Episode 2 Linear economy and risks

Episode 2 – show notes

[01:48] In this Episode, we’ll dig a bit deeper into the way we do business now – our linear economy – and why that’s creating problems for business, society and for our living planet.  I’ll cover a few of the facts from the first episode, plus some additional information.

Then we’ll look at the risks that emerge from those global issues, and how they might affect you.  Circular approaches can avoid or mitigate many of these risks, and in future episodes, we’ll be interviewing people who are using the circular economy to re-think the way we make products and design services.  I hope their stories will inspire you to use circular approaches to strengthen your own business.

Global headwinds

Let’s look quickly at some of the big-picture trends and drivers, many of which are keeping global business leaders awake at night, and that we’re only recently starting to understand better.

We’ve described our current ways of doing business as a ‘waste’ system.  We create waste and emissions at every stage, polluting our air, atmosphere, soil and water.

The Linear Economy – take, make, and waste

This linear economy relies on using finite resources – metals, minerals, and fossil fuels.  It also relies on land and water – and we often forget that they are finite as well.  In dumping all that waste and pollution, we’re destroying the living systems we depend on, and often harming people as well.  When we discard the product, we waste all those resources – and we waste all the energy, labour and knowledge we invested in the product at every stage in the process.

[03:29] In Episode 1, we covered some headline numbers, and I’ll quickly cover those again now. 

We extract around 90 billion tons of natural resources, every year, to make what we consume.  That’s more than 12 tons for every person on the planet.  Based on current trends, that number is likely to double by 2050.

We recycle very little.  Circle Economy produced a Circularity Gap report which says we recover less than 10 per cent of our resources to make them into new products.  [The European Union Material Flow report calculates EU recycling at around 12 per cent – 0.88 million tonnes recycled out of 7.5m tonnes of resources used each year].

We now know we are causing dangerous climate change by burning fossil fuels, using fertilizers and clearing forests, all of which creates Greenhouse Gas (GHG) emissions. 

After we’ve finished with the products and packaging, we discard them.  Often this means that we send it to landfill, incineration or we export it overseas (often to countries where materials can be recovered without onerous safety regulations).  We’re allowing value to leak out of our system and losing access to the resources we may have already paid to import.  Some countries are realising they can’t economically process all the waste they import, and in 2018, China banned plastic waste imports, and Malaysia took steps to do the same.

[05:04] We looked at some of the statistics for key sectors:

• For food, ¹/₃ is wasted between farm and fork worldwide,
• Single-use plastic is a major issue, and only around 14% of plastic packaging is even collected for recycling;
• Electrical and electronic items are also problematic – we create over 40 million tonnes of electronic waste worldwide, every year. 

There are harmful ‘externalities’ from farming, extraction and manufacture.  Externalities are problems that businesses create but don’t pay for.  Examples include toxic waste, pollution of air, atmosphere, water and soil – and these are destroying the living systems we depend on – overloading the earth systems and nature’s ‘services’.  We make fertilizers, pesticides and other chemical inputs to replace these degraded natural systems, or we suffer the consequences through disease, healthcare costs and productivity leakages

Population and consumption

Let’s think about us, humanity.  Since the first industrial revolution, starting in Britain in the 18^th Century, we’ve got better at extracting materials, making stuff, and moving it around. 

[06:29] In the 1950s, the agricultural, or ‘green revolution’ began.  Nitrogen fertilizers and synthetic chemicals transformed the way we farmed, increasing the output per hectare, but increasing the cost of inputs and use of machinery, petrochemicals and fossil fuels.

We got better at healthcare and sanitation too, and our population started to grow exponentially.  World population has more than doubled from around 3.2 billion when I was born, in 1963, and is now around 7.7 billion.  The United Nations predicts we will reach nearly 10bn by 2050 – so the human population will more than treble in less than a century.   

We are doing better at reducing poverty and helping people move beyond ‘subsistence’ lifestyles, where you can only afford basic food, clothing and shelter, and now millions of people are starting to earn enough money to spend on better food, housing and many of the things we take for granted in the western world.  But, as I mentioned in Episode 1, millions of people around the world don’t even have their basic needs met.  They don’t have enough to eat, don’t have safe water and sanitation, and so we’ve got a lot more to do before everyone has what they need.

We are getting better at developing, extracting and processing materials into amazing products.  Science and technology inventions mean we are getting more efficient too, so we can make more stuff, more cheaply.

That’s brilliant, but it puts even more pressure on land, water, finite resources and living systems. 

