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Circular economy: will the tech industry ever learn?

5 September 2012

In the face of planet-wide resource depletion and huge volatility in raw material pricing, it is time for the circular economy. The tech industry is well-placed to make this move. But will it? Fronesys in in discussion on the issue with the International Business Leaders Forum (IBLF).  

At a time when the arrival of a new phone from Apple promises to create an intense cycle of device replacement among millions of consumers across the world, it is worth asking whether such a cycle of economic activity – make, sell, use, throw away – really makes sense. Does it deliver value to the tech industry making products that are intensive in their raw material usage but short-lived? Does it make sense to the consumer who often throws away a perfectly usable product in search of product nirvana as espoused in global media advertising?

Business-as-usual (BAU) growth of ICT hardware and services is being driven by a combination of:

  • technological momentum, including ever increasing demand for communication bandwidth, access to sophisticated data sets, storage and computing power
  • the growth of the middle class in emerging economies.

Such ubiquitous connectivity brings with it many benefits, but also a number of dis-benefits. Market forces will naturally drive many of the benefits (social, economic and environmental), but the ICT industry can do much to address additional benefits that will not arise as a matter of business as usual, as well as responding to the negative sustainability impacts that result, directly and indirectly, from their operations and value chains.

Circular thinking

As the Ellen MacArthur Foundation laid out in its recent report, Towards the Circular Economy, “The call for a new economic model is getting louder. In the quest for a substantial improvement in resource performance across the economy, businesses have started to explore ways to reuse products or their components and restore more of their precious material, energy and labour inputs. The time is right, many argue, to take this concept of a ‘circular economy’ one step further, to analyse its promise for businesses and economies, and to prepare the ground for its adoption.”

The current economy is essentially linear: remove materials from the planet, make a product, use it, throw it away. While some recycling does take place, for many materials, including some very scarce ones, it remains the exception rather than the norm. Driving efficiencies into the linear economy (for example, lower cost manufacturing) has actually made it increasingly difficult to repair and reuse products.

The Ellen MacArthur Foundation report concluded that adopting a more circular economy approach, whilst being disruptive to many existing business models, actually offers a significant business opportunity. In Europe the report found even partial adoption of circular economy principles could provide a net material cost saving opportunity of up to USD 630 billion per annum. In China, concerns surrounding resource scarcity led to the adoption of a Circular Economy law in 2009.

“Instead of the goal of maximum linear growth in GDP,” said Ian Cheshire, CEO of Kingfisher / B&Q, “we should be thinking of maximum wellbeing for minimal planetary input. That starts to challenge business to go beyond efficiency gains, useful though they are, and really redesign their business models. The wellbeing challenge also forces us to think about our total impact as a business rather than the narrow shareholder value lens, since businesses that do not create broader social value will again not survive the longer term.”

Benefits

The technology industry could be (or arguably should be) at the vanguard of the circular economy for a number of reasons:

  1. It is dependent on a number of scarce materials and is exposed to availability constraints and price volatility.
  2. ICT equipment often becomes obsolete long before it fails – in fact the industry has often been accused of built-in obsolescence.
  3. The ‘cloud’ is already offering ‘infrastructure as a service’ (IaaS) – typical of the new business model thinking surrounding the circular economy.
  4. ICT applications will underpin information systems for reverse logistics, remanufacturing and material recovery – all critical to the circular economy transition.

As Gavin Pattersion, chief executive of BT Retail pointed out, “Digital technology will play a crucial role in providing the information needed to create iterative logistics and restorative systems”. In agreement with this view was Chris Dedicoat, president, EMEA, Cisco: “The Circular Economy is a blueprint for a new sustainable economy, one that has innovation and efficiency at its heart and addresses the business challenges presented by continued economic unpredictability, exponential population growth and our escalating demand for the world’s natural resources.”

So what sort of impacts should we see if the Circular Economy were to work in practice?

  • New business models
  • Using the circular economy model as a tool to drive improvement and innovation
  • Application of ICT as an enabler of the circular economy
  • Increasing levels of reuse and remanufacture
  • Addressing obsolescence
  • Collaboration across the industry to drive action
  • Minimising risk exposure to critical environmental factors such as resource scarcity

Such thinking may not help Apple’s new iPhone 5, but surely we must put the mechanisms in place so that the iPhone 6 and its peers from across the industry offer a new social contract between the tech industry and the consumer.

Want to chat further? Get in touch with Fronesys and the IBLF.

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