Towards the Circular Economy: Accelerating the scale-up across global supply chains - Prepared in collaboration with the Ellen MacArthur ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Towards the Circular Economy: Accelerating the scale-up across global supply chains Prepared in collaboration with the Ellen MacArthur Foundation and McKinsey & Company January 2014
Disclaimer The viewpoints expressed herein attempt to reflect the collective opinion of various individuals who have contributed to the research and development of this report; they do not necessarily imply an agreed position among them or institutional endorsement by any participating company or organization involved in the work or mentioned in the report, or of the World Economic Forum. Published by World Economic Forum, Geneva, Switzerland, 2014 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior permission of the World Economic Forum. World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0) 22 869 1212 Fax: +41 (0) 22 786 2744 contact@weforum.org www.weforum.org
Company Support Foreword – Ellen MacArthur Foundation
18 leading companies from the Today’s ‘take-make-dispose’ economy has long relied on
partnership networks of both the World inputs of cheap and available resources to create conditions
Economic Forum and the Ellen for growth and stability. Within the past decade, however,
MacArthur Foundation generously businesses have been hit by an increase in commodity prices
provided expert support to this that has effectively erased the (average) decline of the entire
research. They are listed below. preceding century. Coupled with this, we expect three billion
more middle-class consumers by 2030. This unprecedented
rise in demand for a finite supply of resources calls into
Members of the question our current predominantly linear economic system.
World Economic Forum The concept of the circular economy is rapidly capturing
Ellen MacArthur attention as a way of decoupling growth from resource
Strategic Partners Founder, Ellen constraints. It opens up ways to reconcile the outlook for
MacArthur Foundation growth and economic participation with that of environmental
Cisco*
Cowes, Isle of Wight prudence and equity. It is inspiring CEOs, politicians,
The Coca-Cola Company* engineers, designers and the next generation of leaders.
Leighton Holdings Ltd
Our research highlights immediate and relatively easy-to-
Nestlé SA implement opportunities, analysing a number of specific
Philips* examples. It uses current technologies and trends to estimate
Renault-Nissan BV* the materials cost savings of adopting a more restorative
SAB Miller Plc* approach at over US$ 1 trillion p.a. by 2025, net of materials
costs incurred during reverse-cycle activities.
Industry Partners We are now observing the evolution of circular business
Arup Group Ltd models as leading companies drive innovation across
product design, development of product-to-service
B&Q Kingfisher Plc* approaches and new materials recovery methods. These are
Brightstar Corp. demonstrating potential to disrupt the linear economy. A
Heineken deeper and broader understanding of how to capture
Royal DSM* commercial value across supply chains from a very practical
perspective is needed to accelerate and scale this trend.
Wesfarmers Limited
The World Economic Forum’s report Accelerating the
Global Growth Companies scale-up across global supply chains report plays a
Desso Holding BV* crucial role in this market evolution by exploring how
businesses can use the circular economy to drive arbitrage
Trina Solar Ltd opportunities across complex, global supply chains. While
examples of circular business models are emerging,
Members of the Ellen significant materials leakages still persist. This report provides
practical guidance on how businesses can address these
MacArthur Foundation’s leakage points to capture the value of the circular economy
Circular Economy 100 together with their partners—whether suppliers or
wholesales/retailers—and consumers. The initiative outlined
Hennes & Mauritz AB in this report, aims to make practical steps towards capturing
IKEA this opportunity through the facilitation of pure materials
Ricoh flows, an important first move in the shift to a new economic
model.
plus the companies above marked with *
The circular economy provides a framework to both
challenge and guide us as we rethink and redesign our future.
I would like to express my thanks to the thought leaders and
business pioneers who have informed this thinking and
helped make this work possible. These include our
collaborator, the World Economic Forum, McKinsey &
Company, which acted as project adviser and provided the
analytics for this report, as well as representatives from
leading businesses and experts who have contributed their
extensive know-how.
I believe this to be one of the greatest opportunities of our
time, and urge you to play your part in making it a reality.
Towards the Circular Economy: Accelerating the scale-up across global supply chains 3
Preface – World Economic Forum
The past two years have seen a surge be evident for business and consumers
in activity among business leaders to in both industrialized markets and
forge collaboration and shape new fast-growing economies. Cheaper
agendas on sustainable growth. The phones and washing machines are just
‘circular economy,’ a term perhaps two of a myriad of benefits that could
unfamiliar just a few years ago, has now swiftly materialize for tomorrow’s global
also caught the imagination of thought consumers. For governments, this shift
leaders across the world, and is taking to circular economic activity could help
shape as a viable, practical alternative address the global job gap of 600 million
to the current linear economic model. that the International Trade Union
Confederation forecasts by 2030 if
Dominic Waughray A confluence of various global trends,
business as usual continues.
Senior Director, statistics and fresh economic analysis
World Economic has accelerated this agenda. Three But how can change be catalysed on
Forum billion middle-class consumers are such a scale? The economic gain can
Geneva expected to enter the global market by be realised only if multiple players
2030, driving unprecedented demand across business and research commu-
for goods and services. Commodity nities come together and reconceive
prices overall rose by almost 150% from key materials flows and manufacturing
2002 to 2010, erasing the real price processes, supported by policy-makers
declines of the last 100 years. Experts and investors. The transaction costs of
have calculated that without a rethink of shifting the status quo are extremely
how we use materials in our linear high: no single entity can make this
‘take-make-dispose’ economy, ele- happen on its own. A large-scale,
ments such as gold, silver, indium, business-led collaboration is required.
iridium, tungsten and many others vital
At its Annual Meeting in Davos this year,
for industry could be depleted within
the World Economic Forum hosted over
five to fifty years. If we remain in our
seventy leaders from industry, govern-
‘business as usual’ mode, price volatility
ment, academia and civil society to
will continue to surge, alongside the
discuss exactly this problem: how can
probable inflation of key commodities.
the circular economy be scaled up?
Business leaders are in search of a
better hedge to avoid these risks, and Many of the participants at this session
are moving towards an industrial model were inspired by the work of the Ellen
that decouples revenues from material MacArthur Foundation, which has
input: the circular economy. emphatically set out the trillion dollar
economic case for a circular economy.
