Business Circularity and Sustainability

While the terms Circular Economy and sustainability continue to establish themselves in organisational vocabulary, the similarities, and differences between the two concepts are sometimes ambiguous. It's a bit like the confusion between "projects and programmes" or "transformation and change" - but I digress.

Circularity helps create a more sustainable world, but not all sustainability initiatives contribute to circularity. Simply put, today we view sustainability as being about people, the planet, and the economy, while circularity focuses on resource cycles and regeneration. 

But the two terms work together because circular economics is a way of implementing the Sustainable Development Goals of the United Nations and individual companies contribute to those goals through their own business transformation.

What is an Economy?

Let's pause a for moment before further talk of the economy and watch this short video in which Ken Webster takes us back to basics.

Linear Economy

It's no secret that the linear economy is neither sustainable nor good for the planet as it consumes resources faster than they are replenished, which creates pollution and waste faster than it can be cleaned. Our linear economy has resulted in the take-make-waste mentality, which Generation Alpha will one day look back on as a primitive and unfortunate characteristic of the world they once grew up in as children - way back in 2022.

So how long will it take before a mindset of circularity and regeneration becomes commonplace among leaders across all industries and countries?

Circular Economy

In a circular economy, waste does not exist, and products and raw materials are reused as long and intensive as possible over and over again.

The circular economy has emerged as an economic concept where new business models and strategies reuse materials and resources to their fullest potential, and how they in turn create economic opportunities while enriching our environment. It is seen as the path to transition away from linear economic business practices, and EU legislation has already been adopted to support this.

More fundamentally, a circular economy is key to almost 10 billion people living well within the boundaries of the planet by 2050. 

The Ellen MacArthur Foundation states that the circular economy is one that is restorative and regenerative by design, which recognises the importance of the economy needing to work effectively at all scales – for big and small businesses, for organisations and individuals, globally and locally. And that the circular economy is based on these three principles:

• Design out waste and pollution
• Keep products and materials in use
• Regenerate natural systems

We've already seen CEOs at companies like Adidas, IKEA, Michelin, and Philips lead the way in circular economy business thinking.

Adidas’s UltraBoost DNA Loop shoes are made from just one material with no glue. The aim is for customers to return them once they are finished using them.

IKEA intends to produce 100% circular products by 2030, and ensure that by then, all its products are produced from either renewable or recycled materials.

Michelin aims to generate €700 million a year by 2023 from selling its tires as a service, charging for outcomes instead of the tires themselves.

Philips has established itself as a leader in the circular economy with products such as the “Circular Lighting” service and buying back used equipment.

And Google. Their new CircularNet is a set of models that lowers barriers to Artificial Intelligence and Machine Learning tech for waste identification and all the benefits this new level of transparency can offer.

The circular mindset CEOs who lead these very different companies have already made the shift away from the linear take-make-waste model of consumption, which most had become accustomed to.

By reusing and recycling as much as possible, and re-designing products, materials and operations to enable this, the circular economy is creating jobs and generating economic activity, while easing pressure on the environment.

How long will it take for more CEOs to be more responsible by adopting this mindset?

Sustainable and Circular Disruption

It's safe to assume that sooner or later, a lot of businesses will be disrupted by innovative rivals or upstarts with a circular business model.

As circularity and sustainability becomes more of a strategic and legal imperative, executives need to spearhead the way in which they build a more sustainable organisation. One that is right for their business, their customers, and the world.

In the past, a company's existence was largely based on its ability to remain profitable. Now with increasing external pressures, it has become a business imperative for organisations to manage the economic, social, and environmental impacts of their existence. Future-focused organisations are beginning to create a new future for themselves by turning sustainability from a risk into an opportunity.

Do you remember the fate of Blockbusters, Kodak, and others that resulted from digital disruption? Which is still happening. Well, sustainable and circular disruption is next, and we will see even more corporate giants failing and falling unless they respond quickly and appropriately to circularity and sustainability.

While the threat of disruption can be a strong motivator, smart leaders recognise the opportunity and already know that that well-designed circular products and business models can boost growth and cut costs. 

Greenwashers Inc.

Over the years, many businesses have chosen to brand or rebrand their image as green, without offering a sustainable product, service or business model, while others adopt the ignore it for now approach. Ultimately both are bad for business and increase the risk of serious legal action and brand destruction through negative consumer sentiment. Doing nothing and / or greenwashing are not good for business.

Misleading consumers and stakeholders about the environmental benefits of their offerings has become a marketing standard of greenwashers. It can be an abusive and misleading activity that no ethical leader would want to be part of. 

The most successful companies of the future will be those that ensure transparency and honesty are fundamental characteristics of their brand. Doing the right thing will be good for business, while the greenwashers might eventually see the error of their ways.

Executive Responsibility

The responsibility of sustainability needs to start with the CEO who should understand the threats and opportunities that sustainability presents for the future of the business they're fortunate enough to lead.

