1. The business of saving the planet

The business of saving the planet

The concept of ‘resource circularity’ can offer governments a roadmap to fulfil the aspirations of billions in a sustainable manner

By: and | Published: May 9, 2015 12:21 AM

A study published in the journal Science in 2013 estimated that about 8 million tonnes of plastic enters the oceans every year, creating a ‘soupy’ garbage vortex. That is enough plastic to cover every foot of coastline in the world. And plastic isn’t the only waste generated. A range of heavy metals and carcinogenic chemicals are slowly polluting every element of the biosphere. This waste stems from a human consumption model that is highly linear with its make-use-discard philosophy.

With an additional 3 billion people expected to enter the global middle class by 2030 (to which India is expected to contribute about 400 million), consumption will accelerate and so will the waste. The strain this will place on the planet will be unprecedented in human history.

India is already experiencing a steady degradation of its natural ecosystem. For instance, a WHO report of top 20 polluted cities in the world had 13 Indian cities. To be sure, sustainability is first a cultural problem. Grocery shopping in an SUV for food that has travelled hundreds of miles through a fossil-fuel-powered supply chain is not sustainable. However, even if we assume the cultural issue is resolved, the resource strain and waste generated will still be colossal. If soupy oceans, smoggy cities and barren forests is the price we have paid so far, then how do we sustainably induct an additional middle class 3-billion-strong?

The key lies in delinking resource consumption and economic growth, which effectively means lower resource consumption per unit of economic output. This can be achieved through resource circularity. Resource circularity entails creating closed loops where resources continuously move from one use to another, thereby fuelling consumption growth with far lesser resources. This can significantly reduce the need for virgin raw materials while eliminating waste as everything becomes an input for another user. This is profoundly different from recycling as seen right now, which typically results in progressive ‘down cycling’ of materials. For instance, plastic bottles get converted into polyester fibre for clothing, which may further be converted into insulation material, which ultimately ends up in a landfill. Resource circularity requires a biomimetic approach to design of products and systems such that materials may transform but do not lose their efficacy and are fully recoverable. Thus, even ‘harmful’ materials such as lead, cadmium, chromium, etc, can be safely put to productive use. While this is good news for the environment, how can businesses leverage resource circularity?

First, businesses can use resource circularity to develop a raw materials hedge. The past decade saw a significant increase in consumption of commodities. While global steel consumption grew at less than 1% year-on-year between 1980 and 2000, it grew at above 5% year-on-year in the subsequent 14 years. Global lead consumption was almost flat between 1980 and 2000 but grew at above 4.5% year-on-year from 2000 to 2014. This was also accompanied by a spurt in commodity prices: silver, tin, copper and lead prices jumped 4-5 times between 2000 and 2014. In this context, a raw materials hedge can be of significant value to businesses.

Renault, the French car manufacturer, created a refurbished spare parts business which refurbishes used engines, gearboxes and other components. It supplies them again as spares at 70% of the cost and with the same warranty. This has created a superior bottom line impact for Renault as waste and energy consumption reduced by about 70%. It refurbishes enough spares each year to support 60% of repairs in its dealer network.

Similarly, Ricoh created a new line of printers called GreenLine consisting of refurbished machines. With a similar performance and lower cost, this allowed Ricoh to access smaller businesses and diversify its customer base. GreenLine now has a healthy share of Ricoh’s volumes and has significantly superior margins (up to two times higher) compared to new products. In India, this can also be an effective mechanism to target price-sensitive markets in addition to insulating against vagaries of commodity prices. Developing such a hedge will require revisiting the product design, creating an efficient reverse supply chain and collaborating much more with suppliers and service channels.

Second, principles of resource circularity can help build a closed loop consumer loyalty and fundamentally change the relationship of manufacturers with their consumers. With the decreasing lifespan of consumer durables, arguably driven more by consumer choices than product obsolescence, there is an ever-increasing premium on stronger brands and faster product development cycles to retain consumer loyalty. A resource-circularity-based approach to product development can help create modular product platforms that can be easily upgraded or refurbished.

Desso, a global carpet manufacturer, has designed carpets that allow replacement of the top layer and backing material separately without discarding the carpet. In addition, the top layer and backing can both be recycled at the end of their life. This allows customers to choose from its vast designs at end of life without discarding the entire carpet. With selling and logistics costs as high as 20-40% and ballooning product development costs, this is a highly attractive proposition for consumer businesses. This significantly lowers ownership costs, guards against product obsolescence and, most importantly, signals continued interest post sale. This could be a significant proposition for value-conscious markets such as India. Creating such product platforms will require a new approach to product design, consumer needs, spares management and after-sales service delivery. The rewards, however, can be compelling.

Third, it can be a lever to drive disruptive innovation. While sustainability-led initiatives that focus on ‘efficiency’ and ‘improvement’ yield marginal benefits, resource circularity differs in its need to holistically revisit product design and processes.

The team at Splosh, a UK-based liquid soap manufacturer, recognised that liquid soap was 70-80% water, sold in containers that were not recyclable and harmed aquatic systems. In response, it created an innovative concentrated capsule which can simply be dissolved in warm water to get a container full of cleaning fluid which drastically reduces logistics and packaging costs. If required, customers can also buy a specially-designed dispenser that is fully recyclable (most containers contain additives, mixed plastics and printing ink which inhibit recycling) and reuse it. The soap itself is made from natural ingredients, resulting in safe effluents. Splosh today enjoys strong consumer support and visibility.

Resource circularity is also a common thread across many disruptive businesses such as Ostara Nutrient Recovery that extracts nutrients from waste water to produce fertilisers at a commercial scale. Similarly, Liquid Light and Skyonic have developed technologies that capture emissions and convert them into useful chemicals. The US-based Rubicon Global has developed a market place for waste contracts that allows businesses to gain the maximum value from their waste instead of viewing it as a liability. This challenges the ruling model of waste management that compensates players for tipping waste into a land fill, giving them limited incentives to invest in recycling technologies. These organisations have also received significant funding, signalling strong commercial interest.

Innovations in this space not only position businesses strongly in India but could also be the launchpad for their global ambitions or be equally applicable to global markets. This is an open and evolving space where early entrants could set the rules.

That the current way of life is unsustainable is beyond question. However, resource circularity can offer governments a roadmap to fulfil the aspirations of billions in a sustainable manner. It can set the right development tone as India looks to create 100 new smart cities and become a manufacturing powerhouse through the Make-in-India initiative.

The legislation on waste management, urban planning and environment management could undergo significant changes. The right government support could also help India establish leadership in this space and make it the epicentre of a new revolution. Businesses will need to move fast on this agenda to avoid being outmanoeuvred by a disruptive new entrant or being late to the market with a superior commercial model. But also they must move quickly to affirm their position as trustworthy stewards of the planet’s resources.

Ashish Iyer is head of Strategy and Sustainability Practice, Asia Pacific, and Gautam Patil is project leader, the Boston Consulting Group

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