WEF_ENV_TowardsCircularEconomy_Report_2014.pdf

Towards the Circular

Economy:

Accelerating the scale-up

across global supply chains

Prepared in collaboration with the Ellen MacArthur Foundation and McKinsey & Company

January 2014

Disclaimer

The viewpoints expressed herein attempt to relect

the collective opinion of various individuals who have

contributed to the research and development of

this report; they do not necessarily imply an agreed

position among them or institutional endorsement by

any participating company or organization involved in

the work or mentioned in the report, or of the World

Economic Forum.

Published by World Economic Forum,

Geneva, Switzerland, 2014

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Foreword – Ellen MacArthur Foundation

Today’s ‘take-make-dispose’ economy has long relied on

inputs of cheap and available resources to create conditions

for growth and stability. Within the past decade, however,

businesses have been hit by an increase in commodity prices

that has effectively erased the (average) decline of the entire

preceding century. Coupled with this, we expect three billion

more middle-class consumers by 2030. This unprecedented

rise in demand for a inite supply of resources calls into

question our current predominantly linear economic system.

The concept of the circular economy is rapidly capturing

attention as a way of decoupling growth from resource

constraints. It opens up ways to reconcile the outlook for

growth and economic participation with that of environmental

prudence and equity. It is inspiring CEOs, politicians,

engineers, designers and the next generation of leaders.

Our research highlights immediate and relatively easy-to-

implement opportunities, analysing a number of speciic

examples. It uses current technologies and trends to estimate

the materials cost savings of adopting a more restorative

approach at over US$ 1 trillion p.a. by 2025, net of materials

costs incurred during reverse-cycle activities.

We are now observing the evolution of circular business

models as leading companies drive innovation across

product design, development of product-to-service

approaches and new materials recovery methods. These are

demonstrating potential to disrupt the linear economy. A

deeper and broader understanding of how to capture

commercial value across supply chains from a very practical

perspective is needed to accelerate and scale this trend.

The World Economic Forum’s report Accelerating the

scale-up across global supply chains report plays a

crucial role in this market evolution by exploring how

businesses can use the circular economy to drive arbitrage

opportunities across complex, global supply chains. While

examples of circular business models are emerging,

signiicant materials leakages still persist. This report provides

practical guidance on how businesses can address these

leakage points to capture the value of the circular economy

together with their partners—whether suppliers or

wholesales/retailers—and consumers. The initiative outlined

in this report, aims to make practical steps towards capturing

this opportunity through the facilitation of pure materials

lows, an important irst move in the shift to a new economic

model.

The circular economy provides a framework to both

challenge and guide us as we rethink and redesign our future.

I would like to express my thanks to the thought leaders and

business pioneers who have informed this thinking and

helped make this work possible. These include our

collaborator, the World Economic Forum, McKinsey &

Company, which acted as project adviser and provided the

analytics for this report, as well as representatives from

leading businesses and experts who have contributed their

extensive know-how.

I believe this to be one of the greatest opportunities of our

time, and urge you to play your part in making it a reality.

18 leading companies from the

partnership networks of both the World

Economic Forum and the Ellen

MacArthur Foundation generously

provided expert support to this

research. They are listed below.

Members of the

World Economic Forum

Ellen MacArthur

Founder, Ellen

MacArthur Foundation

Strategic Partners

Cisco*

The Coca-Cola Company*

Leighton Holdings Ltd

Nestlé SA

Philips*

Renault-Nissan BV*

SAB Miller Plc*

Cowes, Isle of Wight

Industry Partners

Arup Group Ltd

B&Q Kingisher Plc*

Brightstar Corp.

Heineken

Royal DSM*

Wesfarmers Limited

Global Growth Companies

Desso Holding BV*

Trina Solar Ltd

Members of the Ellen

MacArthur Foundation’s

Circular Economy 100

Hennes & Mauritz AB

IKEA

Ricoh

plus the companies above marked with *

Towards the Circular Economy: Accelerating the scale-up across global supply chains

Preface – World Economic Forum

The past two years have seen a surge

in activity among business leaders to

forge collaboration and shape new

agendas on sustainable growth. The

‘circular economy,’ a term perhaps

unfamiliar just a few years ago, has now

also caught the imagination of thought

leaders across the world, and is taking

shape as a viable, practical alternative

to the current linear economic model.

