The principles of a circular economy: What are they and how can they be designed into a business model?
What are the circular economy and linear economy? Why is the circular economy important?
A circular economy is defined as an economy that is restorative and regenerative by design. In a circular economy, economic activity builds and rebuilds overall system health and the resources will be circulated many times before reaching its end of life. This is a contrast to our current economy – the linear economy where we take resources from the ground to make products, which we use, and, when we no longer want them, throw them away. Simply put, this can also be called the “take-make-waste” economy.
Apparently, our current way of doing things is reaching its limits. The system of the linear economy will soon no longer work for businesses, people, or the environment. The natural resources are getting limited and our waste and emissions keep accumulating over time. Earth Overshoot Day marks the date when humanity’s demand for ecological resources and services in a given year exceeds what Earth can regenerate in that year and this date in 2021 is July 29. Putting Vietnam into perspective, 900 landfill sites across the country are getting overcrowded and we cannot keep resorting to deforestation to make the place for these sites in the city outskirts.
It is high time for the emergence of a circular economy. How can we do that? Just imagine companies are like dots along the circle and form a network between suppliers and customers. This network can either be organized as a straight line between natural resources and landfills (linear economy) or creating a perpetual cycle of value with zero waste (circular economy). We need myriad business models to align together to create circular value chains and sectors, ultimately a true circular economy can take its shape in Vietnam.
From circular economy to circular business model
One way to be able to understand the circular economy better is to see it through its three fundamental principles and how these principles can be applied in building circular business models.
The first principle of the circular economy is to design out waste and pollution. We need to consider waste and pollution as design flaws rather than inevitable by-products of the things we make. By changing our mindset and harnessing new materials and technology, we can ensure they’re not created in the first place or used in circularity. So what does that mean for a circular business model? Business owners can aim to source products and materials from the economy, not from ecological reserves – for example- opt for suppliers providing recycled materials, or reused parts or products, rather than virgin items.
The second principle is to maximize the time that products and materials are kept in use. We can design products to be reused, repaired, or remanufactured. But making things last forever isn’t the only solution. When it comes to products like food or packaging, we should be able to keep them in circulation, so they don’t end up in landfills. So what this means for a circular business model is, to create value for customers by adding value to existing products and materials. This can involve a combination of restorative technological processes (like upgrading, upcycling, repair, sorting, or processing) and design processes (like branding or incorporation into a service). Also, a circular business model should create valuable inputs for businesses beyond their customers as the economy doesn’t stop at their customers. If the materials and products they sell have no value or purpose after their customer is done using them, they become waste, and thus become a cost to society, and beyond that – our environment. They should aim to strive to create value for downstream businesses.
The third principle is to regenerate natural systems. A circular economy avoids the use of non-renewable resources and enhances renewable ones, for instance by returning valuable nutrients to the soil to support regeneration, or using renewable energy as opposed to relying on fossil fuels. This principle should be applied especially in agriculture-related businesses.
Case study of Glassia – a circular business model
With the vision of fostering a circular economy in Vietnam, Evergreen Labs have successfully developed many sustainable business models in the past five years. In this case study, we will dive into how the principles of the circular economy have been incorporated into the business model of Glassia – our recently launched venture in March 2021.
Glassia is a social enterprise transforming the linear supply chain of bottled water into a fully circular system. Our full-service offering ensures that bottles are recollected, sterilized, and refilled for full circularity and zero-plastic use. As opposed to current PET plastic water bottles which are single-use and with less than 30% collection rate in Vietnam the chances that they will end up back into recycling streams are low. Other glass bottled waters are either imported or do not get refilled which means they actually have a higher environmental footprint than plastic. Our first bottling facility is located in Danang city and will soon be followed by additional facilities throughout the country.
The first principle – to design out waste and pollution: In terms of packaging, we eliminate label waste by opting for direct print on the bottle, instead of using a plastic or paper label. This however limited us in the printing technology options and ultimately, printing suppliers, so we worked hard to source suitable, high-quality suppliers. While this cost can be higher upfront, it becomes negligible once the bottles are in reuse. Besides, Glassia minimizes emission from transportation by designing our business model to be locally focused with one bottling in each province. Our local approach reduces CO2 emissions typically associated with imported waters or centralized bottled water production.
The second principle – to maximize the time that products and materials are kept in use: Besides our fully circular reuse system, we also offer businesses optional branding of their own bottles to ensure the products will be in use as long as possible. To keep the materials in use for downstream businesses, Glassia makes sure broken glass bottles and aluminum caps will also be recycled. For broken bottles, we are setting up a city-wide glass collection program where collected bottles would be transported back to the manufacturer, melted, and made into new bottles. We also encourage our customers to return aluminum caps with the bottles so we can consolidate and send them to the recycling center.
The third principle – to regenerate natural systems: This principle has not been applied in our business model yet, however, Glassia tries to maintain the lowest environmental footprint including using minimal electricity.
Glassia is just one example of a circular business model that can earn profit by offering a unique solution to the customer needs and then creating a positive environmental impact. Circular business models can come in all shapes and sizes. Hence if you are a business owner at the moment, we suggest you should analyze your business model first to see if any of the above-mentioned principles can be applied for adjustment. On the other hand, if you have an entrepreneurial spirit and want to open your own business soon, your journey can kick off today by zooming into the value chain that you are interested in and figure out the opportunities for a circular business model.
Join the circular economy movement with us!