The Circular Economy - April 2021 - Trajectory Partnership
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Contents Contents About this report This report sets out to examine the current dynamics and future Summary 3 prospects for the circular economy through looking at examples of brands adopting to circularity. Implications 4 Introduction 5 Sector Study: The Fashion Industry 10 Charitable Lost Cause 14 Conclusion 17 References 18 2
Summary The climate crisis demands radical solutions and the transition to a circular economy (based in reuse and recycling) represents a revolution in how products of all types are made. Many governments are now creating legislative frameworks that will enable – and enforce - the transition to a circular model. The concept of ‘planned obsolescence’ is anathema in an era in which we move towards the reuse and recycling of goods. Consumers – increasingly alarmed at the reality of climate change – broadly support policy makers in wanting to reduce waste and live more sustainably. The circular economy will energise extant secondhand and reselling platforms while many brands are likely to have a new relationship with consumers as the customer journey is extended into resale, repair and refurbishment. Ultimately, the ambition of moving to a circular economy by 2050 can only be achieved by international cooperation and the ability of political and business leaders to persuade consumers to buy more thoughtfully. 3
Implications Consumer Business Government be welcomed. welcomed. welcomed. • Consumers may have to adjust to some • The ‘right to repair’ and the demise of • COP 26 in November is likely to act as a products becoming more expensive as planned obsolescence extends product catalyst in generating further new measures manufacturing processes change. lifetimes which will impact future sales. This to support the circular economy. may be offset by an efficient resale / repair business. • Categories like ‘fast fashion’ begin to look • The circular economy requires global very last season. Consumption of many solutions and binding agreements to force products is accompanied by guilt. • Greater regulation of manufacturing change. Organisations like the EU and the processes and a likely increase in red tape. UN need to act as brokers to bring In some cases, the manufacturing process countries together. • Consumers have many more options in will change significantly. disposing of unwanted items as reselling platforms multiply. Giving to charities is no • Governments need to support new longer a default option. • Some brands will compete not just with rival recycling initiatives - including doorstep brands but with their own secondhand and collection schemes - to capture and reuse reconditioned products sold via third electrical and electronic items. • A gradual change in consumption habits as parties. consumers become more thoughtful in what they buy. Ultimately, they may • There is the potential for new taxes to purchase fewer but better-quality items. • Renting infrequently used or unsold luxury discourage waste and encourage items becomes a greater commercial recycling. opportunity. • Geopolitics. Recycling more materials like rare earths and lithium reduces the West’s dependency on countries like the Democratic Republic of Congo and China. 4
Introduction “…the circular economy is in fact our guarantee for sustainable growth of our economies.” – European Commissioner Virginijus Sinkevicius, Brussels, March 2020. The circular economy is defined in different ways. According to Eurostat: “The purpose of a circular economy is to maintain the value of products, materials and resources for as long as possible by returning them into the product cycle after they have reached the end of their lifecycle, while minimising the generation of waste.” The Ellen McArthur Foundation defines it as; “…a systemic approach to economic development designed to benefit businesses, society and the environment. In contrast to the ‘take-make-waste’ linear model, a circular economy is regenerative by design and aims to gradually decouple growth from the consumption of finite resources.” In short, the circular economy is about recycling more and discarding less. A very traditional example of the circular economy is the use of spent grain from the brewing process as feed for cattle, pigs, sheep and chickens. The soggy mass of ground kernels created by brewing can account for over 80% of the byproduct. More generally, moving the global economy from a linear to a circular model requires a revolution in the way that we make and consume products. This revolution is essential if we are to achieve pressing carbon reduction goals and to live more sustainably. The move to a circular economy will impact almost all businesses. 5
