Kapila Mehta, Sustainability Vice President of Power Products at Schneider Electric, explores a win-win solution for profitability, partnerships, and the planet.
Countries around the world continue to face the economic crisis left over by the implications of the COVID-19 pandemic. With pressure to recover growth, governments are looking for more sustainable solutions, and will play a critical role in fostering long-term resiliency to withstand future crises. Many companies have taken a head-on approach to growth following the COVID-19 pandemic, but the surge in energy prices has intensified the need to cut costs. The dilemma companies in this situation often face is how to manage growth sustainably.
If we want to map out a clear road to recovery and ensure a safe and balanced future, sustainability and circularity should be at the top of our minds and embedded into our solutions. However, according to the latest Circularity Gap Report, only 7.2 percent of the global economy is circular, dropping even lower than pre-pandemic levels of 8.6 percent in 2020. Despite this, countries are demonstrating an effort to create more circular economies. In 2021, ASEAN announced its own circular economy framework comprising actions that include harmonising circular products and services. Creating more efficient and sustainable products will help to reduce energy and resource consumption, drive higher repairability, and minimise waste – all working to reduce cost. With more than 80 percent of a product’s environmental impact determined during the design phase, this process needs to start from a product’s inception.
BEING ‘FRUGAL’ CAN BE PROFITABLE
There is an assumption that reusing, recycling and refurbishing products may not be a profitable way of doing business. However, contrary to popular belief, it is possible to run a profitable business whilst protecting the planet. When businesses rethink their models with circularity in mind, they can make products faster as they require fewer materials. This is a significant advantage when it comes to being ‘frugal’, especially when raw materials have soared in price by 18 percent compared to this time last year. It also mitigates the risk of material shortages due to supply chain issues, ensuring that businesses continue to hit targets despite disruption.
The new business model of choice will be end-to-end circularity. The key to getting customers on board is demonstrating the right value proposition and showing the benefits of giving products a second life. By investing time and energy in planning, educating the market, and increasing awareness of skills and resources, we can spread the benefits of a circular mindset.
DEMONSTRATING WHAT CIRCULARITY LOOKS LIKE
Buying a re-manufactured product does not only have a positive impact on reducing carbon emissions but also on the consumption of raw materials and minerals. At Schneider Electric, we have created a new sustainable model where products can have a second life thanks to re-industrialisation. For instance, the Schneider Electric MasterTech site has been re-industrialising MasterPact circuit breakers since 2020. The circuit breakers are collected, disassembled, upgraded, and tested before being put back on the market. Being based in the factory where new products are made means that circular circuit breakers meet the same rigorous quality control standards as new products. It is estimated that by recycling and reusing products, we were able to reduce emissions by approximately 45 percent, resulting in savings of 755 kilogrammes (kg) of CO2 per MasterPact.
NEW WAYS OF WORKING INTRODUCE NEW CHALLENGES
Taking one step further beyond repurposing parts is reverse circularity. It refers to the process of reintroducing waste materials back into the production cycle. The aim is to reduce waste and conserve resources, and involves taking end-of-life products or waste materials and turning them into new products or raw materials. By closing the loop in the production process, minimising waste and reducing environmental impact, reverse circularity is another way companies can reduce their reliance on virgin materials and conserve resources.
However, circularity creates new pain points for businesses. For example, implementing a circular economy can be a difficult decision for vendors due to the challenge of reverse logistics, which can be up to 11 times more expensive than traditional logistics. This is due to the cost of returns, transportation, repairs, and reselling. To counter that, designing and producing products for services with a higher level of repairability would help to ease this new pain point, and hopefully reduce costs and dead inventory.
TURNING BARRIERS INTO LADDERS FOR OPPORTUNITY
Despite the challenges, circularly can bring new opportunities for partnership and innovation. Developing a new circular system hinges on nurturing new partnerships and evolving business models. Exploring the right partnership is crucial at the start and organisations should look to ‘recycler’ partners as a first step. These are exemplary model companies who are already active in the field and have mastered reverse logistics.
Business partners also play a vital role in building out and driving circularity across the full value chain. By establishing an industrial ecology – or utilising all available or useful material and turning one person’s trash into another person’s treasure – we can create a win-win situation for our partners and the planet.
Businesses can generate new revenue streams and save on operating expenses by creating upgradable offers that are circular and easily repairable. Furthermore, sustainable product packaging is a really big part of circularity. Making the transition away from single-use plastics to 100 percent recycled packaging is just one example of how small changes can forge a better, and more circular future.
Approaching sustainability as a business can seem daunting, and it was only recently that more companies started incorporating sustainability into their strategies and targets. The advantage of the circular economy framework is that it can be applied to any type of business and sector, and it addresses pressing global issues like climate change, minimising waste, and pollution. If we want to bring a net zero world to life, we must look at how each element of our take-make-waste system can be improved. This spans from how we collect and distribute resources, the production and use of products, and how we process those materials afterwards. Our vision of a sustainable future can only be materialised if it is a circular one.