US Green Building Council: 5 Megatrends in the Circular Economy

Leading companies like USGBC members Veolia, Philips and Cisco are shifting from the traditional linear “take, make, dispose” business model to a more regenerative circular economy framework. This transformation employs a systems level approach and intentional strategy to design waste out of the system and to manage materials for longer circulation and greater re-usability. The goal is to generate more value and economic opportunity with less material and energy consumption.

Value from the circular economy is generated using four principles:

• The power of the inner circle: staying in the inner loops to save in terms of embedded resources and impacts.
• The power of circling longer: keeping materials in play through multiple cycling or by lengthening cycling duration to save on virgin material inputs.
• The power of cascaded use: transforming materials across product categories to offset the need for virgin material inputs.
• The power of pure materials: designing better products to facilitate reverse logistics and maintain material quality.

The business case for making the transition to circular economy and unleashing these values is strong. Here are five megatrends, as described in Retail Horizons (a joint project of Forum for the Future and the Retail Industry Leaders Association), that should help bolster the circular economy.

1. Resource scarcity: Today we consume resources 50% faster than they can be replaced and by 2030 we’ll need more than 2 planets to meet demand. Resource scarcity will increasingly lead to volatility in material and energy prices. And still, we are wasting potentially recoverable material. In Construction and Demolition for example, only 20-30% of recyclable materials such as steel and concrete are recovered, largely as a result of poor building design. Companies that use the powers of the “inner circle,” “circling longer” and “cascaded use” will keep raw materials in play for numerous cycles, through designing products for durability, disassembly and re-purposing. And companies like Veolia that use technologies to cost-effectively recover, identify and sort materials will re-introduce precious materials into the economy efficiently. This should take pressure off of ever-dwindling raw materials. The circular economy could generate over $1 trillion of annual savings globally by 2025. 
   
2. Urbanization and the built environment: Over half the world lives in urban areas and that trend will continue to grow. In the US, the urban population increased by over 10% from 2000-2010 and by 2025 the largest US cities will generate more than 10% of global GDP growth. By 2030, more than ½ the global population will live in emerging market cities with even more concentrated urban growth in countries such as China. According to the Ellen MacArthur Foundation’s “Towards a Circular Economy,” concentration of populations in urban areas will unlock economies of scale needed to enable collecting and treating post-consumer materials for re-deployment. Urban concentration should also allow the cost of asset-sharing services to decline and thus expand opportunity for the collaborative economy and its associated “power of the inner circle.”
3. Empowered consumers and the ubiquity of data: With greater access to data and social media, consumers will have more information on product impacts and greater expectations around product sustainability performance. Havas Media’s “Meaningful Brands” reported the majority of consumers believe brands should help solve social problems and improve quality of life. The World Economic Forum’s “Engaging Tomorrow’s Consumer” shows that millennials prioritize environmental impacts in their buying decisions. Similarly, the Regeneration Roadmap study highlights a large class of consumers they term “Aspirational” that enjoy shopping but don’t want to harm the planet in the process. Approaches like Cisco’s Internet of Everything will help companies to get better insight into consumer behavior, communicate directly with the consumer, and facilitate more sustainable purchasing, product use, and disposal. With the right data, consumers can be instrumental in co-creating products and services that are designed to eradicate waste. Today’s consumers can become tomorrow’s suppliers in the circular system.
4. Rise of the sharing economy: According to Retail Horizons, “Rather than buying new products to consume, people are increasingly sharing or renting things…this trend could grow and continue to create a new form of consumer economy in which experiences and access to items are more desirable than ownership.” In the US alone, there is already a $26 billion sharing economy and globally more than 1/3 of millennials are using an asset-sharing service. Where there is excess capacity, trust, critical mass and technology to connect markets, this trend should continue to grow. The sharing economy leverages the “power of the inner circle”, keeping products cycling in the market for as long as possible. Crowd Companies™ “Collaborative Economy Honeycomb” illustrates market opportunities emerging in this space. Consumers’ acceptance of renting or leasing versus owning products is good news for business lines like Philips lighting services that are offering function over ownership. Companies adopting this “green servicing” business model will have greater opportunity to manage the material flows of their products, create new business value and eradicate waste from the system.
5. Community reliance: Retail Horizons describes the trend of self- and community reliance where people “cherish the things they build more than the things they buy” and strive to provide more of their own basic needs rather than depending on multinational corporations and institutions. The increase in farmer’s markets, community gardens, and makers markets are just some of the signals of the movement. Moving towards more localized and self-contained markets offers great opportunity for people to live the Circular Economy founding principle of “Waste is Food” first-hand. Presumably, as people grow, make, and manage end-of-life of products on their own, they should have greater incentive to extract as much value as possible from their materials. Technologies that enable people to be more self-reliant can also enable closing the loop. Companies in the Built Environment sectors will find business opportunities in helping communities to activate localized circular economies.

Originally published by the U.S. Green Business Council on April 10, 2015