[Sustainability Frontline] What is the "Circular Economy"? Key Considerations for Implementation (Part 2)

• [Sustainability Frontline] What is the "Circular Economy"? Key Points to Consider for Implementation (Part 1)

The "Circular Economy," literally translated as "circular economy," refers to an economic system that minimizes waste and utilizes resources through continuous circulation. As awareness of SDGs and sustainability grows across society, initiatives aiming to realize the circular economy are also expanding.

This time, we asked Ms. Mineko Hotta, an SDGs Consultant at Dentsu Inc. Team SDGs, to explain the basics of the circular economy, including its definition and the background behind its growing attention. Part 2 will introduce specific implementation methods and points to note.

What Companies Aiming for a Circular Economy Should Do

Q.As you mentioned in the first part, the key point of the circular economy is that "it creates opportunities to generate business revenue while doing good for society." So, when companies actually introduce initiatives aiming for a circular economy, how should they implement them?

Hotta: Naturally, it would be difficult for a company to suddenly adopt a new business cycle like "collecting unwanted items from users and reusing them" and complete it entirely on its own. Therefore, collaboration and co-creation with various stakeholders is essential.

In this context, stakeholders can be categorized into four types: "arterial industries" like manufacturers, "venous industries" such as collection and recycling, "material industries" handling sustainable materials, and "users" including consumers and other businesses. The key lies in how effectively these can be coordinated.

Furthermore, when companies actually engage in building a circular economy, I believe they need to focus on the following four key points:

1. Circular Perspective
The principle of the circular economy is "not premised on disposal."

2. Building Collection Networks
A process for collecting products from users is essential for achieving circularity.

3. Avoid Insisting on In-House or Ownership
The circular economy cannot be established without collaboration among numerous stakeholders.

4. Communicating Internally and Externally
It is crucial to widely communicate circular economy initiatives both internally and externally. This brings benefits such as enhanced brand image and corporate value, along with increased ESG investment activity, ultimately leading to a transformation in societal values.

Q. I understand the key points for advancing circular economy initiatives. What steps should companies take to implement them smoothly?

Hotta: The basic steps are as follows:

STEP 1. Set the Theme
Define the theme to address, such as carbon neutrality, microplastic reduction, or food loss reduction.

STEP 2. Define the Target Area
This addresses the question: Where to start? Decide the target area—whether it's modifying products or their contents, starting with packaging, or building a new recycling model.

STEP 3. Create a Roadmap
Set a schedule for when to do what, considering both "macro trends (global movements)" and "changes in consumer values."

STEP 4. Explore concrete solutions
Evaluate specific solutions, such as changing materials or incorporating repair processes.

STEP 5. Communicate Internally and Externally
Internally, broaden understanding of the company's initiatives. Externally, communication is needed to engage consumers in these efforts. When collecting unwanted items from consumers, significant incentives are often required, so implementing promotions should also be considered.

Opportunities Presented by the Circular Economy

Q. Earlier, you mentioned that the circular economy benefits both society and our company. Could you elaborate on the opportunities the circular economy brings to our company?

Hotta: First, consider how recycling is evaluated. Does simply recycling everything reduce environmental impact? Actually, the recycling process itself can sometimes increase environmental burden. For example, if trucks travel long distances to collect resources, CO2 is emitted, potentially resulting in greater overall environmental impact.

Therefore, in principle, "reuse," "providing repair services," or "sharing" should be prioritized over recycling, as they have a smaller environmental footprint. Promoting these methods creates new transformations in business structures. Whereas the traditional business model was "produce goods, sell as many as possible to make a profit," the future model will shift to "extend the lifespan of goods themselves, generate revenue through sharing them collectively or providing timely maintenance." This represents a shift from "selling goods to providing services." This approach also reduces environmental impact and aligns with the broader industry trend moving "from products to experiences."

Q. So, promoting the circular economy means aligning with the broader "industrial transformation" the world is currently undergoing. When considering adopting the circular economy within our own company, does that ultimately equate to thinking about how to evolve our business to fit the times?

Hotta: That's correct. When considering the circular economy, new possibilities often emerge that extend beyond just the company's own initiatives.

Take PET bottles, for example. Currently, beverages are sold in PET bottles, which are then collected and recycled into new bottles. While other companies are involved in the collection and recycling process, it's fundamentally a cycle where "what the company produces is reused by the company itself." However, going forward, we might see a shift towards "what the company produces being utilized by other companies."

