PR World
- Financial Planning with Impact
- Ecosystems Thinking
- 15 years in Climate Tech — What’s Changed?
- Analysing Iraq’s Startup Ecosystem
Want to learn more about Metta? Let’s talk 🗣
Nicole Whitelaw — nicole@metta.partners | https://www.linkedin.com/in/nicolewhitelaw/