History What goes round comes round: there is nothing new about the circular economy. The concept has been discussed since the 1970s. The concept was codified by the German chemist Michael Braungart and the American architect William McDonough in their 2002 book, Cradle to Cradle: Remaking the Way We Make Things. Their legacy lives on through a Cradle to Cradle certification scheme that is supported by Amazon, Walmart and The Home Depot in the United States. Walgreen Boots Alliance also recognizes C2C certification, describing themselves as; “…working to enable consumers to make informed choices by encouraging suppliers to obtain credible certifications(…such as Cradle to Cradle Certified) and to make it easy for consumers to find these more sustainable products.” As the concern about climate change and sustainability has grown in recent years, the circular economy has again come to the fore. Consumers are modifying their own behaviour in response to the climate crisis and in many cases they are trying to cut down on waste (for both environmental and financial reasons). At the same time governments are increasingly creating legislation to boost recycling. These forces will only become more intense in the future. How big is the circular economy? In the EU, Eurostat have been measuring the size of the circular economy through the ‘circularity rate’ (the share of material recovered and fed back into the economy). In 2019 the rate of circularity in the EU was 11.9% - an increase of 3.6 percentage points from 2004. The circularity rate is lower than most recycling measures because it covers some types of materials that can’t be recycled. Eurostat gives the following examples of materials that are counted in the circularity rate; “…food and fodder, and fossil fuels used for energy production or for material use – e.g. plastics, buildings, infrastructure and vehicles.” The circularity rate can be increased in two ways – by recycling more and by using less raw materials and resources in the first place. For example, renewables boost the circularity rate when they replace fossil fuels as sources of energy generation. 6
The circularity rate varies widely across Europe – from 28% in the Netherlands to 1.5% in Romania. The UK’s circularity rate was 17% in 2019. In the summer of 2020, the not-for-profit group, Circle Economy, estimated that the global economy was 8.6% circular. The Netherlands has committed to having a fully circular economy by 2050. While they currently lead Europe in this transition, Circle Economy believes four key measures are required to lift their CR to 70%: • Construction. Stop demolishing buildings and ensure that building methods are centred on renovation and reuse of materials. • Agriculture. Prioritise waste reuse and local trading, such as stopping the import and export of animal products and using food waste to feed livestock. • Energy. Increase use of renewable energy and phase out fossil fuels. • Manufacturing. Double the current material use of the repair sector, as well as the amount of high-value recycling and the share of recycled materials in imports. Clearly, these are measures that all countries will have to adopt. Which brings us neatly to the right to repair. 7
It’s right to repair e-Waste In March 2021, the UK government announced new energy efficiency Apple’s change of heart over hardware repairs may have been legislation. Part of the legislation tackles ‘premature obsolescence’ driven - in part - by the increasing problem of eWaste. According to through obliging manufacturers to make spare parts available to the UN, the world produces as much as 50 million tonnes of consumers – a legal right for repairs. The intention is to extend the electronic and electrical waste a year. Only about 20% of this is lifespan of products by up to a decade. According to the formally recycled. Meanwhile, as much as 7% of the world’s gold government, the UK generates about 1.5 million tonnes of electrical may currently be contained in e-waste. Other rare and valuable waste each year. Commenting on the legislation, Business and Energy materials such as platinum, cobalt and rare earth elements are Secretary, Kwasi Kwarteng said: “Our plans to tighten product being lost through e-waste. In an effort to arrest the growing standards will ensure more of our electrical goods can be fixed rather problem, the Nigerian government, the Global Environment Facility than thrown on the scrap heap…” and UN Environment have partnered to formalise the e-waste In Australia the Productivity Commission – a branch of government – is recycling business that operates in Nigeria, making it more efficient also looking at a right to repair. Specifically, they have been asked to: and improving conditions for the 100,000 people who work in the “…look at arrangements for preventing premature or planned product industry. Each year half a million tonnes of e-waste are processed in obsolescence and the proliferation of e-waste through improved the country. access to repairs.”7 The Commission is due to report to the Australian There is a geopolitical element in making better efforts to reclaim Government in October 2021. rare materials from waste as the US National Intelligence Council In February 2021, the European parliament voted in favour of makes clear in its recent assessment of the world in 2040; “…a shift to establishing a right to repair as part of a broader set of circular renewable energy will increase competition over certain minerals, economy initiatives. Policies may appear later this year. particularly cobalt and lithium for batteries and rare earths for magnets in electric motors and generators. As actors race to As more countries enact measures on the right to repair, brands have develop new renewable energy technology during the next two started to respond. In August 2019, Apple announced a new decades, they will focus on countries that supply these minerals, Independent Repair Provider Programme which means that it will; such as the Democratic Republic of Congo and Bolivia.” “…provide more independent repair businesses – large or small – with the same genuine parts, tools, training, repair manuals and diagnostics as its Apple Authorized Service Providers.” Previously, Apple’s position was that independent menders lacked the skills and experience to properly repair an iPhone. A growing (and global) right to repair movement may have helped in changing their mind. 8