Already in Europe, the European Commission's Circular Action Plan paves the way for a cleaner and more competitive Europe. An action plan, which thousands of CEOs will be obliged to align with - sooner rather than later.

Here's just one e-waste example of how EU policy will force some CEOs to act:

The European Parliament voted in favour of new charging standards that will require all phones, tablets, and cameras sold in the European Union to be USB-C-ready by 2024. The mandate will extend to laptops in 2026.

Unless CEO have built sustainability into their overall strategy, there's every chance that sustainability will be side-lined by other leaders as a secondary interest. This means CEOs need to operate through a new lens of responsible leadership.

Success is more likely when CEOs empower their key executives to engage with sustainability both proactively and strategically. Those executives should then be held accountable for creating measurable impact as opposed to fluffy unmeasurable claims.

Most CEOs use business transformation to improve the bottom line, operational excellence, customer satisfaction, etc. But the most modern minded CEOs also use it to create sustainability outcomes. Because once these CEOs have built sustainability into their corporate strategy, they know they'll benefit from the clear direction they are giving to their organisation.

When key executives and senior managers have that kind of direction, they will be far more comfortable engaging the capabilities they need to make a difference and make big decisions that impact sustainability, which might otherwise be unpopular with some.

But with sustainability being a wishy-washy word to many people, how can you hold people accountable for improvements in the sustainability space?

Structuring and Measuring Sustainability

You already measure so much in your organisation. From profitability and customer satisfaction, through to operational excellence and more. After all, good managers know that what isn't measured generally isn't managed. And what isn't managed typically results in mediocrity or worse.

So with this in mind, what are you doing to measure how sustainable your organisation is across all of its business dimensions? And how will you measure the difference between this year's results and next year's?

One of the key obstacles to launching circularity initiatives is internal alignment across business units. While CEOs know that circularity is a strategic issue, they struggle to agree on how to prioritise it against other initiatives.

For CEO's to hold key executives accountable, a clearly defined and visible set of sustainability criteria needs to be established. Identifying relevant metrics and creating a compelling story around sustainability is vital. Without that, managing the journey towards greater sustainability and getting buy-in to achieve it will be a struggle.

With input from the wider workforce, you need to be able to answer questions such as:

• Where are we on our sustainability journey? 
• What specifically are our goals?
• How should this become part of business transformation?
• How should we appropriately invest our people and money in sustainability?
• How will we measure and manage our progress and success?
• What will be measure exactly?

Then you need to ensure the entire organisation understands the answers to those questions.

One way to do this is to use a Sustainability Maturity Index, which helps you measure key contributors to the achievement of your sustainability goals.

The Digitopia Sustainability Maturity Index (SMI) covers:

Future risk and opportunity - Because a better understanding of sustainability risks enables companies to convert it into opportunities.

Business strategies and models - Because sustainable business models enable companies to go beyond financial success into purposeful impact.

Measures, targets, and disclosure - Because transparency is a prerequisite to trust, and sustainability provides an ideal performance framework.

Culture, capacity, and leadership - Because seeing problems differently requires leadership. This is what companies must do to become agents of positive change.

Social and political change - Because companies can use their influence to drive sustainability, aligning their ambitions with long-term value.

Learn more about Digitopia's SMI

By using a Sustainability Maturity Index like the one outlined above, a baseline can be established. The relevant people can participate in workshops where analysis can begin, followed by innovation, planning, execution, the realisation of greater sustainability, and continued optimisation.

Sustainable Innovation

Sustainable innovation will also be key to success and incorporated into the way you structure and measure sustainability (above).

We already know from the digital transformation trend that a lot of established organisations struggle to innovate. While many still desperately want to undergo "transformation" using digital, a large proportion are simply undergoing technology enabled change, which is often nothing that deserves to be called transformation.

Because we don't want sustainability to suffer the same fate, by building sustainability into innovation, companies can increase the odds of creating products, services, processes, and business models that are good for customers, the organisation, society, and the environment.

It's vital that well-intentioned leaders understand that sustainable innovation will be a prerequisite to their organisation's survival and its ability to prosper and compete successfully.

In Conclusion

As you go about your work helping your company increase profits by making more of the right customers happy and improving operational efficiencies, keep this higher purpose in mind:

Circularity gives us the tools to transform our linear economy companies into ones where waste and pollution are eliminated, products and materials are reused and nature is regenerated.

Consider how new business and operating models, products and services, can be transformed to create a more sustainable organisation. Consider how business transformation can be more worthwhile.

Is your CEO bold enough to invest in the development of entirely new business models, which don’t yet exist? Or do they prefer not to step outside their comfort zone and stay safe with product or process improvement?

Either way, it will require a very well-managed innovation process and the commitment of everyone from the board of directors and CEO down.