Circular Economy Roundtable Discussion Part 1
The discussion looked at whether conditions were right for new businesses to be created from scratch to exploit the opportunities of the circular economy or whether challenges lay in the way.
Over the next three days, we will be publishing highlights from that discussion.
In attendance were:
Anthesis - Debbie Hitchen
Axion Consulting - Jane Gardner
CycleLink - Craig Robinson
Palm Recycling - Mandy Kelly
Prodware - John Anderson
Prodware - Mark Breeden
Prodware - Rebecca Hallworth
Recycling Association - Simon Ellin
Resource Efficient Business - Paul Sanderson
Saica - Michael Challans
Smurfit Kappa – Paul Clarke
Matthew Tickle – University of Liverpool
Forbes McDougall – Veolia
Highlights by Josh Robins and Paul Sanderson
Paul Sanderson (PS) - From my point of view, the circular economy looks like it’s going to happen. In terms of the EU legislation it will be transformative, whether it’s the higher recycling rates, or higher packaging rates or landfill bans, it will make a difference. It will focus on design of products and make sure they are recyclable.
At the moment a lot of it is aspirational. But if you look at those higher recycling rates, how will they be achieved? Current recycling rates are based on how much is collected, yet the actual infrastructure behind the collection rates is not growing. In some sectors infrastructure development is going backwards.
There is going to be a huge culture change - it make designers incorporate recycling. When a product comes to the ends of its lifecycle, will it be reused or dismantled?
It is a huge task launching the circular economy off the ground in Europe in challenging economic times and getting the backing of businesses and getting them on board with it. But now is an interesting time seeing how businesses across Europe respond to it.
Does anyone want to challenge what I said or give a bit more detail?
Forbes McDougall (FM) - I wouldn't challenge it. I am fully supportive of the circular economy. I think businesses are going to have to go to a circular economy quite simply from a legislative and from a financial point of view. I think the evolution that is required is quite huge. A lot of the case studies on the circular economy are cherry picked and often are more about efficiency savings and doing more with less which is part of the circular economy. But i think the big step Ellen MacArthur is promoting is the that the whole system is re-designed, so if you have an efficiency of 5% and your sales grow by 20% then your efficiency is out the window.
This change from efficient to effective, which requires redesign, rethinking, reorganisation of how we consume. The whole economy has to evolve, and the time lines for this are interesting and some ambitious. Some industries are doing it so I think having a discussion where we talk about if you started from scratch where would you begin today might be interesting - the problem is turning that into what that means for our businesses tomorrow.
Debbie Hitchen (DH) - I think the challenge that a lot of businesses feel they are facing that in extreme circumstances, this is a new business model, if you take the circular economy to its extreme end point, that can be daunting and it can take substantial periods of time. If you’re talking about a well-established business with a revenue business model making profits, turning that around to a new model that represents a new way of thinking.
The way in which you can drive that change, as well as new legislation, is risk - the risk of not becoming more sustainable, the risk of not delivering your products or services in a way which you can continue to access the raw materials you need or allow people to consume in a way that is achievable and sustainable. And perhaps that is part of the behaviour and language change that needs to run alongside the operational change.
Michael Challans (MC) - From my perspective it is cultural. A huge amount is cultural. It is a massive step-change for the wider population.
We are talking form the inside, but are we actually engaging with the people to see what they want and what the market wants.
The market drives everything. Legislation can be effective along with environmental pressure, but the market drives everything. So until we engage with the public and understand what they want and get them to buy into it you will be forcing something on to them.
FM - I think there is something about what the public want and I think the millennials will drive this - the people who were brought up with mobile phones at a young age rather than the older generations.
You know that generation are comfortable with new technology, with renting things, because a lot of the talk is going back to renting models which is going back to older models which were in place when I was younger.
This seems like a backwards step, but to this generation, because they have been renting a phone for so long renting other stuff, car sharing all of these new models that are being developed and adopted and championed by the millennial generation, that might be a bigger driver because they accept this and it becomes the norm for their kids.
MC - Assuming what they are learning in their wider environment is promoting this, what are their influences? What are the people on the telly doing?
FM - From what I have read, I think there is a higher environmental awareness among millennials than there has been among any other group since.
Jane Gardner (JG) - I think that it does matter what the consumer wants, but any company looking at the circular economy can’t do this in isolation. So I would say, in my view, industries need to work together, as do sectors and supply chains. So if you look at one example we were working on a project called Reflex where the packaging industry is sitting people together and looking at the way that packing is recyclable so they can recover the materials at the end. If one company does it on its own it doesn't make sense. The whole industry has to move towards partnerships as companies in isolation doesn't work.