Recondition Some manufacturers are aware that profligate waste is a looming ESG issue. There is a concern that consumers will blame manufacturers for encouraging them to needlessly upgrade mobile phones, televisions, laptops and other consumer goods, thus creating an ever-accumulating mountain of e-waste. This is one factor in the growing market for reconditioned and refurbished products. Around 200,000,000 used or reconditioned mobile phones were sold globally last year and the market is growing at about 9% annually. In the UK, Samsung offer Certified Refurbished phones with a one year warranty. Each phone receives 400 quality assurance tests and is sold with a new charger and ear buds. The phone is wrapped in new packaging and to all intents and purposes the handset is new. 12 Amazon sell pre-owned laptops, phones, tablets, cameras, televisions and office equipment under the ‘Renewed’ banner – these are refurbished products that come with a warranty. Consumers can buy with confidence while also saving substantial sums if they are willing to accept a machine that is a couple of years old. An increasing number of consumers will derive satisfaction from saving a serviceable bit of kit from the Himalayan mountain of e-waste. A proposition that combines sustainability with value for money is powerful and explains why newer operators are entering the market. Back Market is a; “…marketplace that fights back against planned obsolescence” according to the company. Their American MD articulates the original vision succinctly: “Back Market envisioned a platform dedicated to high-quality, refurbished electronics that would make restored devices mainstream.” They sell refurbished electronics in a number of countries including France, Spain, Italy, Belgium and Austria; the UK, the US and Germany are markets that the company is particularly focused on. Back Market’s ambition is to be a category leader in the circular economy – a ambition that was supported by a successful funding round that raised $120 million in May 2020. Goldman Sachs was one of the investors. Back Market quote Edelman research that shows 64% of consumers are ‘belief-driven buyers’ (i.e. those that seek out brands that support their own values). They also estimate the value of the refurbished devices market at $80 billion. Their CEO, Thibaud Hug de Larauze, said of the investment; “…we can reinforce our leadership in this market and have a lasting positive impact on consumers’ perceptions about refurbished devices.”13 Repositioning ‘secondhand’ Mr Hug de Larauze’s final point on consumer perceptions is an important one. Traditionally consumers have been wary of reconditioned products, fearing that they would perform less well than new products or that they’d look old and scruffy. Back Market reassures consumers on hardware functionality through comprehensive guarantees and warranties – a big part of the reason that they were the first third-party company that Apple included in their certified refurbished programme. When it comes to the appearance of devices, Back Market offers consumers a choice – those seeking pristine, as-new devices pay a little more while those who are willing to accept some visible signs of wear pay less. Back Market seeks to reposition secondhand items as legitimate alternatives to buying new. Many other companies are doing the same. The uptake from consumers is strong and growing. All of this suggests that people are thinking more positively of pre-owned items. 9
Sector Study: Fashion The average consumer now buys 60% more items of clothing than they did in 2000. Two fifth of the clothes we buy are never worn and every year 21 billion tons of textiles are heaved into landfills. Waste on this scale is unsustainable and increasingly unfashionable. Expressions of distaste are multiplying. In July 2017, WRAP conducted quantitative research which found that 18% of consumers believed that; “the impact of clothing on the environment is not that severe.” When they asked the same question in May 2020 the proportion was just 11%. The slow fashion movement – as the name suggests – is opposed to disposable fast fashion and encourages consumers to buy better quality items that last for longer. Slow fashion is one form of the increasing distaste consumers have for the waste caused by fast fashion. ‘Sinnfluencers’ are a lot more worthy (and possibly less exciting) than they sound – the term comes from the combination of the German word ‘sinn’ (purpose and meaning) and ‘influencer’. Their significance is considerable. Many consumers wish to live more sustainably but are looking for guidance on how to do so. Some are now looking to influencers or brands to help them make more sustainable choices. Lauren Singer’s Instagram account trashisfortossers is followed by 380,000 people and is forthright in its condemnation of unnecessary waste. Many brands are keen to connect with Sinnfluncers as a way of projecting their credentials on sustainability. In April 2021 Singer partnered with Diageo-owned Johnnie Walker whisky on their Next Steps initiative which aims to make the brand more sustainable by design. She also works with Bausch & Lomb on more sustainable contact lenses and with Nordstrom on packaging. 10