The economic case for the circular
Many had also been involved in the World
economy is tangible. The cost of
Economic Forum Sustainable Consump-
remanufacturing mobile phones could
tion Initiative 2008 - 2012, or in other
(for example) be reduced by 50% per
World Economic Forum communities,
device if the industry made handsets
initiatives and global agenda councils
that were easier to take apart, improved
focused on sustainability and circular
the reverse cycle, and offered incentives
economy issues. The Young Global
to return devices that are no longer
Leaders (YGL) Circular Economy
needed. High-end washing machines
Innovation and New Business Models
would be accessible for most house-
Taskforce is one example, or the Global
holds if they were leased instead of
Growth Companies Sustainability
sold. Customers would save roughly a
Champions, Technology Pioneers, and
third per wash cycle, while manufactur-
the Global Agenda Council for Sustain-
ers would earn roughly a third more in
able Consumption. The discussion also
profits. The economic gain from
covered a wide range of national sustain-
materials savings alone is estimated at
able growth initiatives—notably the Dutch
over a trillion dollars a year. A shift to
Sustainable Growth Coalition, and public
innovatively reusing, remanufacturing
sector institutions ranging from the
and recycling products could lead to
European Commission to the Brazilian
significant job creation. 500,000 jobs
National Development Bank. A common
are created by the recycling industry in
thread ran through all of these groups: a
the EU alone.
critical mass of leaders prepared to voice
In short, the economic case for shifting their desire for action, ready to ‘break
to a circular economy is compelling. The pack,’ and eager to become first movers
economic impact of this change would in scaling up the circular economy.
4 Towards the Circular Economy: Accelerating the scale-up across global supply chains
The plea to the World Economic Forum We hope that bringing together experts well as to avoid/valorize 100 million
at that meeting was clear: given the from corporations and research tonnes of materials waste within 5 years.
compelling economic case for action, organizations will generate a new wave
To realise this ambitious initiative, the
could the Forum help architect collabo- of collaboration across industries and
World Economic Forum is delighted to
ration to scale up the circular economy? geographies to develop the blueprint for
have entered into collaboration with the
a large, steady and pure materials
I am delighted to say that this report and Ellen MacArthur Foundation, and with
stream for each of the materials
the proposal for collaborative global the global management consulting firm
selected. The aim is to ensure that all
action it contains is the response to the McKinsey & Company, which acted as
players can capture the value of multiple
challenge set by those leaders who met project adviser and provided the
recycling and remanufacturing easily
in Davos in January. Based on extensive analytics for this report. The high level of
and quickly. The project will trigger
new research, this report sets out the input and enthusiasm from both the
action to implement the rollout, tracking
business as well as the economic case Ellen MacArthur and the McKinsey
the innovation, jobs, economic value
for action, and identifies where industry teams to drive the work forward has
and environmental gain that can be
leaders’ energy may best be focused to been exemplary, and lays a strong
tapped as a result. The practical role
catalyse change. Over 30 business foundation for the collaboration ahead.
policy-makers, the R&D sector and
leaders and experts from the networks Alongside the many to whom we owe
investors can play to help accelerate the
of the World Economic Forum’s leading our deepest thanks (detailed in the
process and harness its economic
companies and the Ellen MacArthur Acknowledgements), we are indebted
benefits will be explored in parallel.
Foundation’s Founding Partners and most of all to Ellen MacArthur herself for
CE100 were interviewed in the course of The initiative will support 24 months of championing this initiative, and for
this work, ensuring that any plan for activity across these various issues, driving the circular economy agenda so
action would be have a sound, practical involving task forces of senior execu- passionately across and among the
foundation. tives and technicians as well as repre- global business community.
sentatives from government, academia,
The subsequent chapters in this report The Forum would like to acknowledge
investors and civil society from multiple
set out key areas of the research and its the leadership and interest shown by so
geographies and sectors. Success
findings, and present a detailed plan of many of its industry members to help
factors at the end of this period will be
action. shape and drive the development of this
threefold:
work. Fifteen leading World Economic
The proposal focuses on materials and
-- A new list of pure signature materials Forum’s Strategic Partners, Industry
some aspects of product design—one
together with their building blocks, Partners and Global Growth Compa-
of the four building blocks of a circular
conversion methods and reverse nies were interviewed to provide input
economy (the other three being new
setup, co-designed and agreed infor- for the report and help design the focus
business models, global reverse
mally by enough key parties around of the proposal. They are mentioned
networks, and enabling conditions). This
the world to change the global overleaf: the project team offers their
is an important and practical starting
economy in that field sincerest thanks for the time and effort
point as it will enable creation of a new
each invested to assist this work.
palette of materials for building a -- Proof of concept in two or more
regenerative economy. Our core signature materials categories, The project team would also like to
proposal is inspired by how a de-facto demonstrating how to make the express its gratitude to the various New
standard for polyethylene terephthalate change happen by working with Champion communities of the World
(PET) in packaging has emerged across leading businesses, their suppliers Economic Forum, including the Young
multiple beverage companies since the and customers of that material to Global Leaders Circular Economic
1970s, driving the recycling and reman- anchor the new materials specifica- Initiative. It particularly extends its thanks
ufacturing of PET products to a high tions to Peter Lacy and David Rosenberg,
degree. This proposal focuses on leaders of the YGL Circular Economy
-- A set of practical suggestions from all
catalysing a similar outcome for a Taskforce, the Global Growth Company
the stakeholders involved reflecting
signature group of materials stocks that community, the Technology Pioneers,
how they have learned to accelerate
permeate our global supply chains: and the Social Entrepreneurs.
and enable the process in their
polymers (particularly polypropylene)
particular field, and how they are The work ahead will represent a truly
and paper & cardboard are examples.
benefitting from the resulting innova- collaborative effort, and we look forward
Three future-focused signature materials
tion. to drawing on all the combined net-
will also be examined, noting how the
works of the World Economic Forum
global materials market is likely to All the outcomes will be captured in a
and the Ellen MacArthur Foundation. I
change radically in the coming decades. comprehensive report extrapolating the
can think of no more appropriate stage
These include bio-based materials (for core economic case surrounding this
for presenting the proposal and
packaging for example), materials for 3D change effort. As with all World Econom-
launching this initiative than the Annual
printing (set for explosive growth in the ic Forum initiatives, we will also convene a
Meeting of the New Champions—the
coming decade), and carbon dioxide CEO-led steering board to govern and
Forum’s ‘Summer Davos’ in China,
recovery. This latter initiative overturns steer the work at a strategic level.
which is taking place in Dalian this year.
the concept of CO2 as a pollutant,
If successful, the project offers profound
instead exploring how it could become a I hope you enjoy the report and the
impact on scaling circular economy
valuable economic asset for other proposal for action it contains, and we
benefits. The collaborative waves
businesses, serving as a feedstock for look forward to engaging with you on
across four to five materials flows has
polymers and other materials currently this pivotal initiative.
potential to trigger net benefits of at least
dependent on oil.