Simon Ellin (SE) - I think that I concur with that and it’s something we bang on about and its producer responsibility and getting industry to take on responsibility for what they are doing and producing.
I don't see a great amount of input at the moment and I am looking at it from a practical viewpoint where we are and where we have come from and where our members are already.
The recycling industry is a fantastic success story. You look at how we have grown and evolved even in my short time in the industry. From where we started and where we have come from, we look at recovery rates in paper up to 80%. This is a massive percent of recovery and success. Plastics and other materials use a bit more virgin.
But at the grass roots levels, the merchants are struggling because all the costs are on them.
They are not escalated up the pyramid and not down. You look at the types like Tesco and Sainsbury’s and ASDA and the rest of them, a lot of it is lip service.
I was involved in M&S trying to get rid of landfill by 2020 and a lot of it was rubbish.
What they were doing is what they should have been doing from the start, and I don't see much investment at the top filtering down to the bottom to make it possible.
Basically, I am saying we have done a fantastic job already, but there is a long way to go.
But if we are going to achieve it there has to be that acknowledgment along the whole of the supply chain that everybody has that responsibility and i don't see that happening at the moment.
I hope that whatever the EU does for the circular economy is market driven, otherwise if the market isn’t there or is not ready we might as well not bother
MC - I agree. Having worked in retail accounts, if you drill it down to what drives these people it’s money. Profits - that's what drives it. There is an argument that what they are doing already is great but why are they doing it? Is it for the environment? No, it’s probably so they can promote their environmental credentials which will engage with sectors of their customer base who will be engaged to buy from them.
To take another example, the biggest driver I ever saw is ‘will it sell on the shelf?’. Not. ‘will it be able to be recycled?’.
FM - But you can’t have the tail wag the dog, because if you make product and invest all those resources in that and you put it in packaging that doesn't sell, then the whole lot is wasted.
So you have to be careful. I agree that it is all motivated by money, but we are all motivated by money. If you don't make money, its game over for your business. But the packaging is such a small part of the resources for the product - it is there to protect the product.
We have to strike a balance. I would like to see recyclable packaging, but you have to think about the resources invested in the product and if there are 100 materials in the product and the packaging is one, we might have to accept the packaging might not be the most sustainable part.
I don't want to say it and I said to the industry its unacceptable and that just being protective is still not good enough.
But we need to find the balance. It was all about less spend on the packaging and often that meant less recycling.
If you look at the lifecycle approach and there are less resources used etc, it becomes very difficult to justify that the packaging should be the most recyclable bit.
I am kind of agreeing with you kind of not we must be careful of not going into the trap of saying the packaging must be like this because it plays a key role in preserving the resources.
Mandy Kelly (MK) – I’d like to comment back on the other side of the coin to what Simon said.
We have been doing a lot of work with Sainsbury’s where they are looking at their recycling. We got into it when they were looking at their 20/20 programme. They have 20 environmental projects they want to achieve by 2020 and one of them for sustainability was around recycling provision for their customers.
I agree it’s about preserving their footfall, but they are taking it very seriously and they have extended the service to 2021 as they see the real value it is adding to them, they are not seeing it as making profit.
As a counter argument, some of the major retailers are taking seriously sustainability issues and trying to provide some of the services. And the reason they are getting involved is because local authorities were pulling back that service.
This is an example of circular economy as the paper went back to a paper manufacturer and is an example of a major retailer taking its sustainability credentials further.
PS – Recent studies have shown that the most environmentally friendly companies are the ones who are making the most profit, as the customers respond to it. But these businesses get a chance to look at their business and see where they can find new efficiencies and allow their business to grow.
DH - The key to that, as well as partnership across an industry, is integration within a business. Those that do it well, are introducing it across the whole business and integrating sustainability. Those who struggle with it, who haven't made it a success, it is often because it’s not integrated into the business strategy.
PS - I started by asking is it a challenge now or is it the right time for the circular economy and the right time to do it?
SE - I think the system needs a tweak not a revolution. The concern I have is that the circular economy goes too far and puts to many stresses and strains on the marketplace. And also that we are not ready for it.
We are a success story - we have grown organically over the last 5-20 years gathering momentum. We just need tweaking at the edges and my hope is we don't go too far and destroy the marketplace.
PS - What do you see as the potential damage from that revolution?