In the UK Megan Hines’ Instagram account Look Fabulous For Less details her ongoing battle to live a stylish yet sustainable life. Alarmed by a burgeoning wardrobe and the environmental consequences of buying so many rarely-worn new clothes, she was motivated to create a spreadsheet which calculates the cost- per-wear of each garment. The spreadsheet is not just about value for money but how often clothes are worn in the first place (her target is to wear each item at least five times). She has disciplined herself into consuming less and now has a wardrobe that is; “79% pre-loved.” She is an example of a consumer who feels guilt in buying new clothes – a guilt that is assuaged if the items are pre-owned. Incidentally, if a spreadsheet seems an onerous undertaking there is the Shopola cost-per-wear app for iPhone users. In May 2020 WRAP conducted research into how consumers intended to dispose of clothes they had cleared out during the first part of lockdown. 10% of those respondents who had cleared out their homes planned to sell items online. That proportion may be lower than normal as a clear-out implies a larger number of items for disposal than usual, meaning that a charity shop may be a more convenient solution than selling multiple items online. There are a growing number of ways for consumers to sell unwanted items: • Vinted is; “a community for pre-loved fashion.” The Lithuanian-owned company has 37 million members and is active in twelve countries including the UK, Spain, France, Germany, Austria, Poland and the USA. Between 2013 and 2018 the company attracted $100 million of investment. Users download an app, take a picture of items they no longer want, set a price and upload their listing. Buyers can ask vendors questions and are covered both by a refund scheme and an optional buyer-protection scheme. • Depop is a peer-to-peer social shopping app based in Manchester which aims to make; “…fashion more inclusive, diverse and less wasteful.” It claims to have 26 million users worldwide. The Depop community is youthful; 80% of active users in the UK are aged under 26. Depop started as a social network that allowed the readers of PIG magazine to buy the clothes featured in the magazine. They then pivoted to include a selling function and then created; “…a mobile space where you can see what your friends and the people you are inspired by are liking, buying and selling.” • Sellpy is a Swedish based e-commerce site for secondhand clothes, electronics and homewares. It has steadily expanded across Scandinavia and in February 2021 it started operations in the Netherlands and Austria. Their CEO, Michael Arnor, explains the ethos of Sellpy; “We see a steady growth in demand for sustainable consumption, where secondhand is a great option. Every garment bought pre-owned saves resources for our planet. It’s therefore very exciting that we continue to grow and empower more customers in Europe to live circular.”18 11
The fashion industry’s response to the changing consumer mood As consumers becomes more sensitive to waste and seek to live more sustainably, brands have had to respond. The significance of Sellpy is that H&M have been investing in the company since 2015. The rationale for H&M is; “…the transition from a linear to a circular use of textiles is an important goal in working towards a more sustainable fashion industry. Investments in new business models in the areas of rental, repair and re- commerce play a vital role in this respect.”19 Nanna Andersen is the head of H&M’s investment arm, CO:LAB H&M Group. Commenting on their investment in Sellpy she said; “We truly believe in the entrepreneurs and team behind Sellpy and their unique circular business model, which perfectly aligns with our vision to become fully circular.”20 In 2019, Zara stated that their clothes would be made from 100% sustainable fabrics by 2025. It started collecting used clothes in its shops some years ago and has formed a partnership with charities (including the Red Cross) to redistribute clothes. It is also working with the Massachusetts Institute of Technology on new techniques in recycling textile fibres.21 Most clothes are sold on the high street but much of the glamour in fashion comes from the shops found on Sloane Street. In December 2020, Gabriela Hearst was announced as the Creative Director of LVMH-owned Chloe. Hearst has her own eponymous luxury label which has sustainability as both core value and point of difference. In her 2017 show she used clothes made from surplus fabric and her goal is to use 100% repurposed materials by early 2022. She has brought that ethos to her new role, saying on her arrival at Chloe that she wanted to support LVMH’s goal; “…to create a business that is socially conscious and in balance with our environment.” Chloe is currently seeking B Corporation certification for social and environmental performance. 12
