Consumer Goods Companies are Sitting on an Additional 2.5 Trillion Dollars of Value
Business and individuals alike are used to the linear model of “take, make, dispose”. This is illustrated by the enormous landfills we have, open dump sites and waste leakage into the ocean. While this may have been sustainable with an agrarian economy, the industrial revolution has ballooned our demand for resources and over stretched the Earth’s capacity. Today humanity uses the equivalent of 1.6 Earths to provide the resources we use and absorb our waste. And this amount is expected to double by 2050.
In addition, when primary materials run out, they… run out. This poses price risks globally that we are already seeing the effects of. Price volatility for metals and agricultural output in the last decade was higher than any one decade in the 20th century. Waste generation rates in developing markets, particularly in Asia, are growing exponentially. Take Indonesia which currently generates a staggering 175,000 tonnes of material ‘waste’ every day (64 millions per year). The majority of these resources are just dumped into landfill. As incomes and consumption grows, the number can only get higher, fast.
Money down the drain
This outdated and inefficient linear model does not make economic sense for businesses – an estimated US$ 2.5 trillion (about 80% of the total value) of the global consumer goods sector is lost annually. A switch to a circular economy can save companies over US$1 trillion a year by 2025 if companies focus on supply chain, distribution and brand communications that increase recycling, reusing and remanufacturing.
For example, most plastic is used once and thrown away – the equivalent of US$80 to 120 billion is thrown away every year (about 95% of the value of of plastic packaging material) when it could be recycled.
Instead of “take, make, dispose”, the Circular Economy aims to keep materials in use for as long as possible. The image below illustrates the different ways in which organic materials (left side) and inorganic materials (right side) can be used sustainably. For example, in the case of a phone, we should prolong it’s use, reuse it, refurbish or repair it and finally, recycle it to extract raw materials for further manufacturing. The objective is to stop the material from entering the ecosystem (ie keep the materials out of landfill, dumps, or oceans) and instead keep it in circulation.
Today, plastics use an enormous 6% of the world’s oil production today and pose one of the biggest threats to the environment. As seen from the image below only 2% of all plastic produced is recycled “closed-loop” where the material used to make, say a bottle, ends up recycled into another bottle. Another 8% of plastics are downcycled into items like carpets, shirts and furniture. The majority (86%) is not recycled.
This doesn’t have to be the case, and Gone Adventurin has seen first hand how implementing a circular approach to plastic can help reduce environmental impact, help people come out of poverty, and make good business sense – as summarised by Gone Adventurin’s CEO, Ashwin, below.
Every year 27 million tonnes of electronic products are put on the market in Asia (nearly half the global amount!), and this number is growing by 29% each year. And while OECD countries have increasingly legislated for the proper collection and treatment of e-waste, most Asian countries are only now waking up the scale of the challenge. Add to this illegal transboundary movements of e-waste and we get “dumping grounds” due to waste from developed countries being shipped to developing countries for illegal and unsafe “backyard recycling”. Globally only 15.5% of e-waste (electronics) are recycled responsibly. Given that Asia is almost half of all electronic sales, it’s not surprising that Asia now generates the highest proportion of e-waste in the world.
This is particularly baffling, since most of the materials required to manufacture electronic gadgets are rare-earth metals which are in short supply and will soon run out (see image below).
Luckily, new legislations are being enacted to ensure collection and proper resource recovery, and companies that manufacture these goods are starting to create take-back programs where consumers can return the waste. And it won’t be a moment too soon.
The beginning of change
All this wasted money isn’t going unnoticed – businesses are starting to realise the value in a circular economy where products are designed with the end in mind. Where they can be sorted, processed, converted to raw materials and used again for manufacturing. Rethinking supply chain practices and making recycling more accessible to consumers are two prongs of this approach.
Unilever’s “I want to be Recycled” is a good example – by educating and creating awareness amongst their consumers, they are able to drive higher recycling rates and work towards their goal of using 25% recycled plastic content in their packaging.
In Taiwan, used coffee grounds collected from Starbucks cafes are made into T-shirts, socks and soaps. Levi Strauss has also done the same, through in-store collection of old clothes and shoes from any brand, they get a steady supply of raw material that can then be transformed for other uses like insulation for buildings and even cushioning material.
In a collaboration with OpenIDEO, Coca-Cola crowdsourced ideas in 2014 on how recycling rates can be increased at home. From this came “How do I recycle this?” in 2015: an application where consumers can scan a product’s barcode & input their postcode to get up to date information on how to recycle an item.
And with the increasing trends of open innovation and collaboration, businesses are also tapping on startups to find solutions to drive the circular economy. “Looptworks” for example, repurposes leftover materials from premium goods manufacturers to make new products. In 2014, they partnered with Southwest Airlines to up-cycle its seat leather into soccer balls and bags. Another example is LanzaTech that “uses a patented microbe technology to convert carbon-rich wastes and residues into fuel and chemical products”. They have also partnered with Boeing to produce low carbon jet fuel from ethanol derived from this process.
The Case in Asia
In Asia, the challenge is two fold – on the one hand, consumers are not aware of the need to recycle and on the other, the infrastructure for waste (materials) collection and processing is nowhere close to achieving population coverage (for example in many developing markets only 60-70% of the population is served by formal waste collection services). Though the per capita waste is low, the sheer scale of our continent and the fact that 2/3rds of the world lives in Asia, makes this especially challenging and critical. In addition to redesigning products to be recyclable and awareness campaigns, infrastructure development and incentives are also needed.
The environmental and economic case for moving from a linear economy to a circular economy are not only practical, but are increasingly being demanded by consumers and governments around the world. While old habits die hard, global trends are driving businesses to rethink product design, supply chains, collection systems, consumer education, partnerships with governments and the waste management sector, etc. The solutions exist today. What is needed is the management will and the desire to bring about change on a large scale.
Co-written by Nicholas Eng, Laura Allen, and Abishek Balasubramanian.