SE - That it distorts the market. If you look at plastic for example, the plastic guys are finding it so hard to make ends meet with the slowdown in China and regulation has become a burden for the industry.
Regulation is supposed to weed out the criminals rather than put up a barrier for trade and I don't think, to answer your question, that if it is a revolution, that everybody in the marketplace is geared up for the revolution. I don't think we are.
That's why workshops are good as they let people know how the circular economy could work.
But when you get bureaucrats in Europe delivering a package that is supposed to work across the whole of the EU, it gives me dread and I hope they are sensible enough to tweak it rather than hit us with it.
PS - The paper industry may only need a tweak but if the plastic industry is not working couldn't the circular economy help and give it that foundation to take off?
SE - Possibly, but I don't think that is a revolution. The waste paper sector certainly doesn't need it - we are a massive success story.
Look at packaging and cardboard - what better example of circular economy is there?
Domestically or abroad, all these goods going to the UK in brown packaging, then going to the recycling bin, then going to local authorities who balel it up and send it back to China in a reverse logistics container which would otherwise be empty back to China. This is then to used to protect goods to come back again to the UK. What a great example of a circular economy!
This doesn't require revolution that requires a few tweaks on the regulation side of thing. I don't think we need revolution we just need a tweak so that it doesn't hammer the market and distort the market and cause more problems than it actually fixes. I do have a passion for this and for my members at grass roots level.
Mark Breeden (MB) - Some years back, companies in the engineering sector looked at vendor managed inventory (VMI). No one really knew what that meant, but it grew into a nice sector.
What it was, was companies took the purchasing service from another company, said we will source it, replenish stock, take care of it, and you will make a saving of x amount.
Now that was good as there were big margins in it, but as more did it, margins shortened as it became competitive.
Then value analysis happened as the guys who had the contracts knew they had to make the next contract when it would be renewed, so they changed their business model from VMI to value analysis. They told them how much they would save them this year on certain aspects etc etc. This helped to shave out inefficiency within a business, as they operated as a consultancy when they changed to value analysis. So when you look at the circular economy, you have fixed bastions where you have to have paper mills, processing plants etc. So you have fixed elements and you have companies operating those fixed elements.
I think the challenge is for the waste and recycling industry is how do you change your business model to improve your margins and create opportunity? There are examples of how the new generation is very instant and there are lots of ways the industry can change with them, and as a new company, would you go as a simple on its own paper recycling plant or would you join with others? I have seen good businesses struggle as they couldn't change their business plan.
John Anderson (JA) - Consumers evolve to the market and companies have to evolve with them otherwise they won’t last with all the new technology among these millennials. In the US, 75% of the work force is going to be under 25 soon. With more devices and mobiles than people on the planet, it gives great potential that businesses can change and be successful.
MB - Being the first in the market isn’t always the best idea as you spend money to make it happen and could end up going too fast if the time is wrong and could really affect your business in a bad way if the market isn’t ready.
PS - Imagine we are setting up a new business in the circular economy, what would that look like, what are the opportunities within it that nobody is really picking up on?
FM - Probably providing a service rather than a product. You would have to try to move a product that people buy all the time and decide how you can deliver it as a service and use technology to simplify how you get it to the customer. You know you can still rent tools in most cities, but it is a bit of a pain as you have to go out and rent it and fix it and it takes longer - you have to bridge that gap to make it more convenient.
PS - Where would you say are the areas we should address?
FM - I don’t know. Everybody is looking for the next big thing. All the case studies that we see are the niches that use technology well and change mind-sets. But they all have one thing in common - that they convert a product offering to a service offering that seems to be the big thing.
JG - It is working out how to bridge that gap. Uou have to work in collection and get the whole supply chain together to bridge the gap, who else you need to offer the service. You have to think beyond just your own product.
SE - I don’t know how in an age where we want things now how that would work. I did it on Sunday, I used my own tools to put speakers up in 30 minutes. But if I was hiring the tools, could that happen?
FM - I don’t think that's the niche. I wouldn't start there. But you need to find that niche. The interesting ones is cars. I have a car that sits on the drive doing nothing as I get the train a lot. Would I have been better getting a car I want on the day I want it, for different activities? This can be done online and is delivered and I wouldn't be paying for a car I don’t use in the week. So maybe you wouldn't mind paying per mile instead of paying for a car that you just pay for when it needs to get serviced and use very little.
