Explainer: What is the circular economy?

Marketers will need to understand the growing circular economy and what it means for branding and consumer engagement

The circular economy is expected to be worth $4.5 trillion by 2030, according to the World Business Council for Sustainable Development.

As the Ellen Macarthur Foundation descibes it, the circular economy is a systemic approach to economic development designed to benefit businesses, society, and the environment. Yet transforming the old ‘take, make and waste’ cycle with one that is structured around re-use, recycle and re-design provides a host of new challenges - as well as opportunities.

Each year, 90 billion tonnes of primary materials are extracted and used globally. However, only 9 per cent recycled, according to the United Nations Environment Programme (2019). So what do marketers need to know about this shift to sustainable consumption and production and its potential impact?

Understanding the circular economy

The soaring price of natural resources, the cost of waste disposal and the need to extract maximum value from raw materials are some of the reasons there’s a push beyond recycling programs to re-configure the entire process of production. Extending the life of raw materials, reducing the reliance on precious resources, limiting the production of waste, maximising the full value of products and overall minimising the overall impact of production are all driving the push towards a circular economy.

The key phases are design and manufacture > transport and retail > use, re-use and repair > recycle in a circular fashion, where each part if connected and impacts the other. This circular system is in contrast to the more traditional, linear model, where raw materials are used for production and products are used and discarded with little or no connection to the impact of raw materials extraction and end-of-life disposal.

Key points of a circular economy are:

  • Source sustainable and/or recycled raw materials.
  • Design products that can be repaired and recycled.
  • Design and use efficient production processes that minimise energy and water use and materials.
  • Establish collection systems to avoid products going into landfill and not being recycled.
  • Ensure there are sufficient recycling facilities for returned products.
  • Encourage circular economy with suppliers and other connected businesses.
  • Aim to reduce waste, the extraction of raw materials and environment impact.
  • Look for renewable power sources in production and transport.

The future Australian economy is circular, according to Planet Ark, which has just launched the Australian Circular Economy Hub. What's more, an overwhelming 88 per cent of Australian business leaders believe the circular economy will be important to the future of business, its research has found.

Planet Ark surveyed business decision makers to assess circular economy progress ahead of the launch of the Australian Circular Economy Hub, which aims to fast-track the country’s transition to a circular economy. “Our research clearly shows the Australian business community understands the need to transition towards a circular economy and the opportunity it represents,” said Planet Ark CEO, Paul Klymenko.
However, while there might be enthusiasm for embracing the concept of a circular economy, there is still a long way to go in making it a reality in how the economy functions. The 2020 Circularity Gap Report (CGR), a global assessment of circular economy progress produced by Circle Economy, found the world is currently just 8.6 per cent circular. This is despite the significant benefits a circular economy, which by 2048 is estimated to rise to a present value of $210 billion in GDP while also providing an additional 17,000 full-time equivalent jobs.
Planet Ark’s research found while 58 per cent business decision leaders claim to be very or extremely knowledgeable about the circular economy, only 42 per cent correctly identified a circular economy is designed to ensure regenerative processes and products. In contrast, 46 per cent of respondents incorrectly defined the concept as being only related to recycling or removing waste from the supply chain.  
The ACE Hub is designed to be a one-stop-shop for the circular economy to drive awareness and implementation in Australia through education, support a marketplace for the use of secondary materials, metrics, procurement, education, priority areas and product stewardship, and help promote change by identifying barriers and create enabling conditions to overcome them.

This is not just happening locally, the EU has been working towards goals to embrace the circular economy for some years and a standard framework to have a systematic approach across all of the member countries.

Circular economy participation

Some of the great examples globally of a circular economy approach include Asics' work to reduce CO2 emissions produced by every pair of Gel-Kayano shoes by 24 per cent.

Clothing and adventure product brands such as Patagonia, Bergaus, Veja and Aday are also reusing plastic bottles for clothing, while brands like Levi’s are using sustainable materials and reducing water usage in clothing production.

In the beauty space, The Body Shop, Aveda, L'Oreal and other cosmetics and personal care brands are increasingly embracing sustainable, environmental and minimal impact raw materials and processes.

Other ways brands are participating in the circular economy are by committing to lower carbon or even a carbon neutral footprint, product packaging composed of reused materials that can again be recycled, and reducing plastics and the overall use of non-recyclable product and packaging components.

Read more: Boycott or buycott - how brand purpose can make the difference

What it means for marketers

The transition to a circular economy may sound like it’s more of a consideration for procurement, design, operations and finance. Yet it’s still relevant to marketing for a number of reasons.

Marketing is responsible for business messaging and so any businesses procedures and processes relating to circular economy participation will need to be communicated to consumers. Not only that, new initiatives will more often need to be explained to existing and prospective customers.

Messaging may start from the beginning of the customer journey, when customers are considering and researching products by providing clear signals and information about product stewardship that defines the product footprint the customer is acquiring, along with the product, from sourcing and production to repairs and take back programs.

Branding will also be impacted by the shift to a circular economy, with marketers needing to rethink and redesign messaging on packaging as well as the packaging itself, as people change the way they use a range of consumers products. For instance, a shift away from single-use containers for shampoo or cleaning products towards larger, refillable containers or smaller, concentrated products will entail a significant re-jigging of the related branding and advertising - not to mention pricing.

Collection systems, the use of recycled materials, potential network of dispensing stations, product transport and retail sales shelving are just some of the other parts of the retail and customer cycle that will be impacted and require re-thinking as brands, and consumer demand, embrace the new circular economy.

For example, global consumer brands Unilever, Pepsi, P&G and Coca-Cola Company have experimented with circular packaging arrangements to take back product packaging. The idea is they become the old-style milkman for consumers, delivering items in recyclable packaging and also collecting a range of items of packaging for consumer items for re-purposing. In other consumer markets, fashion brands such as Zara, H&M and M&S have tried renting and re-selling items of clothing.

While these changes are significant, they also represent opportunities for marketers and brands to connect anew with consumers while also reducing their impact on the planet - a true win/win.

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, follow our regular updates via CMO Australia's Linkedin company page, or join us on Facebook: https://www.facebook.com/CMOAustralia.

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