The idea of the circular economy is so intuitive that it’s astonishing we haven’t adopted it more fully yet.
Our home planet has finite material resources and delicate environmental balances, so surely a commerce system that promotes recycling and reuse rather than landfill and waste incineration is a no-brainer.
Yet landfill and incineration remain our default setting, and the linear economy approach of “buy it, use it, throw it away” is the only real option available for consumers. Household recycling exists in some places, but the model is broken: The majority of what we buy is simply not fit for reuse and is destined to end up in a hole in the ground or as noxious smoke.
The circular economy: Saving tomorrow, today
A circular economic model is designed to minimize, and even eliminate, waste by only building products, services, and supply chains that are hard-coded with the logic of recycling. Simply put: If it can’t be reused, it doesn’t get made.
This model is not an innovation – it’s been hiding in plain sight forever – it’s exactly how natural ecosystems work.
So, what is stopping the circular economy from becoming a reality?
Why are we failing to put this idea into action – especially when environmental concerns are becoming a burning priority?
Two big perceived barriers have blocked our way so far:
- It’s massively complicated to fix: our current system is too entrenched to change.
- No one has the power and influence to implement it.
But no more. We have arrived at a point where the technology, the sense of purpose, and the concentration of influence are now configured to make this happen.
It’s going to be a long journey, but we are finally ready to begin.
How to make the circular economy a reality
The first driving force of the circular economy will be transparent supply chains.
The second will be enlightened consumer choices.
The third will be change-enabling leadership by purpose-driven corporations and institutions.
A transparent supply chain means securely capturing, storing, and making visible all the embedded environmental impacts and costs of the goods and services in the supply chain.
It’s already happening to a limited extent – think of the FairTrade foundation or the SAP/FRDM partnership against forced labor – but to reach a critical mass it needs to be scaled-up and widely embraced by retailers and manufacturers. This scale-up is now viable: Distributed ledger technology (a.k.a. blockchain), coupled with IoT tracking and a global-standard data model are the necessary ingredients, and all of them are available today.
Know your stuff (and where it comes from): Enlightened consumer choice
A transparent supply chain enables the next step in the circular economy: Enlightened consumer choice means linking backend and frontend systems to show buyers – whether private householders or corporate procurement managers – a summary of the environmental impact data of all the products they’re browsing, allowing them to make informed choices about the true costs of what they buy.
It’s up to them whether they select circular or linear products. But my hunch is, given a clear choice, many purchasers will look beyond price and add welfare and sustainability to their selection criteria.
There are two crucial enablers for this. First, the circular-friendly options offered should be convenient to use and buy. The long history of commerce tells us that, above all else, humans are creatures of convenience.
Second, the choice should be offered in a non-judgmental way. Emotion is a poor basis for strategic decisions, and encouraging the switch to circular will not work if it’s a guilt trip. First and foremost, it must be a logic trip and a convenience trip.
Interestingly, a relatively small group of spenders hold an immense amount of power in this equation. World Bank figures show that just 16% of consumers (a.k.a. the high-income group) are responsible for 67% of household spending. When those consumers start to act with enlightened self-interest and demand circular products, change will inevitably follow.
Those consumers are you and me.
We will be nudged into action by a handful of major global companies and institutions who hold the various keys to this puzzle.
Companies like SAP, whose systems and data models touch 77% of the world’s total transaction revenues and over $20 trillion of consumer spending each year; companies like Amazon and Alibaba, which have risen to dominate retailing and now own significant supply chain networks in their own right; companies like Google, whose search technology plays a fundamental role in making the world’s data visible and accessible; companies like Unilever, whose commitment to ethical and sustainable business shows the way forward for rest of the consumer industry; and institutions like the UN, whose 17 Sustainable Development Goals provide a coherent and ambitious framework in which we can all act and measure our progress.
If we can dream it, we can do it. The time has come for purpose-driven businesses to be bold and make the circular economy a reality.
Learn more about SAP’s sustainability and corporate social responsibility (CSR) focus, an outgrowth of our purpose to help the world run better and improve people’s lives.