Subramania Raju Rajasulochana, Assistant Professor, Area of Finance & Strategy, T A Pai Management
Established in 1980, T A Pai Management Institute is a private autonomous business school and the second B-School in India to get global accreditation to the Association to Advanced Collegiate Schools of Business (AACSB).
Circular Economy seems to have caught the attention of Indian government, as well as the business leaders alike. According to a recent study report by FICCI-Accenture, India can reap the benefits of half a trillion dollar worth of economic value chain by 2030 through the use of Circular Economic Model. The NITI Aayog CEO Amitabh Kant acknowledged the importance of circular economy for improving resource efficiency and meeting India’s growth needs of job and wealth creation. The businesses are adopting circular economy business models as a practical strategy to ‘hedge’ against the complex and interconnected risks of resource competition, commodity price volatility, new materials technologies and changing consumer demands.
"The 2018 FICCI-Accenture Report observed that there is no standard model that applies across all industries, but there exist opportunities in diverse forms"
Essentially, the circular economy business models seek to eliminate any kind of waste in the market. These innovative models encourage a shift from linear `take, make, dispose' industrial processes to multi-life-cycle `circular' value chains, thereby enabling more efficient and fuller utilization of resources. The Ellen MacArthur Foundation defines a circular economy as `an industrial system that is restorative or regenerative by intention and design. It replaces the end-of-life concept with restoration, shifts towards the use of renewable energy, eliminates the use of toxic chemicals, which impair reuse and return to the biosphere, and aims for the elimination of waste through the superior design of materials, products, systems and business models'.
Circular Economy Business Models
Five Business Models to Mainstream Circular Economy
1. Circular Supply Chain: Provide renewable energy, bio-based or- fully recyclable input materials to replace single life-cycle inputs. For example, BASF is replacing finite fossil resources with sustainably produced renewable resources through its innovative production Verbund Biomass Balance approach.
2. Recovery & Recycling: Recover useful resources/energy from disposed products or by-products. For example, Nike reuses and recycles footwear manufacturing scrap and post consumer shoe wastage, converting it into raw material for other sports equipment manufacturing players.
3. Product Life Extension: Extend working lifecycle of products and components by repairing, upgrading and reselling. For example, Patagonia launched an online store where customers trade-in their used clothing in return for store credit, thereby extending the life of products.
4. Sharing Platform: Enable increased utilization rate of products by making possible shared use, access or ownership. For example, Airbnb operates as an online marketplace for people to lease or rent shortterm lodging, facilitate tourist experiences or make restaurant reservations.
5. Product as a Service: Offer product access and retain ownership to internalize benefits of circular resource productivity. For example, Philips offers lighting as a service, wherein users are required to pay for the consumed intensity (rather than for the product).
Resource Constraints as an Opportunity
For an emerging economy like India that is growing at 7-8 percent per year, there is a huge demand-supply gap as well as intense strain on resources. For instance, around five percent of the Indian population lack access to drinking water while 50 percent of Indians do not have sanitation facilities yet. As per 2018 WHO report, 22 Indian cities figure in the list of world’s worst cities for outdoor pollution. And the concept of circular economy seems to be the way out for decoupling economic growth, wealth creation and employment generation from resource constraints. Ellen MacArthur Foundation in alliance with Indian government, businesses and United Nations Conference on Trade and Development (UNCTAD) in a report published in 2016 compared India’s current development scenario with that of a circular economy. The report suggested that India has the potential to achieve annual value of Rs.14 lakh crore ($ 218 billion) in 2030, if it adopts circular economy approaches.
The 2018 FICCI-Accenture Report observed that there is no standard model that applies across all industries, but there exist opportunities in diverse forms. For instance, there is $1 billion of value that can be realized from the extraction of gold from e-waste in Urban India. Likewise, there is huge potential for plastics recycling in India, where 40 percent of plastic waste remains uncollected. There is a potential to generate 14 lakh jobs through proper waste management and could potentially represent a $2 billion opportunity. Another prospective is steel recovery from end of life vehicles. There is over 8 mn tons of steel that can be potentially extracted from end of life vehicles in India in 2025, representing a $2.7 billion opportunity. Further, it can contribute to India’s import bill of $120 billion on crude oil by moving towards biobased fuels and push towards electric vehicles.
Enabling Ecosystem Needed
The huge promising potential of circular economy can be realised only with an ecosystem that fosters the spirit of disruption and innovation. Such an ecosystem would require five conditions: one, awareness and openness among consumers, entrepreneurs, designers, engineers, procurement officers, and product managers towards innovative interaction models associated with circular economy. Two, emerging disruptive technologies such as IoT, 3D printing, bio-based materials would be critical in accelerating a shift towards circular economy business models. Third, conducive policy landscape is needed to promote and incentives behavioural change like Zero Defect, Zero Effect, Plastics waste management rules, E-waste rules, BIS standards for circular economy principles. Fourth, need for financing initiatives through Green Bond or Innovation fund to drive R&D and capital investments. Lastly, collaboration, alliances and partnerships across different players like MSMEs, government, urban local bodies, NGOs and consumers would be required for circular economy business models to be successful and sustainable.