During the World Economic Forum that took place in Davos, the announcement was made that 11 multinationals have committed themselves to using 100% reusable, recyclable or compostable plastic packaging by 2025 or earlier. Those companies, including L’Oréal, The Coca-Cola Company, Unilever and Walmart, combined have an annual output in plastic packaging of over 6 million tonnes. The companies aim to significantly reduce their impact on the plastic ocean, a negative externality as a result of plastic packaging.
Negative externalities, such as air pollution, are indirect costs that are not included in the production price. To reduce the impact, governments have started to implement taxes on negative externalities to reduce consumption and thereby mitigate the risks. On top of this, companies have also initiated internal carbon pricing, whereby companies monetize GHG emissions to mitigate risks and to facilitate in the achievement low-carbon targets.
Other industries show initiatives with companies starting to design out negative externalities, such as the highly polluting airline industry. While demand for airplane seats will continue to increase over the next decades, related climate issues further increase. However, collaborative efforts between government, MIT and industry players have resulted in an innovative design that has the potential to reduce 66 percent in fuel savings. While the design of the “Double Bubble D8” is aimed to increase aerodynamics, the most influential innovation of the design is that the engines are not placed underneath the wings but now at the tail, on top of the plane. This has been done to reduce drag and realize fuel savings. Forecasts show the first take-off of the “Double Bubble D8” might take place in 2035.
The circular economy has the potential to go a step further and become the driving force behind fulfilling WEF’s promises. By incorporating concepts such as redesign, reduce, re-use and recycle, the circular economy extends products’ life cycles, reduces raw material consumption and increases secondary applications for waste. However, value chain partnerships are required to achieve this, since innovation cannot be done in isolation.
One successful example of company that started to implement circular business models is Ikea, which won the Strategy Award in Davos in the category of ‘circular economy multinational’. The Swedish furniture company has embraced the circular economy as a mind-set throughout its entire value chain, from raw material sourcing to consumer solutions. Jesper Brodin, Ikea’s CEO, announced during the WEF that the company has started a pilot project in Japan whereby consumers will be able to rent furniture to accelerate the transition towards a circular economy. Hereby, Ikea moves from product ownership to product use and aims to maximize value capturing at the end-of-life stage of the product.
Hereby Ikea follows the same route as Interface, which has been one of the trendsetters in the circular economy. The circular frontrunner has continued its efforts with its latest developments to refurbish used fishnets through a value chain approach, whereby partnering with local fishermen is crucial. The circular focus has brought Interface innovative products, long-term success and customer loyalty and reputation while accelerating towards positive externalities.
The Ikea example shows that circular economy business models provide solutions to today’s biggest sustainability challenges and externalities that business leaders in Davos have been talking about. If you would like to accelerate circular economy programs within your company with business design thinking, the Circular Economy Sprint can help you get going. For more information, please contact Jan van der Kaaij, Managing Partner, at email@example.com or call +31 6 28 02 18 80.
Image source: Robert Scoble, Flickr