$500 million and 100,000 new jobs, as
Towards the Circular Economy: Accelerating the scale-up across global supply chains 5
Acknowledgements
Core project team The Coca-Cola Company Heineken
Jamie Butterworth, CEO, Ellen -- April Crow, Global Sustainability -- Roland Verstappen, Global Director,
MacArthur Foundation Director, Packaging Public Governmental Affairs
Andrew Morlet, Business Programme -- Katherine Schermerhorn, I:CO
Lead, Ellen MacArthur Foundation Communications Manager
-- Paul Doertenbach, Global Account
Hanh P. Nguyen, Project Manager, Collaborative Lab Manager
Catalysing the circular economy at
-- Rachel Botsman, Founder -- Max Schwilk, Project Manager
scale, World Economic Forum (on
secondment from McKinsey & Desso Holding BV -- Tamara Zwart, Head of I:CO Alliance
Company)
-- Alexander Collot d’Escury, CEO Ikea
Jeremy Oppenheim, Director, Global
-- Anette Timmer, Director Marketing, -- Simon Henzell-Thomas, Group
Leader, Sustainability and Resource
Communications & C2C Sustainability Policy and Stakeholder
Productivity, McKinsey & Company
Engagement Manager
-- Rudi Daelmans, Director of
Martin Stuchtey, Director, Global
Sustainability Leighton Holdings
Leader, Strategic Resources, McKinsey
& Company -- Willem Stas, Director of Operations -- Patrick Brothers, Executive General
Manager, Corporate Strategy
Elsa Studer, Project Associate, EPEA
Environmental Initiatives, World -- Ralf Dicke, General Manager of
-- Michael Braungart & Douglas
Economic Forum Corporate Strategy
Mulhall, Representatives of the
Helga Vanthournout, Expert, Waste and Academic Chair, Cradle to Cradle for Lend Lease
Resource Management, McKinsey & Innovation and Quality, Rotterdam
-- David Nieh, Head of China
Company School of Management, Erasmus
University, as well as EPEA McKinsey & Company
Dominic Waughray, Senior Director,
Internationale Umweltforschung
Environmental Initiatives, World -- Zaid Ghazaleh, Associate
Economic Forum Ecovative
-- Vasudha Gupta, Senior Analyst,
Markus Zils, Partner, Global Leader, -- Sam Harrington, Marketing, Sales & Waste and Resource Management
Logistics and Supply Chain Solutions, LCA Director
-- Chris Musso, Expert Partner,
McKinsey & Company
Electrolux Operations: Product Development
-- Monica Celotto, Project Leader, -- Krista Ryu, Business Analyst
Global Technology Center
Contributors -- Sam Samdani, Senior Knowledge
-- Karl Edsjö, Project Manager, Expert, Global Chemicals &
Arup Group Ltd
Environmental & European Affairs Agriculture
-- Francesca Galeazzi, Associate,
-- Daniele Gallo, Material Engineer, -- Ulrich Weihe, Partner, EMEA Leader,
Sustainability
Global Technology Center Chemicals & Agri¬culture
-- Chris Luebkeman, Director for Global
Ellen MacArthur Foundation -- Johnson Yeh, Associate Partner,
Foresight and Innovation
Clean Technologies
-- Jocelyn Blériot, Head of Editorial –
B&Q/Kingfisher Plc
European Affairs Nestlé SA
-- Alex Duff, Corporate Affairs Manager
-- Ella Jamsin, Analyst -- Claus Conzelman, Vice President,
-- James Walker, Head of Innovation Head of Safety, Health &
-- Ellen MacArthur, Founder
Environmental Sustainability
Biomimicry 3.8 Institute
-- James O’Toole, Global Partnerships
-- Herbert Oberhaensli, Vice President,
-- Janine Benyus, Co-founder Manager
Economics and International
BrightStar Corp. -- Ken Webster, Head of Innovation Relations
-- Jesus Lebena, Vice President, Latin -- Stuart Whitman, Programme
America Supply Chain & Operations Manager
-- Maria Menacho, Chief of Staff Hennes & Mauritz AB
Cisco -- Mikael Blomme, Sustainability
Innovation Responsible
-- Neil Harris, Head of Sustainable
Business
6 Towards the Circular Economy: Accelerating the scale-up across global supply chains
Philips Production -- Lisa Sweet, Associate Director,
Consumer Industries
-- Marcel Alberti, Manager Group Editors: Gilian Crowther and Terry
Strategy Gilman, McKinsey & Company -- Masao Takahashi, Associate
Director, Head of Japan Membership
-- Emile Cornelissen, Head of Supplier Graphic designers: Robert Götzfried
Sustainability and New Venture and Karin Malinski, McKinsey & -- Bruce Weinelt, Director, Head of
Integration Manager of Philips Group Company Telecommunication Industry
Purchasing
Layout design: Kamal Kimaoui, World -- Tiffany West, Director, Head of
-- Robert Metzke, Senior Director Economic Forum Agriculture, Food and Beverage
EcoVision Program Industry
Design: Yoren Geromin, Kissing
Renault-Nissan BV Kourami -- Chen Xiaochen, Senior Community
Manager, Centre for Global Growth
-- Jean-Philippe Hermine,
Companies
Environmental Director
In addition, the project team expresses
-- Cheryl Yip, Associate Director,
Ricoh Europe its gratitude to the following World
Partnership
Economic Forum colleagues for their
-- Yasunori Naito, Manager,
support throughout the project:
Environmental Management
-- Bosco Astarloa, Senior Community
-- Olivier Vriesendorp, Director of
Manager, Head of Renewables
Product Marketing
Industry
Ricoh UK Ltd.
