The benefits – for people, planet, and producers – of moving towards greater circularity are huge. Business needs to seize them.
After the long, dark, hibernatory months of the Danish winter, April heralds renewal. Bird song and blossom. Sunshine and springtime. It is also, fittingly, the month where we commemorate this spinning orb we all call home – April is Earth Month; with Earth Day on the 22nd. We all know the seriousness of the situation when it comes to our climate.
Towards the end of March, the Intergovernmental Panel on Climate Change – as part of its Sixth Assessment Report – gave us yet another reminder of where we are at. As The Guardian put it – the report “took hundreds of scientists eight years to compile and runs to thousands of pages, but boiled down to one message: act now, or it will be too late.” Relatedly, the end of March – the 28th, to be exact – also saw Denmark’s Overshoot day: the day on which our consumption exceeded the Earth’s capacity to regenerate those resources over that year.
Waste reimagined
Finite resources. Growing demand. Something needs to change. And that is why, this year, Deloitte’s focus for Earth Month is Waste Reimagined. A brief summary of where we are at shows the scale of the problem – 91% of plastic is never recycled; the equivalent of one garbage truck of clothes is burned or dumped into landfill every second, and globally, around a third of all the food which we produce is wasted. Not only is this not environmentally sustainable – it is also economically wasteful.
Circular economy
We need to be moving, at speed, in the direction of a circular economy. This entails a much more holistic approach to consumption: where the commodities we purchase remain in use for longer, and reusing, refurbishing, repairing, and recycling all become the status quo.
In short, the circular economy increases the life cycle of products – lessening our collective impact on the Earth’s resources – whilst creating more value. Sadly, we’re currently moving in the wrong direction. Deloitte collaborates with the global impact organisation Circle Economy to produce the Global Circularity Gap Report each year. The most recent report shows that the circularity of the global economy has decreased – it is now only 7.2% circular. This is less than was the case in 2018 – when the corresponding figure was 9.1%. A report analysing the circularity situation in Denmark will be released in the coming months – we can safely assume it will show that more needs to be done.
Consensus on circularity
Amidst all of this, of course, there is a strange paradox: one would struggle to find anybody who thinks the current, linear economic model is beneficial – to people or planet. We know that consumers care about sustainability. This is particularly pronounced amongst the young generation – our Gen Z and Millennial Survey shows that, for both these age cohorts in Denmark, climate change is the most important issue. We know that CxO’s in boardrooms care about sustainability – the latest of our CxO Sustainability Reports showed beyond all doubt that the climate crisis is a topic of concern, and prompting action, in boardrooms across the Nordics and further afield. We know that the market is paying ever-growing attention to sustainability – as I outlined in a previous blog, “ESG is now becoming a major part of the valuation and the risk calculations in M&A”. And yet the situation is not improving at the pace we need. Why is this the case? What is happening?
What is going wrong
Part of the explanation is down to incentives, and the fact that externalities are simply not being priced in as they should be. The consequence of this means that it is often more economically advantageous for firms to use new materials, rather than reuse or revitalise old ones. But even though we are far from where we need to be, things are only heading in one direction – economic and environmental directives are aligning.
A change is coming
I predict that – in much the same way as consumers in recent years have become increasingly discerning when it comes to the climactic impact of their purchases – circularity will become something of a badge of honour for first-mover firms.
Sustainability will become a competition parameter – the slow, polluting, environmentally harmful producers will be left behind, as products that last longer and do not impart a heavy toll on the planet will become consumers’ preferred options.
The circularity revolution needs regulation. The state needs to set the rules of the game – but not introduce more bureaucracy. We recently collaborated with Geelmuyden Kiese, creating The UnSustainability Report, documenting all the factors holding back the green transition – and bureaucracy was a significant one.
If we can avoid that, the good news is that this will set the stage for a mutually beneficial relationship between the private and the public. Because reimagining waste and making our economy more circular is not just environmentally necessary – it will also be hugely economically beneficial.
The EU’s Circular economy action plan shows that increased circularity within the bloc could create around 700,000 jobs, whilst increasing the profitability of manufacturing firms, insulating them from fluctuating commodity prices. Closer to home, an Ellen MacArthur Foundation report sketched out the myriad economic benefits which could accrue to Denmark – from jobs to GDP, whilst our carbon footprint will fall. Circularity is going to be the norm in coming years – reimagining waste today will deliver a big benefit to the first-mover firms, one that will benefit the producers, the consumers, and the planet itself. What’s not to like?
Forfatter spotlight
Majbritt Skov
Spørg mig om: Samfundsøkonomi, økonomisk modellering og ESG i et kommercielt perspektiv Majbritt er partner i Deloitte og leder af Deloitte Economics. Hun har mere end 15 års erfaring med udarbejdelse af mikro- og makroøkonomiske analyser for både den private og offentlige sektor. Majbritt er en efterspurgt økonomisk rådgiver i strategiske beslutningsprocesser om optimering og effektivisering. Majbritt er ekspert i at beregne organisationers impact og kan sætte kroner og ører på bæredygtighed. Ydermere bistår hun virksomheder og investorer med at værdisætte ESG-relaterede risici og muligheder i både et kommercielt og samfundsøkonomisk perspektiv - blandt andet i relation til M&A. Besøg Majbritts blog her Ask me about: Socio-economic impact, economic modelling and ESG Majbritt is a partner in Deloitte and Head of Deloitte Economics. She has more than 15 years of experience with conducting micro and microeconomic analyses for both private and public sector clients. Majbritt is an experienced economic advisor in strategic decision-making processes focusing on optimization and effectivization. She is an expert in the valuation of non-market goods and supports companies and investors in assessing their impact and the value of sustainability and ESG-related risks and opportunities from both a commercial and societal perspective - in relation to M&A amongst others. Visit Majbritt's blog here