MC - If you think of high costs items, people are put off by that, but if you can make it accessible to people and still make money there is something there. Are we going towards more of a renting culture with houses? Will this filter down into other areas of living like cars? Maybe the new generation who are used to this can take it on board and again in time it may happen.
PS - Is this part of the problem? Actually is this about overcoming the attraction of convenience? If you want to hire a car you can do that now but you might have to pick it up, and there are companies that even deliver, but it still isn’t convenient.
DH – There are community cars. We have one that is parked where I live. I haven't used is as I don’t use my own car but I think it’s a way of finding the balance between being disruptive and giving value. An expert said it about texting that people would want to do it and BT said it was silly, but now it is a common thing.
I think its about being able to forecast what consumers want and then having the business model that can be married alongside that.
Paul Clarke (PC) - I think cost comes down to it. There might be a solution, but it costs a lot more than it would normally.
FM - I don’t think the flexibility for what I want is always there.
PC - I think you can get it at a cost. So if I had to redesign to create a new business, I would redesign the logistics, as trucks go full and come back empty. So we could make this more efficient to save money. Delivery vehicles can come back with recycling to reduce costs.
FM - Contamination issues are the problem.
PC – A little bit for sure. But the cost of cleaning a truck compared to a truck doing a double journey is nothing in comparison.
SE - Taking on what Paul has to say, he is right. This idea that we tweak the transport system.
I don't like like the plans for HS2 rail. I don't see the point. Rather than people, if we are going to have HS2, it should take lorries. You can charge them x amount per mile, you get off the train, deliver your goods and pick up recycling materials and get on the train back. This cuts carbon from non-renewable fossil fuels, it clears the motorways, cuts maintenance costs on lorries and you invest in your transport hub to move goods rather than people.
DH - What are we transporting?
SE - Everything, everything on the road. Rather than being on the road, you go on the train. There are some who do this, but there is no way that everybody does this. It could be Amazon, milk, bread etc. Anything being driven on the road, why not put them on the train? Most of the distance would be on train and only short trips on the road. This makes savings all round and is good for the environment.
DH - The next step is the bio-diesel. That is a great example of circular economy. We have been doing work in London to create green transport and green jobs, but would there be enough people to buy in to it? There are not enough car manufacturers getting involved at the moment wanting to use bio-diesel so that's a problem. Can we get the market to work for this?
PS - By the time the circular economy comes around technology will have moved on so that driverless vehicles could deliver our goods. Logistics could really change by then. Will this change the economic thinking of the future? So would it better to rent rather than buy things that we may only use occasionally? Things like gas barbecues that sit in our gardens that are only used occasionally? Things like TVs that we use regularly we will probably buy rather than rent.
FM - TV's have so much processing power and rare materials, you have to think in the end the manufacturer will want it back at the end of its lifecycle. We have machines that take them apart and then sell the metal by bulk, but in the future they will want the certain part., In the future you will get the new one and the old one will be taken back so they can get the parts back.
PS - Could it happen so that you get a new part to fix your TV and send the old one back?
FM - I think some phones already do that. You can take parts out and they send you parts to make it better. You upgrade it without buying a new one. TV's might go that way, but I think they will want to recover the materials, playing around with the back of a TV is different to messing around with a phone.
PS – There is a company out there that is designing new ways to manufacture cars. The engine or body of a car tends to go before the chassis, so the idea is that you build cars in a modular way so that the bits that go first can be replaced with new parts that might be differently designed. That way you can upgrade your car without necessarily buying a new one.
FM - I think what we are looking at are the different parts of the circular economy, but recycling is really on the outside of it. They want to keep the value high end so we only get to see stuff when you have done stuff to keep the value. Then we talked about logistics and redesign to keep them circular. The only part we haven’t talked about is companies that do maintenance and fixing of products.
MB - We have an opportunity in terms of a choice of whether we repair or buy? You once could take swap old stuff out for refurbished new products, which was core exchange. But that industry was killed overnight.
The conundrum is you either go for short-term revenue where you look to optimise and take what you can in that short period of time, or its more of an investment and you think where do I want to be and one of the things that is happening quickly is technology - it is driving everything. Everything has software in it.
If you want to do repair, companies have software in them telling them when they had to change or rethink something to up efficiency. This is the opportunity that the internet and technology can give you. You have to be able to connect with the end life of a product.
FM - That described changing the business model. You buy this from me and when it dies you come back and get the new one from me again and we make sure that the product works how it should or we lose out. Software can help this as it monitors the product and tells you when it needs to be repaired or replaced.
Come back tomorrow for the next part of the discussion.