The first era of sustainability, call it sustainability 1.0, focused on cleaning up the planet鈥檚 growing environmental mess. Federal legislation restricted air and water pollution, as well as hazardous waste, and businesses adapted to the new regulations. Sustainability 2.0 took a broader perspective, reducing not just toxic waste, but waste of all kinds. The business community realized that less waste meant less cost and pitched in, often increasing efficiency and boosting profits in the process.
But throughout this era of growing environmentalism, the linear business model, which has dominated the modern world since the industrial revolution, remained fundamentally unchanged. 鈥淭ake, make and dispose,鈥� is what Ken Webster, head of innovation at the Ellen MacArthur Foundation, calls it in his recent book,聽The Circular Economy: A Wealth of Flows.
What Webster and others are now advocating is something far more radical than recent efforts to reduce waste. In its purest form, Sustainability 3.0 鈥� the circular economy 鈥� emulates the natural world. Allen Hershkowitz is a veteran recycling advocate at the Natural Resources Defense Council and co-founder/president emeritus of the Green Sports Alliance. He noted in his opening keynote address at the Wharton conference, The Circular Economy: From Concept to Business Reality, 鈥淚n nature, there is no waste. One organism鈥檚 waste becomes nutrients for another organism.鈥�
In the same way, the circular economy moves past the notion of consumable products, viewing manufactured goods that have outlived their usefulness as 鈥渘utrients鈥� that help feed further production. The concept of waste disappears and irreplaceable natural assets are conserved as product lives are extended and new products are generated from the remains of old ones.
Gary Survis, a Wharton lecturer and IGEL fellow, moderated the Circular Economy conference. He noted in his opening remarks that this new approach 鈥渞epresents an incredible opportunity for business.鈥� But Survis also pointed out that realizing this potential demands 鈥渄isruptive innovation鈥� 鈥� in technology, manufacturing, supply chains, and business models, as well as in business culture and society at large. 鈥淚t is early days yet,鈥� Survis said. But the momentum is building fast, as major corporations 鈥� including Dow Chemical, Caterpillar, H&M and Phillips 鈥� eagerly embrace the concept of the circular economy.
Preserving the Value of Manufactured Products
At its heart, the circular economy is about preserving value. Traditional recycling reduces waste but salvages only a small fraction of a manufactured product鈥檚 potential benefit. According to Helga Vanthournout, senior expert with McKinsey & Co.鈥檚 Center for Business and the Environment, when you recycle a product after a single use, 鈥淵ou lose all of the value-added 鈥� from the energy, labor and assembly 鈥� that were added through the manufacturing process.鈥�
A 2013 report by the Circular Economy Task Force, 鈥淩esource Resilient UK,鈥� offers a dramatic example. The study found that a reused iPhone retains around 48% of its original value whereas recycling its components retains just 0.24%. Less-complex manufactured products offer less dramatic, but still substantial returns. Reusing a ton of textiles, for instance, retains 9.6% of the original value compared to recycling (0.4%).
Recycling also comes too late in the process to address the environmental harm caused by manufacturing itself. As Hershkowitz notes, 鈥淢ore than 90% of a product鈥檚 impact happened before you opened the package.鈥�
The business community is growing increasingly enthusiastic about the potential benefits of the circular economy, both for the environment and for the bottom line. Instead of limiting their sustainability efforts to increasing efficiency (i.e., reducing waste), more and more companies are focusing on ramping up productivity, the ability to produce more without using up more resources (or incurring more cost). As Survis pointed out, it is early in the process, but already circular-economy pioneers are succeeding on a number of fronts.
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