A conluence of various global trends,

statistics and fresh economic analysis

has accelerated this agenda. Three

billion middle-class consumers are

expected to enter the global market by

2030, driving unprecedented demand

for goods and services. Commodity

prices overall rose by almost 150% from

2002 to 2010, erasing the real price

declines of the last 100 years. Experts

have calculated that without a rethink of

how we use materials in our linear

‘take-make-dispose’ economy, ele-

ments such as gold, silver, indium,

iridium, tungsten and many others vital

for industry could be depleted within

ive to ifty years. If we remain in our

‘business as usual’ mode, price volatility

will continue to surge, alongside the

probable inlation of key commodities.

Business leaders are in search of a

better hedge to avoid these risks, and

are moving towards an industrial model

that decouples revenues from material

input: the circular economy.

The economic case for the circular

economy is tangible. The cost of

remanufacturing mobile phones could

(for example) be reduced by 50% per

device if the industry made handsets

that were easier to take apart, improved

the reverse cycle, and offered incentives

to return devices that are no longer

needed. High-end washing machines

would be accessible for most house-

holds if they were leased instead of

sold. Customers would save roughly a

third per wash cycle, while manufactur-

ers would earn roughly a third more in

proits. The economic gain from

materials savings alone is estimated at

over a trillion dollars a year. A shift to

innovatively reusing, remanufacturing

and recycling products could lead to

signiicant job creation. 500,000 jobs

are created by the recycling industry in

the EU alone.

In short, the economic case for shifting

to a circular economy is compelling. The

economic impact of this change would

be evident for business and consumers

in both industrialized markets and

fast-growing economies. Cheaper

phones and washing machines are just

two of a myriad of beneits that could

swiftly materialize for tomorrow’s global

consumers. For governments, this shift

to circular economic activity could help

address the global job gap of 600 million

that the International Trade Union

Confederation forecasts by 2030 if

business as usual continues.

But how can change be catalysed on

such a scale? The economic gain can

be realised only if multiple players

across business and research commu-

nities come together and reconceive

key materials lows and manufacturing

processes, supported by policy-makers

and investors. The transaction costs of

shifting the status quo are extremely

high: no single entity can make this

happen on its own. A large-scale,

business-led collaboration is required.

At its Annual Meeting in Davos this year,

the World Economic Forum hosted over

seventy leaders from industry, govern-

ment, academia and civil society to

discuss exactly this problem: how can

the circular economy be scaled up?

Many of the participants at this session

were inspired by the work of the Ellen

MacArthur Foundation, which has

emphatically set out the trillion dollar

economic case for a circular economy.

Many had also been involved in the World

Economic Forum Sustainable Consump-

tion Initiative 2008 - 2012, or in other

World Economic Forum communities,

initiatives and global agenda councils

focused on sustainability and circular

economy issues. The Young Global

Leaders (YGL) Circular Economy

Innovation and New Business Models

Taskforce is one example, or the Global

Growth Companies Sustainability

Champions, Technology Pioneers, and

the Global Agenda Council for Sustain-

able Consumption. The discussion also

covered a wide range of national sustain-

able growth initiatives—notably the Dutch

Sustainable Growth Coalition, and public

sector institutions ranging from the

European Commission to the Brazilian

National Development Bank. A common

thread ran through all of these groups: a

critical mass of leaders prepared to voice

their desire for action, ready to ‘break

pack,’ and eager to become irst movers

in scaling up the circular economy.

Dominic Waughray

Senior Director,

World Economic

Forum

Geneva

Towards the Circular Economy: Accelerating the scale-up across global supply chains

The plea to the World Economic Forum

at that meeting was clear: given the

compelling economic case for action,

could the Forum help architect collabo-

ration to scale up the circular economy?

I am delighted to say that this report and

the proposal for collaborative global

action it contains is the response to the

challenge set by those leaders who met

in Davos in January. Based on extensive

new research, this report sets out the

business as well as the economic case

for action, and identiies where industry

leaders’ energy may best be focused to

catalyse change. Over 30 business

leaders and experts from the networks

of the World Economic Forum’s leading

companies and the Ellen MacArthur

Foundation’s Founding Partners and

CE100 were interviewed in the course of

this work, ensuring that any plan for

action would be have a sound, practical

foundation.

The subsequent chapters in this report

set out key areas of the research and its

indings, and present a detailed plan of

action.