-- Michelle Barrett, Community
-- Philip Hawkins, Assistant General Manager, Information Technology
Manager, Business Strategy and Industry
Supply Chain Projects
-- Nathalie Chalmers, Senior
SABMiller Plc Programme Manager, Environment
and Sustainability
-- Andre Fourie, SAB Head of
Sustainable Development -- Marc Cuénod, Senior Strategic
Partnership Associate
-- Andy Wales, SVP, Head of
Sustainable Development -- Tania Cullen, Associate Director,
Partnership
The University of York
-- Cristina Ferrer, Senior Community
-- Prof. James Clark, Green Chemistry
Associate, Consumer Industries
Trina Solar Ltd
-- Andrew Hagan, Director, Head of
-- Jeffrey Fan, Corporate Chemicals Industry
Communications Director
-- Antoine Hirschy, Senior Partnership
-- Jodie Roussell, Director of Public Manager
Affairs, Europe
-- Qin He, Associate Director,
Vodafone Telecommunications Industry
-- Casper Jorna, Manager Terminals -- Thorsten Jelinek, Associate Director,
Sustainability Europe Membership
-- Michael Just, Principal Manager New -- Hanseul Kim, Associate Director,
Business Development Terminals - Engineering and Construction
Strategy & Business Development Industry
Wesfarmers Limited -- Akshay Mohan, Associate Director,
Science and Technology
-- Kate Chaney, Manager Sustainability
and Community Partnerships -- Robin Ried, Associate Director,
Infrastructure and Urban
Worn Again
Development Industry
-- Cyndi Rhoades, Closed Loop
-- Eric Roland, Associate Director,
Executive Officer
Young Global Leaders
-- Sarah Shellaby, Community
Manager, Consumer Industries
-- Elena Smirnova, Associate Director,
Partnership
Towards the Circular Economy: Accelerating the scale-up across global supply chains 7
8 Towards the Circular Economy: Accelerating the scale-up across global supply chains
Contents
3 Foreword by the Ellen MacArthur Foundation
4 Preface by the World Economic Forum
6 Acknowledgment
10 Executive summary
13 1 The benefits of a circular economy
13 The limits of linear consumption
15 From linear to circular—Accelerating a proven concept
16 How it works up close—Case examples of circular products
18 An economic opportunity worth billions— Charting the new territory
21 2. Why the time to act is now
21 Mounting pressure on resources
23 Favourable alignment of enablers
29 3. What are the leakage points?
29 Losses due to of geographic dispersion
33 Leakages due to materials complexity and proliferation
36 Trapped in the linear lock-in
39 4. What are the solutions?
39 Set up global reverse networks
42 Reorganize and streamline pure materials flows
47 Innovate demand-focused business model
48 Focus on pure materials stock management at the outset
51 5. Joining forces to make the change
51 Project charter
51 A clear plan of action
56 Glossary
57 Literature
58 Appendix 1: Returnable bottles—benefits of a local closed loop system
58 Appendix 2: Power drill—business case for circular business setup
59 List of figures
59 List of text boxes
60 References
Towards the Circular Economy: Accelerating the scale-up across global supply chains 9Executive summary
Business leaders, consumers and governments alike have 2. Circular supply chains are up and running— and they’ve
discovered that continued wealth generation requires a new gone global. The global secondary fibre stream for paper
industrial model that is less dependent on primary energy and cardboard is one example. The economics of such
and materials inputs, and ultimately able to regenerate our arbitrage opportunities are expected to improve as raw
natural capital. In its recent reports, the Ellen MacArthur materials prices rise and the costs of establishing reverse
Foundation has focused on the economic and business cycles decline. Trends favouring lower costs and making it
benefits of such a circular model of growth. possible to close the reverse loop include urbanization, which
concentrates demand, allowing tighter forward and reverse
In this report, the World Economic Forum and the Foundation,
cycles. Advanced tracking and treatment technologies also
with analytics provided by McKinsey & Company, acting as
boost the efficiency of both forward and reverse logistics.
project adviser, joined forces to reconcile the concept of
Governments have started to provide stimuli, too: higher
scaling a circular economy within the reality of a global
charges for landfill increase the competitiveness of circular
economy and complex multi-tier supply chains. The key
products, and thus the arbitrage opportunities of setting up
objective is to propose a very specific joint plan of action for
reverse cycle options.
industry leaders.
3. Supply chains are the key unit of action, and will jointly
The challenge of closing materials loops and regenerating
drive change. In its most extreme manifestation, the global
natural assets is an exponential function of product
economy is a massive conveyer belt of material and energy
complexity and supply chain length. While more localized
from resource-rich countries to the manufacturing
production is experiencing a robust renaissance in some
powerhouse China, and then on to destination markets in
economies, we cannot ignore nor fail to tap the power of
Europe and America where materials are deposited or—to a
global division of labour, specialization and economies of
limited degree—recycled. This is the opposite of a loop. The
scale. This report sets out to emphasize that the circular
materials leakage points and barriers to mainstreaming the
economy must hold its promise not merely to the village
new model of circular material flows in a globalized economy
economy, but also to a globalized economy of nine billion.It
must now be addressed and overcome. This requires better
presents the concept of circularity as a tangible driver of
understanding of the archetypes into which supply chains fall,
industrial innovations and value creation for the 21st century
and the three main barriers to change: geographic
global economy. In addition, it positions the concept for
dispersion, materials complexity, and linear lock-in. Analysing
today’s global CEO as a practical business strategy to
the most advanced business cases confirms that a supply
“hedge” against the complex and interconnected risks of
chain management approach that balances the forward and
resource competition, commodity price volatility, new
reverse loops and ensures uniform materials quality is critical
materials technologies and changing consumer demands. A
to maximizing resource productivity globally. The transition
number of key messages stand out:
can begin once the hinge points are identified and acted
1. The circular concept fosters wealth and employment upon in a concerted effort—across companies, geographies,
generation against the backdrop of resource constraints. and along the supply chain.
Circular business models will gain an ever greater competitive
4. Defining materials formulations is the key to unlocking
edge in the years to come because they create more value
change. The materials list is exploding. A wide range of new
from each unit of resource than the traditional linear ‘take-
additives are added each year, making post-use valorization
make-dispose’ model. Accelerating the scale-up promises to
ever more demanding. The key is to tame materials
deliver substantial macroeconomic benefits as well as open
complexity by defining and using a set of pure materials
up new opportunities for corporate growth. The materials
stocks at scale, designing out the leakages that hamper
saving potential alone is estimated at over a trillion dollars a
classification from the start. Reorganizing and streamlining
year. The net employment opportunity is hard to estimate,
flows of pure materials will create arbitrage opportunities that
and will largely depend on the labour market design. But
generate economic benefits and make investments in reverse
even today, the job creation potential of remanufacturing
cycle setups profitable.
globally and recycling in Europe already exceeds one million.