We’ve changed from being a small population on a massive planet, with a negligible impact on land, water and nature – to a massive population on what feels like a shrinking planet. 

[08:31] A report by the Global Footprint Network says that if the whole world consumed food, fibres, land, timber and fuel at the same rate as those of us in the European Union, we would need the equivalent of 2.8 planets.

Meanwhile, our waste, pollution and destruction of living systems mean we are killing the animals, insects and plants we depend on for vital services.  We are causing a massive extinction, with one million different species now at risk.

And just to depress you, even more, we are now waking up to the climate crisis.  We know we need to rapidly shift away from fossil fuels, and change the way we live and work, so we use much less energy and lock carbon into our forests and land, instead of releasing it.

If you want to know more about these issues, go to RethinkGlobal.info and read my blog post on the Linear Economy, which includes some of the charts and diagrams I’ve used for talks, and in my book. 

What do these linear economy issues mean for your business?

I know many business owners struggle to find time to think about external issues, and let’s face it, lots of the news on geopolitics, climate, plastics and pollution, and damage to nature can be depressing.

So it is easy to feel disconnected from these big-picture trends and issues, and feel that your small business won’t be affected, at least not in the short term.

We believe the circular economy is the best tool we have to keep your business fit for the future:  making sure it’s resilient and can absorb or ideally avoid external shocks.  It can help you control costs, keep your customers for life, and continuously develop your products and services to stay ahead of the competition.

[10:20] In one of my previous jobs, I looked after risk management for major projects.  As I’m pretty cautious by nature, I found that quite easy – looking at the future, from inside and outside the organisation, and working out what might disrupt our plans.  Thinking about risks, and deciding if, and how badly they might affect your business, can help you decide what to change, or what to keep an eye on.

Risk Assessment

Here are a few risks to consider, for your business.  These questions might spark ideas for circular approaches that will strengthen your business and help engage your customers, employees and suppliers.

We’ll use my 5 circular economy components as a structure.

1.      Product design

Marketing aims to create dissatisfaction with what we have now, encouraging us to buy more ‘stuff’, or replace what we have with something ‘better’.  However, designing products with planned obsolescence can backfire, as Apple found when it was caught out applying software changes to old model iPhones, after introducing a new model.  These ‘updates’ actually slowed down the phone’s performance, presumably as a way of ‘persuading’ people to buy the latest model instead.  Apple was fined €10m by the Italian regulators in 2018, and seems to be losing new customers.  Apple has stopped telling investors how many phones it has sold in each quarter, and there are signs that Apple is investing in subscription services.  But, how many customers and potential customers did it lose?  How much more does Apple have to spend on marketing to replace those customers?

[12:22] Maybe you’re complying with legislation that forces you to provide spare parts for several years after the product is no longer for sale – but are you making it easy for people to buy spare parts, and repair the product?  Or, are you including small parts in a more complex, and costly sub-assembly, like the washing machine drum assembly I was offered (at ~£250) when all I needed was a new bearing (value ~£5)?  If so, you run the risk of destroying your future relationship with that customer – and like me, they’ll probably tell that story to lots more people, deterring others from buying your products. 

If you need to start offering repairs and refurbishment to keep up with your competition, will that be easy for you to do?  Have you designed modular components that are easy to disassemble?  What if you needed to recover your own materials, perhaps from collected waste?  Can you access the materials?  Or are they all bonded together and too expensive to separate and reclaim?

2.      Safe, sustainable materials

[13:40] How secure are your sources of key raw materials?  Is demand growing?  Might you be competing for access with lots of other companies, or could your supplies and their costs be at risk from geopolitical pressure and speculation?  Right now, in May 2019, China is considering restricting the export of minerals, in response to Donald Trumps’ trade tariffs.

The European Union (EU) has a list of 27 ‘Critical Raw Materials’. The EU classes them as critical because of risks of supply shortage, and their high impact on the economy.  Some of the materials have production sources in the EU, but China is the ‘most influential country’, especially for rare earth elements, magnesium, tungsten, and more.  Supply of the platinum group metals is concentrated in Russia and South Africa. 

Many of these materials are important for new technology and renewable energy, whilst others have more longstanding uses, such as natural rubber, phosphorus and phosphate.

[15:08] What hidden resources do you depend on?  Looking through your specifications, or Bill of Materials, might not highlight all the upstream materials or inputs that are critical to your business/supply chain, but not easily visible – such as water, forests or agricultural land.  Water and land are under massive pressure.  Around 40 per cent of the world’s agricultural land is already seriously degraded.

