The Principle Paradox
In recent weeks, the topic of design and business principles for the Circular Economy have come up again and again in conversations with clients. We have been mulling over how best to create a general, simplified set of principles to help decision making. Though there are many complications, we think there is one principle which will work for all businesses.
The complexity of creating principles stems from the fact that, in almost every situation, there are nuances which give the evaluators some flexibility with assessing impact. For example, Life Cycle Analysis (LCA) methodology requires the selection of a reference frame, which is inherently subjective. Clearly the costs associated with the analysis will increase with every new calculation, so it becomes a balancing act: where can we get the answer closest to that which we would like without having to pay through the nose for it.
Secondly, the position of a company within a value chain changes the ability to make demands of the suppliers and educate the customers. Chemical companies and retailers, for example, have a very different set of stakeholders and revenue generation models. However, both companies will have some similar departments, be required to show value to shareholders and to report on Environmental, Social and Governance (ESG) activities.
This led us to take a market-based view of the Circular Economy and consider how a principle could drive economic growth while continuing to improve the circularity of material and product use. Through a natural progression, we found ourselves considering the biggest economic driver, purchasing power of business and the public purse. From this consideration, we derived the principle:
‘When purchasing, secondary raw materials should be prioritised over virgin materials.’
A simple statement, but one which is loaded. The common objections are:
- The quality and consistency are uncertain
- Virgin material costs less
- I don’t know how much secondary raw material has been used
- There isn’t any available
- Doesn’t the processing mean that they have a greater environmental impact
Each of these points is valid, but they can all be overcome with increased demand in the market. Quality and consistency of materials have a greater uncertainty because the technical processing of the material is done with a variety of inputs and at varying scales. More money in the market will lead to increased demand for products to be collected and processed. Market improvements will follow and, subsequently, technology required to provide better quality and consistency will be considered an investment.
At present, virgin material is cheaper because its price does not reflect the externality costs that it has on the planet. Although you are not paying in the procurement phase you are likely to pay in other ways such as via insurance premiums, offsetting environmental impact elsewhere or through absences and downtime.
The principle we have drawn out here is certainly not the answer to everything, but if there is a greater shared push to request higher quantities of quality secondary raw material, the market will respond. For many, the immediate response is to focus on creating a platform for trading wastes (possibly an industrial symbiosis network). This will help to increase communication and transparency in the market. Examples of this exist across Europe where trials are being carried out, however, they are not yet proven or scalable.
So where can we start? Here are two options:
Proactive sourcing - identifying where sources of raw material are likely to be available as waste (we have all seen examples of fishing nets being used in shoes). Alternatively, working with key trusted suppliers to identify where more secondary raw materials could be included.
Passive sourcing - in the next Request for Quotation (RfQ) specify criteria which prioritise the use of secondary raw materials and favour them in higher quantities*. This is already being done in some areas such as packaging.
Both are required, and though some organisations will not have the resources to proactively tackle the issue, the increased appetite to pull secondary raw material through the market will stimulate the response for someone to provide a suitable option.
If you want to increase the amount of recycled content in your product get in touch with me, firstname.lastname@example.org, and we can discuss the topic in more specific detail .
*the correct use of secondary raw materials should not hinder the properties or expected performance of a product.