10 Towards the Circular Economy: Accelerating the scale-up across global supply chains5. Four materials categories are prime candidates for 7. Tangible outcomes can be achieved in two years
demonstrating viability. The potential building blocks for through joint action. A group of leading companies drawn
flagship projects are materials that are already sizeable and from the combined networks of the World Economic Forum
well understood, where a concerted effort by a few large and the Ellen MacArthur Foundation acting in this
players can create markets large enough to surpass the collaborative agenda can speed up transition to the circular
threshold value for viable circular arbitrage models. Each economy and achieve tangible outcomes within two years.
category is at a different stage of maturity in terms of circular The initiative aspires to enable its participants to realise the
setup and development, offering scope for credibly rewards of becoming first-movers: capturing the value of the
demonstrating viability across a wide spectrum. circular economy. For example, the four to five waves
established in this project will aim to reap net benefits of at
-- ‘Golden Oldies.’ These are well-established, high-volume
least US$ 500 million and 100,000 new jobs, as well as to
recylates with a remaining purity challenge. Paper and
avoid/valorize 100 million tonnes of materials waste within 5
cardboard as a high-volume materials stream has high
years. A further goal is to form a group of pioneers who will
collection rates, but suffers from quality loss and ink
jointly build the ability to tap resource productivity as a new
contamination during the reverse cycle, resulting in an
source of 21st century competitiveness. The initiative will
estimated US$ 32 billion in value lost annually. PET, glass,
require coordination across multiple stakeholders to facilitate
and steel also fall into this category.
systemic change, which is where the Forum and Foundation
-- ‘High Potentials.’ Materials used in high volumes that will have the most impact. In 24 months, the initiative should
currently lack systematic reuse solutions are polymers, for be able to create a preferred list of pure, high-quality materials
example. Collection rates are limited and separating out with cross-industry applications to aggregate volume and
the materials/maintaining their quality and purity is hard enhance stock valorization. It should also be possible to arrive
due to the high fragmentation of formulas, supply chains at a proof-of-concept result within 24 months for two or more
and treatment technologies. selected materials. In parallel, the initiative will define methods
and systems enablers for achieving sustainable change in the
-- ‘Rough Diamonds.’ These are large-volume by-products
medium and long term.
of many manufacturing processes, such as carbon dioxide
and food waste. A broad set of valorization technologies is Together, the Forum and the Foundation will provide
emerging, however, that could provide additional value and companies, governments, civil society and academic experts
displace virgin materials intake. with a multi-stakeholder platform for collaboration across
industry, regions and sectors on this crucial global project.
-- ‘Future Blockbusters.’ A number of innovative materials
Delivering on this agenda will reap huge rewards for
have breakthrough potential, either from enabling
businesses, individuals, and our planet. The downside of
substantial improvement of materials productivity (e.g. 3D
continuing on our current linear course is daunting, but the
printing), or having usage cycles that are fully restorative by
upside of making a switch now will be huge, for every one of
design and intention (bio-based materials).
us.
6. Catalysing a series of “Trigger Projects” is the most
effective way to reach tipping points for each category
faster. Choosing a signature material from each category as
an example will facilitate practical collaboration on the study
of specific materials by different players across industries and
geographies. Findings for one signature material at a systems
level will often be highly transferable to other materials in the
same category. With proof of concept and initial flagship
successes, stakeholders can roll out the solutions to other
materials in that category much faster than trying to cover an
entire category in one go. The proposed signature materials
by category are paper and cardboard, polypropylene, carbon
dioxide, and bio-based and 3D printing materials. Agreement
on their preferred formulations will in itself fast-track the
scale-up of the circular economy, as well as opening up
exciting business opportunities.
Towards the Circular Economy: Accelerating the scale-up across global supply chains 1112 Towards the Circular Economy: Accelerating the scale-up across global supply chains
1. The benefits of a
circular economy
Linear consumption is reaching its limits. A Figure 1: Sharp price increases in commodities since 2000
have erased all the real price declines of the 20th century
circular economy has benefits that are McKinsey Commodity Price Index1
operational as well as strategic, on both a Index: 100 = years 1999–20012
1 Based on the arithmetic average of four commodity sub-indexes: food, non-food agricultural
micro- and macroeconomic level. This is a 260 World War I
trillion-dollar opportunity, with huge potential for 240
220
innovation, job creation and economic growth. 200
1970s oil shock
180 World War II
The last 150 years of industrial evolution have been 160
dominated by a one-way or linear model of production and 140
consumption in which goods are manufactured from raw 120
materials, sold, used and then discarded or incinerated as 100
80
waste. In the face of sharp volatility increases across the 60
Postwar
depression
Great
Depression
Turning point in
global economy and proliferating signs of resource depletion, price trend
0
the call for a new economic model is getting louder. The 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2013
quest for a substantial improvement in resource performance
across the economy has led businesses to explore ways to items, metals, and energy.
reuse products or their components and restore more of their 2 Data for 2013 are calculated based on the average of the first three months of 2013.
precious material, energy and labour inputs. A circular Source: Grilli and Yang; Pfaffenzeller; World Bank; International Monetary Fund; Organisation for
Economic Cooperation and Development (OECD) statistics; Food and Agriculture Organization of
economy is an industrial system that is restorative or the United Nations (FAO); UN Comtrade; McKinsey Global Institute analysis
regenerative by intention and design. The economic benefit
of transitioning to this new business model is estimated to be
worth more than one trillion dollar in material savings. At the same time, price volatility levels for metals, food and
non-food agricultural output in the first decade of the 21st
century were higher than in any single decade in the 20th
The limits of linear consumption century.2 If no action is taken, high prices and volatility will
likely be here to stay if growth is robust, populations grow and
Throughout its evolution and diversification, our industrial urbanize, and resource extraction costs continue to rise. With
economy has hardly moved beyond one fundamental three billion new middle-class consumers expected to enter
characteristic established in the early days of industrialization: the market by 2030, price signals may not be strong or
a linear model of resource consumption that follows a extensive enough to turn the situation around fast enough to
take-make-dispose pattern. Companies harvest and extract meet this growth requirement.