Agriculture uses two-thirds of freshwater withdrawals, and by 2050, the UN tells us that over half the world’s people will live in areas where fresh water supply is under pressure.  Maybe your products are using up the local groundwater, depriving communities of water to grow their food?  In 2017, The Guardian reported that “More than a million traders in India were boycotting fizzy drinks, including Coca-Cola and Pepsi, after claims from two Indian trade associations that foreign firms were exploiting the country’s water resources.” 

[16:07] What about other Reputation risks:  from using plastic that’s difficult to recycle, or using crops causing deforestation, such as palm oil, soy, cocoa or rubber?  Are you worried about whether your suppliers could be poisoning the land, water, and living systems around their farms and factories?  In the UK, companies have come under pressure from consumers, who are using social media to campaign for recyclable packaging, to demand palm-oil free products and so on.

3.      Process design

[16:41] Have you already implemented zero waste policies at your factories, and at your suppliers?  If not, what resources are you wasting – and even worse, what local land, water and living systems might you be destroying?  Could you be recovering heat, steam, even carbon dioxide from production?  What could you reuse in your own processes?  What new by-products and co-products might you develop instead?  British Sugar became the UK’s biggest grower of hot-house tomatoes, using waste heat and carbon dioxide from the sugar refining process.

4.      Recovery flows

[17:28] If you aren’t recovering your own products or materials, are you losing access to vital resources?  You might be paying a premium to buy virgin materials, or even paying for the logistics and tariffs for recycled content that’s been processed overseas.  That’s one of the reasons the EU is keen on the circular economy, as a way of securing access to vital materials.

Is there a risk of legislation, either forcing you to recycle, or imposing a tax to pay for recycling?  In the UK, it’s now recognised that the packaging waste levy on producers only covers around 10 per cent of the cost of local government’s recycling systems.  If you did have to recycle or pay, would this change your view of which materials you should use?

5.      Business models

[18:29] If your business model relies on selling more products, to more people, is that a sustainable strategy?  How much are you having to spend on marketing, to find these new customers and convince them to buy your product?  Marketing surveys, including one from Bain and Company, tell us that it costs 6 to 7 times more to acquire a new customer than to keep your existing customer. 

What if your competitors offered pay-per-use, or repairs and upgrades?  Would that undermine your business?

How could you include new services, address new markets, and maybe smooth your cash-flow? 

Don’t kill your customer!

[20:11] How can we summarise this?  I liked the way that Ken Webster, of the Ellen MacArthur Foundation, summed this up in episode 4 of Katie Whalen’s Getting in the Loop podcast. Ken suggests two rules for business:

#1 Don’t kill your customer!  In other words, use safe materials (which also means you don’t harm nature or the communities that live around your supply chain).

And #2: don’t kill their custom – find ways to make sure your customer loves what you do, and keeps coming back to you.  The service model helps this happen – providing maintenance and repair services, offering upgrades, taking products back at the end of use, renting, and so on.

I hope that’s helped you think about the bigger picture, with a few examples of how global megatrends and risks can affect your business, no matter how small.  We’ve seen recently how fast things can change – single-use plastics are becoming socially unacceptable, and people are looking to buy from brands that are doing more good, not just a ‘bit less bad’.

From Episode 3, I’ll be talking to people in small businesses and start-ups: who are proving that circular approaches can create a thriving business.  I hope they’ll inspire you to look at ways to make your own business more circular, and fit for the future.

[20:53]  How to find out more

If you’d like to learn more about the circular economy, then why not subscribe to the podcast and listen to my discussions with those people making the circular economy happen.  Find us at www.circulareconomypodcast.com. 

We want to help people discover, use and benefit from the circular economy.  You can find more information and diagrams, on the Website… look for “What is a circular economy” in the Resources section.

My book, A Circular Economy Handbook for Business and Supply Chains, takes a bottom-up, practical approach, with lots of real examples from around the world, to help you really ‘get’ the circular economy, and come up with ideas to make your own business more competitive, resilient and sustainable. 

Please let us know what you think of the podcast – and we’d love it if you could leave us a review on iTunes, or wherever you find your podcasts.  Or send us a Tweet: @Rethink _Global

See you next time!

Podcast music

Thanks to Belinda O’Hooley and Heidi Tidow, otherwise known as the brilliant, inventive and generous folk duo, O’Hooley & Tidow for allowing me to use the instrumentals from the live version of Summat’s Brewin’ as music for the podcast. You can find the whole track (inspired by the Copper Family song “Oh Good Ale”) on their album, also called Summat’s Brewin’.  Or, follow them on Twitter.