The Business of Sustainability: Why Adopting Circular Economy Practices Can Lead to Growth
At a recent meeting on climate and sustainable development, Maria Fernanda Espinosa, president of the United Nations’ General Assembly, stated this startling fact: “We are the last generation that can prevent irreparable damage to our planet.”
Climate change, with its alarming predictions, has made headlines over the past year, including this one by the World Health Organization: climate change will lead to an additional 250,000 deaths each year due to heat stress, malnutrition, diarrhea and malaria between 2030 and 2050.
Its effect is being increasingly felt by companies, too. Climate change leads to a list of problems for businesses including harsher working conditions, damage to infrastructure and other assets, a lessened supply of raw materials, and, ultimately, a dent on profits. Unfortunately, cities in Southeast Asia (SEA) are in the direct line of fire for climate change.
According to data by Verisk Maplecroft, if unaddressed, climate change could result in a projected 3 per cent loss of regional gross domestic product (GDP) by 2050, more than the 1 to 2 per cent loss estimated of the global GDP. Two of the top cities that are rated “extreme risk” in terms of highest financial risk to climate change are from SEA: Jakarta in Indonesia (US$223 billion) and Manila in Philippines (US$166 billion).
As a result, ASEAN (the Association of South East Asian Nations) governments are waking up the dangers of climate change and other environmental issues on their societies, and are pledging to do more to support sustainability efforts across industries. Yet, sustainability is still an oversight for many SEA corporations — rather than a serious objective to imbue into their core strategy. According to a new United Nations report on Asia Pacific’s Sustainable Development Goal (SDG) progress, nearly half of the SDG indicators in which progress is likely to worsen by 2030 are environmental, including hazardous waste generation and greenhouse gas emissions.
This needs to change — and one key method is for businesses to go circular.
Transitioning into a circular economy
A relatively unknown concept a decade ago, the circular economy has grown to become a solution for many businesses looking to implement a sustainability policy while capturing value through growth and capital. Regenerative or restorative by design, the circular economy is aimed at extending the life of all goods and materials used in our societies so as to curb waste and pollution.
In “Going Circular: How Global Business is Embracing the Circular Economy,” a research report by Newsweek Vantage in collaboration with UL, it was found from surveying over 300 senior executives from large corporations globally that 98 per cent were familiar with circular economy and 30 per cent are adopting a circular strategy. Unlike the traditional linear economy, which is geared toward disposal once the product is used or consumed, the circular economy’s intent is to eliminate waste. For companies, it offers a tangible opportunity to consider resource efficiency and create value — all while helping to preserve the environment.
For ASEAN, the circular economy model comes at an opportune time when its economy is burgeoning thanks to export-led growth. The region’s rapid industrialization and urbanization have made it, alongside China and India, the world’s largest consumers of minerals, ores, biomass and fuels, according to a report on the circular economy by the Economic Research Institute for ASEAN and East Asia (ERIA).
Following a linear economy model, these consumed resources may ultimately end up as waste and pollutants, contributing adversely to the environment. Alternatively, one of the primary benefits of the circular economy is its focus on reducing the dependency on the resource market and instead reusing, remaking, remanufacturing and recycling.
One example is the Net-Works initiative in the Philippines. Launched by flooring company Interface, it buys discarded nylon fishing nets from the local communities and recycles them into new carpet tiles. Not only does this prevent the nets from being thrown into the sea and killing marine life, but it also lessens the use of virgin materials and gives the communities an impetus to participate in the circular economy.
This form of remanufacturing can go a long way in its environmental, social and economic benefits, too. In a report by the World Circular Economy Forum, remanufacturing can save 80 to 99 per cent of materials and also reduce a similar share of greenhouse gas emissions.
The circular economy can also be a value driver for businesses. To prevent wastage, companies will have to rethink how products are designed, made and used to prevent waste and that will involve a complete reconsideration of its production process. Thankfully, we have technology to aid us and with the transition toward the fourth industrial revolution, or Industry 4.0, businesses can reconfigure processes and prioritize reducing, reusing, remaking, recovering and renewing. In the long term, this could spawn new green processes and jobs for the economy, leading to greater efficiency and competitive advantage.
The ERIA has projected that the adoption of circular economy principles could lead to economic growth of US$324 billion and create 1.5 million jobs across Asia over the next two decades. As a result, more nations are sitting up and paying attention to their sustainability goals. In Singapore, the Singapore Management University has launched SEA’s first sustainability major to promote the understanding of the topic in the subregion as more companies commit to a sustainability strategy.
Instilling sustainability practices
Despite the positive sentiments around circular economy, the world is still far from being circular. The “Circularity Gap Report” found that the world is only a mere 9 per cent circular. To instill a circular economy, governments, businesses and consumers have to first understand repercussions of not prioritizing and championing sustainability.
With ASEAN’s contrasting stages of development, each market has to analyze the climate risks and implement sustainability frameworks on national and business levels to execute the appropriate change. The Malaysian government, for instance, has issued guidelines on bringing sustainable and responsible investment funds into the financial system to promote corporate practices that embrace environmental and social practices.
Instead of waiting for policymakers to act, companies can take the lead in devising a long-term, company-wide sustainability strategy. However, the Newsweek and UL report found that a challenge businesses are facing is understanding what a circular company looks like and measuring circularity. This is where standards for performance measurement and reporting are required to better understand how to optimize systems and identify areas for improvement.
Businesses can partner with their peers and suppliers across the supply value chain to share resources and cut back on usage of materials, too. They can tap on new technologies as well to engineer new sustainable solutions. For example, recycling technology can be used for hard-to-recycle materials, such as certain types of plastics.
Altogether, there is still plenty to be done across SEA to attain a greener future. Apart from accelerating the transition to a circular economy, businesses have to fundamentally change the way they function. It will not be easy, but the benefits gained can lead to a brighter future for generations to come.
The writer is VP & GM of UL Asean and ANZ.