Other labels are encouraging consumers to repair or refurbish clothes. Patagonia’s Worn Wear scheme invites consumers to get their clothing repaired or to trade it in for a credit against new items. The company claims to have repaired over 400,000 garments in North America since 2005. In addition, their “ReCrafted” range of clothes are made using material from old garments. Worn Wear state that; “One of the most responsible things we can do as a company is make high-quality stuff that lasts for years, so you don’t have to buy more of it.” Here is a successful brand skillfully positioning itself as aligned with a nascent anti-consumption sentiment (while still selling new garments). They are not alone. The grande dame of British fashion, Vivienne Westwood, famously commented; “My message is, ‘Buy less, choose well, make it last.’” That sentiment – of buying better quality items less often – is one Source: that we Trajectory are likelyAnalysis to hear of YouGov/Cambridge more often in the years Globalism ahead. Project Data While the industry is changing from within, it has also been forced into change by new laws. In the five years to 2018, Burberry destroyed £90 million in unsold clothes accessories and perfumes to prevent them being sold cheaply or stolen. Such activity – widespread in fashion – will be banned this year under the EU Circular Economy Action Plan. 13
Charitable lost cause? The increasing commercial activity around reselling is something of a double-edged sword for charities. On the one hand an increasing desire to buy pre-owned items is helpful and may even serve to lift values. On the other, many consumers will wonder if they should sell unwanted items rather than give them away to their local charity shop. musicMagpie buys CDs, DVDs, computer games, books, Lego and tech (all charity shop staples) from consumers before reselling them (often through eBay or Amazon) for a profit. musicMagpie claim to have over six million customers. Their model is changing as the demand for physical media declines – by 2018, half of their business was selling reconditioned mobile phones. Charity shops now operate in a more competitive environment and the volume of items donated to them may decline. The Charity Retail Association helps their members exploit the e-commerce opportunity to reach more customers, especially the young. An additional benefit of moving online is that unusual and more valuable items are likely to be sold for a higher price through e- commerce. In 2018 the Charity Retail Association surveyed members representing 5,967 charity shops. When they asked what the motivation was to sell online, 88% of respondents said that it was; “to achieve a higher selling price online.” This desire to realise higher revenues means that charities are heavy users of reselling marketplaces such as eBay, AbeBooks and Depop. Companies like Zipsale help resellers develop a presence in multiple online marketplaces to increase sales and reach an international audience. Zipsale also helps with inventory management, sales analysis and translation. 14
Other operators offer different takes on online models. In 2017 Thrift+ was created to; “…build the best online shopping experience for secondhand clothes while making it easy for individuals and brands to re-sell unwanted items.” Part of their proposition is aimed at consumers who want to make donations to charity. Thrift+ offers to take higher value donations from consumers, sell them online and then share some of the proceeds with a nominated charity. Consumers use a Thrift+ bag to donate items which are typically resold for £60 with £20 going to charity. Thrift+ claim that – as there are no shop rents or staff costs to pay – this return is as good as (or better than) a direct donation to a charity shop. The circular economy forces innovation from charities who have responded both through a greater online presence and the development of larger format superstores on retail parks. Despite the higher staffing requirement these stores are more profitable than the traditional high street shops. The context in which charity shops operate is changing quickly partly because a number of disparate players are working to reposition secondhand as a more positive choice. Charity shops are still the front line in recycling for the majority of consumers – an enviable position in a circular economy. The biggest challenge for charities is to find enough individuals with skills in online sales to capitalise on their high street presence (72% of charities report that a shortage of paid staff and volunteers in online selling roles is their biggest challenge in going digital). 1615