materials, use them to manufacture a product, and sell the
product to a consumer, who then discards it when it no Other trends indicate that the power of the linear model is
longer serves its purpose. This is truer now than ever. In reaching its limits:
terms of volume, some 65 billion tonnes of raw materials -- In modern manufacturing processes, opportunities to
entered the economic system in 2010, and this figure is increase efficiency still exist, but the gains are largely
expected to grow to around 82 billion tonnes in 2020.1 incremental and insufficient to generate real competitive
Recently, many companies have also begun to notice that advantage or differentiation.
this linear system increases their exposure to risks—most -- An unintended consequence of eco-efficiency has been
notably higher resource prices and supply disruptions. More accelerating energy use and resource depletion due to the
and more businesses feel squeezed between rising and less rebound effect which has negative impacts when improve-
predictable prices in resource markets on the one hand and ments to energy and resource efficiency drive increases in
high competition and stagnating demand for certain sectors the real amounts of materials and energy used.3
on the other. The turn of the millennium marked the point
when real prices of natural resources began to climb -- Agricultural productivity is growing more slowly than ever
upwards, essentially erasing a century’s worth of real price before, and soil fertility and even the nutritional value of
declines [Figure 1]. foods are declining.
Towards the Circular Economy: Accelerating the scale-up across global supply chains 13-- The risk to supply security and safety associated with long, -- Manufacturing service improvement. Across their supply
elaborately optimized global supply chains appears to be chain, Renault has identified areas to work with suppliers
increasing. to realise more circular benefits, which would be shared
between Renault and their suppliers. For example, Renault
-- Many production sites with excessive requirements for
has worked with their cutting fluid supplier to shift from a
virgin resources—water, land or atmosphere— are
traditional purchase transaction to a service model.
struggling to renew their licence to operate as they
Previously, Renault bought the cutting fluids for their
compete in sensitive local resource markets.
machining centres as a standing order from the
Against this backdrop, business leaders are in search of a manufacturer, but serviced the fluids in-house. The cutting
‘better hedge’ and many are moving towards an industrial oil had to be changed frequently due to impurity and
model that decouples revenues from material input: the incurred significant waste. Inspired by previous successes
circular economy.4 Analysis of circular setups in with circular principles, Renault asked the supplier to
manufacturing in Europe shows that the longer-term benefits provide maintenance services for the cutting equipment,
would be highest in the materials-intensive automotive, including fluids, supply and waste disposal. The
machinery, and equipment industries.5 One of the early manufacturer’s engineers went back to the lab, redesigned
adopters of the circular economy in the automotive industry is the fluid and usage process, and extended Renault’s
the French car maker Renault. usage period to a full year, yielding a total cost of
ownership reduction of 20%. This saving also does not yet
Renault, has adopted circular principles across their
take into account the avoided cost for upgrading the waste
business. The following examples illustrate the kind of
water treatment plant given that the full fluid service leads
operational changes they have made, and the economic
to a reduction of 90% of the discharge volume of the plant
benefits realised.
for this particular function. The supplier was able to turn a
-- Remanufacturing. Renault’s remanufacturing plant in commodity product into a differentiated solution to capture
Choisy-le-Roi near Paris, France, employing 325 people, the first-mover advantage and lock in a service contract
reengineers different mechanical subassemblies, from with Renault.9
water pumps to engines, to be sold at 50 to 70% of their
-- Access-over-ownership business model. Renault
original price, with a one-year warranty. The
became the first car maker to lease batteries for electric
remanufacturing operation generates revenues of US$ 270
cars to help retain the residual value of electric vehicles (to
million annually. The company also redesigns components
encourage higher consumption) and make batteries fully
(such as gearboxes) to increase the reuse ratio and make
traceable, ensuring a high collection rate for closed-loop
sorting easier by standardizing components. While more
reengineering or recycling.
labour is required for remanufacturing than making new
parts, there is still a net profit because no capital expenses In the words of Philippe Klein, Renault’s Executive Vice
are required for machinery, and no cutting and machining President, Product Planning, Programs & Light Commercial
of the products, resulting in no waste and a better Vehicle Division:
materials yield. Renault has achieved reductions of 80%
for energy, 88% for water and 77% for waste from
“The circular economy now impacts our business in a
remanufacturing rather than making new components.6
positive way. The peaks in raw material costs, similar to those
-- Managing raw material streams. Renault is moving to experienced in 2004 (when steel price rose 40% in one year)
maintain tighter control of their raw materials by developing have had a serious impact on production costs. It is
ways to better retain the technical and economic value of extremely difficult to price this volatility, as it does not
materials all along the car’s life cycle. represent an immediate functionality for the customer.
Therefore, closed- loop recycling is an important lever of risk
-- As well as actively managing a flow of quality materials
management for the company. Another example is re-
dismantled from end-of-life vehicles and enhancing
manufacturing of parts: the profitability of Choisy le Roi is far
actual recycling processes, Renault also adjusts the
higher than the average profitability of Renault’s industrial
design specifications of certain parts to allow closed-
sites. If you look at Choisy as an individual business unit, the
loop or ‘functional’ recycling. This makes it possible to
business model is already very profitable.”10
turn end-of-life vehicles into high-grade materials
appropriate for new cars and avoid downcycling.7
-- Renault works with recyclers and waste management
companies—including a steel recycler and Suez
Environnement/Sita—to incorporate end-of-life
expertise upfront into product design and provide
access to a steady supply of components and
materials.8
14 Towards the Circular Economy: Accelerating the scale-up across global supply chainsFrom linear to circular— Figure 2: The circular economy—an industrial system that is restorative by
design
Accelerating a proven
concept Biological materials Technical materials
A circular economy is an industrial
system that is restorative or regenerative
by intention and design. It replaces the Mining/
end-of-life concept with restoration, materials
manufacturing
shifts towards the use of renewable
Farming/
energy, eliminates the use of toxic collection1
chemicals, which impair reuse and Parts
return to the biosphere, and aims for the Restoration
manufacurer Recycle
elimination of waste through the Biochemical
Refurbish/
superior design of materials, products, feedstock Product
manufacturer remanufacture
systems and business models.11
Such an economy is based on a few Service provider
simple principles, as shown in Figure 2.