In the UK, there's an example where CO2 captured from power plants is supplied to the beer industry to be used as carbonation for beer. Previously, there was no direct business connection between "power plants" and "beer," but by treating CO2 as a resource, new connections and business opportunities are emerging.

In the Netherlands, a hamburger shop's used frying oil is converted into renewable diesel fuel and supplied to the logistics company handling its distribution. This enables significant environmental impact reduction through large-scale corporate collaboration. Most importantly, what was previously discarded by one company or considered factory waste becomes a resource for another company or the basis for creating new products. In some cases, materials that previously only incurred disposal costs can now be sold as raw materials. In this way, pursuing a circular economy can lead to unprecedented connections between different industries and the creation of new value.

Key Considerations for the First Steps Toward a Circular Economy

Q. That's a fascinating example. It suggests that what we previously considered waste might actually become a product. If so, perhaps all companies should re-examine what they are "discarding" and consider whether it could be linked to a different business opportunity. So, are there particular points to be especially mindful of when introducing a circular economy?

Hotta: Earlier, I mentioned the five steps. First, establish a "theme" defining the company's goals. Next, define the "target area" for action. Then create a "roadmap," develop "specific solutions," and finally "communicate" these efforts.

While these five steps form the foundation, the question is how to implement them practically. For example, using composite materials in product manufacturing makes recycling difficult. Therefore, adopting "monomaterialization" – making products from a single material instead of composites – facilitates recycling. One shoe manufacturer's approach involves making shoes from a single material. After sale, they collect worn-out shoes, recycle them back into raw material, and use that to make new shoes. They sell these, collect them again... and envision a future subscription service where customers regularly swap in new shoes.

In other words, simply "changing the material" isn't enough. You must also collect them, create new shoes from them, and fundamentally shift the business model to a subscription model. You have to think through what happens beyond just changing the material.

This means that within a company, it's not just the product planning department. We need to assemble a cross-departmental team including material procurement, customer service for collection, logistics, and more, and structure it as a project. Otherwise, we won't achieve our goals. The circular economy must be implemented across the entire supply chain; simply "changing materials" isn't sufficient. We must approach it as a cross-functional project, viewed through the lens of re-creating the company's entire business model. Otherwise, we won't move forward.

Q. So you're saying it won't work unless we form a team treating this as a "company-wide initiative" from the start. I understand your point, but that makes it seem like we can't just "dive in casually."

Hotta: That's a valid concern from the business side. Trying to transform the core of your current business or your "best-selling product" requires significant time, effort, and cost. I understand the reality that this can make it hard to take that first step.

That's why our team, when consulted, also suggests starting with changes like "promotional items or giveaways" or "product packaging." Begin with what's feasible. Then, while building a track record, gradually expand the scope.

With the growing focus on SDGs, many companies have established sustainability promotion departments. We receive numerous inquiries from these departments, offering consultations and proposals. However, advancing the circular economy must start with the sustainability department and be promoted as a company-wide initiative. Consequently, we increasingly discuss the fundamental question of how to structure the project itself.

A common question we hear in this context is, "Where should we start?" or "When should we fully commit?" As mentioned earlier, attempting to tackle the core of your business immediately is daunting and time-consuming. This often prevents management from taking decisive action. While starting with manageable initiatives like promotional items or packaging is important, we can't keep postponing indefinitely. This is where a "Sustainability Roadmap" becomes crucial. If we remain as we are, competitors will overtake us, and eventually, consumers will turn away. We must broadly visualize and strategize when that might happen and how to prevent it by defining our direction and actions.

Especially when changing manufacturing processes, it takes time—a year and a half or two years—so we must think and prepare for the long term. While advancing what we can start now, we must carefully map out a sustainable roadmap and prepare for near-future transformation across the entire company. Maintaining both these short-term and medium-to-long-term perspectives is crucial. Furthermore, regarding the circular economy, France is aiming to standardize it through ISO, so it is highly likely to gain even greater importance going forward.

Society as a whole is moving towards "sustainability." Companies must respond to this trend, yet it can be difficult to advance if it conflicts with their own profits. However, by incorporating the principles of the circular economy, companies may be able to advance environmentally conscious practices aligned with the times while simultaneously creating new business opportunities and new revenue streams for themselves. Alternatively, re-examining your business within the circular economy cycle may reveal that what was previously discarded or deemed worthless could become a resource connecting to a different business. The circular economy offers this fresh perspective. Why not reconsider how your business can evolve?

 Do! Solutions: Circular Economy eBook Download Page