Closing the Loop: Strategies to Regenerate Business Value

For decades, the world’s linear economy has relied on the take-make-waste approach, consuming 100 billion metric tons of materials a year. Nearly 92% of what we take from the Earth is used just once in a single product before it is discarded. This includes metals, plastics, wood, concrete, chemicals and other materials that could be reclaimed in a perpetual cycle of use and reuse. Businesses can bolster their growth by assessing where waste is generated along the value chain; reusing and recycling those materials; and designing products for circularity.

How can circularity catalyze regenerative businesses?

Our economy is based on a simple linear value chain that includes sourcing, designing, producing, consuming and disposing of products. While industries have improved their efficiency over centuries, the linear model still generates a vast amount of waste. At the end of the useful life of most products, they are either disposed of in landfills or incinerated—which completely destroys the value generated during production and use.

The exponential increase in solid waste generation is alarming: By 2050, global waste is expected to grow by 70%from 2018 levels. Amid the growing volume of waste filling the world’s landfills, recycling alone isn’t enough to move the needle on climate action and resource efficiency.

Up to 14 million metric tons of plastic is also dumped into the world’s oceans every year—the equivalent of one garbage truck per minute. Around 80% of ocean plastic is the result of inefficient municipal solid waste management systems.

The circular economy is estimated to be worth $4.5 trillion globally by 2030. A circular economy closes the loop between extraction, manufacturing and disposal by designing products to be recycled and reducing waste through technology solutions.

Oliver Dudok van Heel, Global Sustainability Director at management consulting firm Kearney, says there are two ways to reduce the loss of value in linear production models: “One is to reduce waste at every stage of the production process, from extraction to production, distribution and use. But the most impactful way is to maximize the use of a product once it is made. This can be achieved by extending the life cycle of that product—effectively making a product last longer—or by increasing the intensity of use of a product. For instance, car sharing schemes are a far more effective and efficient use of resources than car ownership,” he says.

Sustainable product design

Beyond recycling, the circular model encourages businesses to consider a product’s life cycle at the start of the production process. By assessing the design process to determine how resources can be used most efficiently, organizations can reduce a product’s environmental impact by 80% or more.

“Rethinking design is fundamental to achieving a circular economy. Products need to be built to last by using higher-quality components and by making components modular so that parts can be replaced easily,” argues Dudok van Heel. “This will require a different mindset for both producers and consumers, but both will see enhanced value creation as a result.”

Recycling and resale

Consumer spending and attitude were severely impacted in 2022, especially in Europe. Rising inflation has decreased the purchasing power of European households, leaving consumers with less money to spend on hard goods like electronics. According to Kearney’s analysis, European consumers are increasingly switching to cheaper appliances or delaying major purchases entirely.

Renting consumer goods rather than buying them is also gaining popularity as a way to control spending; consumers are three times more likely to rent high-quality products than buy low-quality goods, as per Kearney’s study. Up to 10 times more consumers are likely to buy refurbished electronics rather than replace their products, while around 17% are willing to pay more for repair services. These trends show that economic incentives are changing consumer behavior in line with the principles of a circular economy—and this shift provides businesses with the red-hot opportunity to reassess their business models.

“For many consumers, buying brand-new versions of the newest and most expensive models does not make sense, as the newest product features are not particularly interesting for them,” says Mo Chatterji, Sustainability Manager at Kearney. “Instead, many are holding on to their products longer, and/or turning to the refurbished or remanufactured space to buy or rent products at a steep discount.” This is a good example of a business model that is sustainable by design, rather than a traditional business model that is optimized for sustainability.

Creating new products from waste

In manufacturing, creating products from offcuts and scrap materials is a new and growing trend. In the fashion industry, the equivalent of a garbage truck load of clothing is burned or dumped in a landfill every second as a result of overproduction, excessive consumption and insufficient end-of-life options. The fashion sector produces an estimated 92 million metric tons of textile waste each year, and by 2030, the amount of textile waste is forecast to rise to 148 million metric tons annually.

Using scrap materials is an important way for manufacturers to be resource-efficient, and one U.K.-based fashion startup has made this their unique selling point. In collaboration with designers, KAPDAA creates one-of-a-kind branded products out of offcuts, end-of-rolls and other leftover materials. Three years after its founding, the startup has already prevented the landfilling of more than 10,000 meters of cloth. Meanwhile, a leading luxury designer burned $38 million worth of unsold stock in 2018.

Beyond incineration

While fashion brands have received major backlash for stockpile incineration, this isn’t the only sector that has turned to burning as a waste management option, but it is an increasingly unpopular and obsolete practice. The tire manufacturing industry, for example, has advanced from scrapyard piling and burning to modern methods of recycling, like retreading old tires and revulcanization, which turn old tires into goods like rubber mulch, rubber mats and material for athletic fields. Recycling companies like Liberty Tire are making investments to expand these advantageous applications. Circularity, in which the materials in old tires are used to make new tires, is the next frontier in tire recycling.

According to Kearney’s research, virgin carbon black, an essential fossil fuel derivative used in tire production, can be replaced with recovered carbon black derived from circular solutions such as tire pyrolysis technology. Kearney predicts a strong market for this method of production, and larger revenue potential for tire manufacturers that diversify their revenue streams by setting premium prices for more sustainable products.

The bottom-line benefit requires rethinking business as usual

These are just a few examples of how circular processes can help every company take a regenerative approach to operations to create value, looking beyond their organization to the business ecosystem as a whole.At present, very few businesses are truly regenerative, and while it requires challenging business as usual, planning a regenerative business strategy is the first step toward achieving what key players are already doing to initiate systemic change.