First, at its core, a circular economy
aims to design out waste. Waste does Biogas Cascades Reuse/redistribute
not exist: products are designed and Maintenance
optimized for a cycle of disassembly Anaerobic
and reuse. These tight component and digestion/ Collection Collection
product cycles define the circular composting2
economy and set it apart from disposal Extraction of Energy recovery
and even recycling, where large biochemical feedstock2
amounts of embedded energy and Leakage—to
labour are lost. Second, circularity be minimized
Landfill
introduces a strict differentiation
between consumable and durable
components of a product. Unlike today,
consumables in the circular economy 1
Hunting and fishing
are largely made of biological 2
Can take both postharvest and postconsumer waste as an input
Source: Ellen MacArthur Foundation circular economy team drawing from Braungart & McDonough and Cradle to Cradle (C2C)
ingredients or ‘nutrients’ that are at least
non-toxic and possibly even beneficial,
and can safely be returned to the These principles all drive four clear-cut The power of cascaded use refers to
biosphere, either directly or in a sources of value creation that offer diversifying reuse across the value
cascade of consecutive uses. Durables arbitrage opportunities, i.e. ways to take chain, as as when cotton clothing is
such as engines or computers, on the advantage of the price difference reused first as second-hand apparel,
other hand, are made of technical between used and virgin materials then crosses to the furniture industry as
nutrients unsuitable for the biosphere, [Figure 3]: fibre-fill in upholstery, and the fibre-fill is
such as metals and most plastics. later reused in stone wool insulation for
These are designed from the start for The power of the inner circle refers to
construction—substituting for an inflow
reuse, and products subject to rapid minimizing comparative materials use
of virgin materials into the economy in
technological advance are designed for vis-à-vis the linear production system.
each case—before the cotton fibres are
upgrade. Third, the energy required to The tighter the circle, i.e. the less a
safely returned to the biosphere.
fuel this cycle should be renewable by product has to be changed in reuse,
nature, again to decrease resource refurbishment and remanufacturing and The power of pure inputs, finally, lies in
dependence and increase systems the faster it returns to use, the higher the the fact that uncontaminated material
resilience (to oil shocks, for example).12 potential savings on the shares of streams increase collection and
material, labour, energy and capital still redistribution efficiency while
For technical nutrients, the circular embedded in the product, and the maintaining quality, particularly of
economy largely replaces the concept associated externalities (such as technical materials, which in turn
of a consumer with that of a user. This greenhouse gas (GHG) emissions, extends product longevity and thus
calls for a new contract between water and toxicity). increases material productivity.
businesses and their customers based
on product performance. Unlike in The power of circling longer refers to
today’s buy-and-consume economy, maximizing the number of consecutive
durable products are leased, rented or cycles (be it repair, reuse, or full
shared wherever possible. If they are remanufacturing) and/or the time in
sold, there are incentives or agreements each cycle. Each prolonged cycle
in place to ensure the return and avoids the material, energy and labour
thereafter the reuse of the product or its of creating a new product or
components and materials at the end of component.
its period of primary use.
Towards the Circular Economy: Accelerating the scale-up across global supply chains 15Figure 3: Sources of value creation for the circular economy How it works up close—Case examples
… the inner circle … circling longer of circular products
These arbitrage opportunities are already creating so much
value at the company level that the circular economy concept
has clearly emerged from the shadows as a ‘niche’ approach.
Given its potential value, however, the circular economy has
only begun to scratch the surface.
The
power of … Substantial savings are possible at a company level, as an
… cascaded use across … pure/non-toxic/easier-to-
industries separate inputs and designs increasing number of reference cases demonstrate. Many
companies as diverse as Ricoh, Philips, H&M, Trina Solar,
and Vodafone are using different forms of circular arbitrage,
and are able to capture more value over time.
$ $ $
-- Ricoh—Resource recirculation in the inner loop.Ricoh,
provider of managed document services, production printing,
office solutions and IT services, established the Comet
SOURCE: Ellen MacArthur Foundation circular economy team Circle™ in 1994 as a catalyst for reducing environmental
These four ways to increase material productivity are not merely impact. It embodies the belief that all product parts, for
one-off effects that will dent resource demand for a short example for copiers and printers, should be designed and
period of time when these circular setups are introduced. Their manufactured such that they can be recycled or reused. The
lasting power lies in changing the run rate of required material company established the GreenLine label as a concrete
intake. They can therefore add up to substantial cumulative expression of its commitment to resource recirculation, with an
advantages over a classical linear business-as-usual case. emphasis on inner-loop recycling. GreenLine is now offered in
six major European markets and has quickly become a
Figure 4: A circular economy would not just ‘buy time’ success story because it increases customer choice, while
but also reduce the amount of material consumed to a also keeping pace with Ricoh’s new equipment sales.
lower set point According to Ricoh, GreenLine has grown rapidly (5% from
Effect of circular system on primary material demand in widget market
2012 to 2013), now accounting for 10 to 20% of Ricoh’s unit
Volume of annual material input required sales in these markets and earning a margin one-and-a-half to
1,500 two times higher than Ricoh’s new products. GreenLine
products allow Ricoh to reach non-traditional market
1,000 segments such as smaller businesses, and make Ricoh’s
Virgin material substituted offers more attractive for traditional enterprise customers,
by circular material
500 which helps stabilize market share in a market with heavy price
competition. In addition to remanufacturing, the company
0 refurbishes and upgrades pre-owned machines.14
2010 20 30 40 50 60 70 2075
Demand BAU Demand under circularity
For products that cannot be remanufactured, refurbished,
or upgraded, Ricoh harvests the components and
Effect of circular system on material stock and landfills recycles materials (at local facilities). Ricoh is starting to
Cumulative volume of material used
explore crushing materials to ship back to manufacturing
25,000 facilities in Asia for use in new component production. The
In use
20,000 company is on track to reach their targets to reduce the
15,000 input of new resources by 25% by 2020 compared with
10,000 2007 levels, and by 87.5% by 2050, and to reduce the use
5,000 of—or prepare alternative materials for—the major input
0
materials for products that are at high risk of depletion (e.g.
2010 20 30 40 50 60 70 2075 crude oil, copper and chromium) by 2050.