Government intervention The political commitment to developing a circular economy is growing and has implications for almost all companies. 2021 is the planned adoption date for a number of EU initiatives including: • Legislative proposal for substantiating green claims made by companies • EU strategy for sustainable textiles • Review of EU rules on packaging and packaging waste • Update of EU rules in industrial emissions Another measure is a; ‘legislative proposal to empower consumers in the green revolution.’ The aims of this legislation include; ensuring that consumers get reliable information on products (including lifespan and repair options) and setting a minimum requirement for sustainability logos and labels. In addition, in February 2021, the Global Alliance on Circular Economy and Resource Efficiency (GACERE) was launched by the European Commission and the United Nations Environment Programme. This organisation’s goal is to; “…provide a global impetus for initiatives related to the circular economy transition.” Member countries include Japan, Canada, Norway and all members of the EU. In July 2020 the UK government issued a Circular Economy Package policy statement. This restated the government’s commitment to the circular economy post-Brexit through a legislative framework largely based around waste and recycling. The UK nations all have their own initiatives – for example the Scottish Government’s strategy is set out in Making Things Last31 which was published in 2016. Although light on targets, the document does specify that food waste must be cut by a third by 2025. The strategy also states that; “We want secondhand goods to become a good value, mainstream, option - helping reuse businesses and community organisations to thrive. We will improve the capture of items for reuse; clarify the regulation of reuse activities; and build on the Resolve standard for reuse organisations to improve consumer confidence.” This language is very similar to that of commercial organisations such as Back Market and indicates that there will be support from government for companies involved in recycling, refurbishing and reconditioning, something that will encourage new players into the market and grow the circular economy. 16
Conclusion The move to a circular economy is revolutionary and essential. When the European Commission set out the European Green Deal in 2019 it did so because it believed the transformation to a circular economy was happening too slowly. The acceleration is now noticeable and is backed by an increasing regulatory framework. However, to succeed there needs to be international cooperation - domestic initiatives taken by individual countries count for little in global value chains. Without uniform international regulations inefficiencies will be created; for example the importation of secondhand goods into some countries can hinder their transition towards lower carbon and more circular economies. While the transition to the circular economy will impact all commercial organisations it is true that some sectors will be more impacted than others: textiles, construction, electronics and plastics are areas of particular focus for European Circular Economy Action Plan. These are resource-intensive sectors that consume huge amounts of raw materials and have acute problems with waste. Joe Biden’s administration has set out bold plans for the environment. While there is little detailed policy yet on the circular economy, we can expect new measures. COP 26 at the end of the year will likely lead to new initiatives to support circularity. In general, policy makers have support from an increasingly anxious public. The act of consumption is becoming increasingly freighted with guilt. Purchasing reconditioned or secondhand items can mitigate that guilt. The allure of showroom-fresh new consumer goods will never go away but their appeal can be strengthened if they are made from materials which have been (imperceptibly) recycled. 17
The distaste for waste suggests that consumers will adopt a cost-per-wear mentality, getting greater use from items that they own. They are likely to be more thoughtful in buying new things. That mentality means it will be more common for owners to repair items or even to sell them back to the manufacturer (as clothing firm Patagonia do). A circular economy is also likely to boost the market for renting rather than owning products; designer clothes and accessories can be rented through Selfridges,33 while jewellery can be hired through Bentley & Skinner. Car sharing schemes like that operated by Geeley-owned Lynk & Co 34 also make sense in a circular economy. From the perspective of brands, the circular economy means revolutionary change in how products are made, consumed, repaired and resold. For many companies this means that the customer journey extends far beyond the original sale of the product. There are opportunities to deepen the customer relationship with more touchpoints on an extended customer journey as products are bought, maintained and resold. This Trajection considers the actions of a raft of brands in adapting to a circular economy. While some of these examples may seem exceptional now they will become increasingly common as consumers demand more sustainable lifestyles and as policymakers insist on circularity. 18
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