BAU material stock BAU landfilled
-- Philips—Lighting as a service. Philips has a track record
Material stock Landfill under circularity in the collection and recycling of lamps. For example, in the
under circularity
EU, Philips has a stake in 22 collection and service
SOURCE: Ellen MacArthur Foundation circular economy team
organizations that collect 40% of all mercury-containing
The two Towards the Circular Economy reports published by lamps put on the market and with a recycling rate greater
the Ellen MacArthur Foundation provide ample evidence that than 95%. In order to enhance collection of lighting
circularity has started to make inroads into the linear equipment, Philips recently started to also sell lighting as a
economy and has moved beyond proof of concept. A service. Philips says they can reach more customers if they
number of businesses are already thriving on it. Innovative retain ownership of the lighting equipment as customers
products and contracts designed for the circular economy don’t have to pay high upfront costs and Philips ensures
are already available in a variety of forms—from innovative the sound environmental management of end-of-life
designs of daily materials and products (e.g. biodegradable lighting equipment. It’s a new way for customers to achieve
food packaging and easy-to-disassemble office printers) to their sustainability goals: high lighting performance, high
pay-per-use contracts (for tyres for instance). Demonstrably, energy efficiency, and a low materials footprint.15
these examples have in common that they have focused on
optimizing total systems performance rather than that of a
single component.
16 Towards the Circular Economy: Accelerating the scale-up across global supply chains-- Vodafone—Offering consumers access. Vodafone is one -- Trina Solar, one of the largest solar panel manufacturers in
of the first movers in the ICT industry to capture the the world based in China, have started developing
benefits of the ‘access over ownership’ business model technologies and standards for recycling end-of-use
with its Vodafone New Every Year/Red Hot and Buy Back photovoltaic modules in anticipation of the obsolescence
programmes, which allow the company to strengthen their of first-generation panels. The reverse logistics operation
relationship with customers. Vodafone launched the New will mostly be located in end-usage countries. Glass will be
Every Year/Red Hot programme in 2013 and has been extracted from the modules and used for other glass
receiving very positive feedback from customers. The Buy applications, while the electronic control systems will be
Back programme is now being rolled out across all treated as waste of electrical and electronic equipment
Vodafone markets, while New Every Year is available in (WEEE).19 This will allow the company to reap the benefits
four markets currently (UK, Greece, the Netherlands and of secondary material value as well as remain compliant
Ireland). Vodafone works with a business partner to take with regulations.
care of the reverse cycle network, in which most devices
collected are transported to Hong Kong and China for Box 1: Opportunities in transitioning to a
sales in secondary markets.16
circular model
-- H&M—Collecting clothing for reuse and recycling.
The two Towards the Circular Economy reports published by
Starting in early 2013, H&M launched a global in-store
the Ellen MacArthur Foundation in 2012 and 2013 analysed in
clothing collection programme to encourage customers to
full depth the options for several different categories of
bring in end-of-use clothes in exchange for a voucher, an
resource-intensive products. The 2012 analysis—of complex
initiative also taken by Marks & Spencer with Oxfam in the
medium-lived products— showed that the use of circular
UK. To manage downstream processing of the clothes
economy approaches would support improvements such as
H&M collects, they collaborate with I:CO, an apparel
the following:20
reverse logistics service provider, which handles the
manual sorting for rewear, reuse, recycling or energy The cost of remanufacturing mobile phones could be
generation. I:CO’s biggest sorting facility in Germany reduced by 50% per device, if the industry made phones
employs 600 people, and the company also has plants in that were easier to take apart, improved the reverse cycle and
India and the US. Of the total clothing they collect, I:CO offered incentives to return phones.
estimates the average share that they select for marketing
High-end washing machines would be accessible for most
as rewear—second-hand clothes that are sold
households if they were leased instead of sold. Customers
worldwide—at 40 to 60%. At the next loop level, reuse
would save roughly a third per wash cycle, and the
accounts for another 5 to 10% on average: these are
manufacturer would earn roughly a third more in profits. Over
textiles no longer suitable for wear, which are cascaded
a 20-year period, replacing the purchase of five 2,000-cycle
into other products, including cleaning cloths, with very
machines with leases to one 10,000-cycle machine would
limited upcycling of fibres into textile yarns. Textiles that
also yield almost 180 kg of steel savings and more than 2.5
can’t be reused, 30 to 40% of the total on average, get a
tonnes of CO2 savings.
new chance as textile fibres or are used to manufacture
products such as damping and insulating materials in the In the fast-moving consumer goods sector, analysed in the
auto industry. When these three options have been 2013 report, circular opportunities were identified all along the
exhausted, textiles are used to produce energy; I:CO value chain: in manufacturing (food and beverages), in the
estimates the share of clothes collected that go to the distribution and consumption stages (textiles, packaging) and
outermost loop of thermal utilization at 1 to 3%. Both H&M in post-use processing (food waste). A number of
and I:CO have been working on increasing upcycling and opportunities have been identified, including the following:
functional recycling. H&M’s long-term aim is to find a
The UK could create an income stream of US$ 1.5 billion
solution for reusing and recycling all textile fibre for new
annually at the municipal level by processing mixed food
uses and to use yarns made out of collected textiles in
waste discarded by households and in the hospitality sector.
their products. The H&M surplus from the collection
programme will be donated to the H&M Conscious A profit of US$ 1.90 per hectolitre of beer produced can be
Foundation17, where they will fund innovations in reverse captured by selling brewers’ spent grains.
capabilities and other areas linked to closing the loop on
In the UK, each tonne of clothing that is collected and
textiles. The main revenue streams for I:CO come from the
sorted can generate revenues of US$ 1,975, or a gross
resale of clothing, especially the high-value garments
profit of US$ 1,295 from reuse opportunities. These are the
(including vintage), and materials cascading. For H&M, the
aggregate impact of clothes being worn again, reused by
benefits of the programme could possibly include greater
cascading down to other industries to make insulation or
in-store traffic and an increase in customer loyalty. For
upholstery stuffing, or simply recycled into yarn to make
jeans, H&M partners with a supplier in Pakistan to close
fabrics that save virgin fibre.
the loop on fibres. Collected end-of-use jeans are shipped
to partner facilities to be crushed and respun into fibres to Costs of packaging, processing and distributing beer
use as input to make new jeans (replacing 20 to 25% of could be reduced by 20% by shifting to reusable glass
virgin materials due to limitations in current mechanical bottles.
recycling practices).18
Towards the Circular Economy: Accelerating the scale-up across global supply chains 17You can also read