The proposal focuses on materials and

some aspects of product design—one

of the four building blocks of a circular

economy (the other three being new

business models, global reverse

networks, and enabling conditions). This

is an important and practical starting

point as it will enable creation of a new

palette of materials for building a

regenerative economy. Our core

proposal is inspired by how a de-facto

standard for polyethylene terephthalate

(PET) in packaging has emerged across

multiple beverage companies since the

1970s, driving the recycling and reman-

ufacturing of PET products to a high

degree. This proposal focuses on

catalysing a similar outcome for a

signature group of materials stocks that

permeate our global supply chains:

polymers (particularly polypropylene)

and paper & cardboard are examples.

Three future-focused signature materials

will also be examined, noting how the

global materials market is likely to

change radically in the coming decades.

These include bio-based materials (for

packaging for example), materials for 3D

printing (set for explosive growth in the

coming decade), and carbon dioxide

recovery. This latter initiative overturns

the concept of CO 2 as a pollutant,

instead exploring how it could become a

valuable economic asset for other

businesses, serving as a feedstock for

polymers and other materials currently

dependent on oil.

We hope that bringing together experts

from corporations and research

organizations will generate a new wave

of collaboration across industries and

geographies to develop the blueprint for

a large, steady and pure materials

stream for each of the materials

selected. The aim is to ensure that all

players can capture the value of multiple

recycling and remanufacturing easily

and quickly. The project will trigger

action to implement the rollout, tracking

the innovation, jobs, economic value

and environmental gain that can be

tapped as a result. The practical role

policy-makers, the R&D sector and

investors can play to help accelerate the

process and harness its economic

beneits will be explored in parallel.

The initiative will support 24 months of

activity across these various issues,

involving task forces of senior execu-

tives and technicians as well as repre-

sentatives from government, academia,

investors and civil society from multiple

geographies and sectors. Success

factors at the end of this period will be

threefold:

- A new list of pure signature materials

together with their building blocks,

conversion methods and reverse

setup, co-designed and agreed infor-

mally by enough key parties around

the world to change the global

economy in that ield

- Proof of concept in two or more

signature materials categories,

demonstrating how to make the

change happen by working with

leading businesses, their suppliers

and customers of that material to

anchor the new materials speciica-

tions

- A set of practical suggestions from all

the stakeholders involved relecting

how they have learned to accelerate

and enable the process in their

particular ield, and how they are

beneitting from the resulting innova-

tion.

All the outcomes will be captured in a

comprehensive report extrapolating the

core economic case surrounding this

change effort. As with all World Econom-

ic Forum initiatives, we will also convene a

CEO-led steering board to govern and

steer the work at a strategic level.

If successful, the project offers profound

impact on scaling circular economy

beneits. The collaborative waves

across four to ive materials lows has

potential to trigger net beneits of at least

$500 million and 100,000 new jobs, as

well as to avoid/valorize 100 million

tonnes of materials waste within 5 years.

To realise this ambitious initiative, the

World Economic Forum is delighted to

have entered into collaboration with the

Ellen MacArthur Foundation, and with

the global management consulting irm

McKinsey & Company, which acted as

project adviser and provided the

analytics for this report. The high level of

input and enthusiasm from both the

Ellen MacArthur and the McKinsey

teams to drive the work forward has

been exemplary, and lays a strong

foundation for the collaboration ahead.

Alongside the many to whom we owe

our deepest thanks (detailed in the

Acknowledgements), we are indebted

most of all to Ellen MacArthur herself for

championing this initiative, and for

driving the circular economy agenda so

passionately across and among the

global business community.

The Forum would like to acknowledge

the leadership and interest shown by so

many of its industry members to help

shape and drive the development of this

work. Fifteen leading World Economic

Forum’s Strategic Partners, Industry

Partners and Global Growth Compa-

nies were interviewed to provide input

for the report and help design the focus

of the proposal. They are mentioned

overleaf: the project team offers their

sincerest thanks for the time and effort

each invested to assist this work.

The project team would also like to

express its gratitude to the various New

Champion communities of the World

Economic Forum, including the Young

Global Leaders Circular Economic

Initiative. It particularly extends its thanks

to Peter Lacy and David Rosenberg,

leaders of the YGL Circular Economy

Taskforce, the Global Growth Company

community, the Technology Pioneers,

and the Social Entrepreneurs.

The work ahead will represent a truly

collaborative effort, and we look forward

to drawing on all the combined net-

works of the World Economic Forum

and the Ellen MacArthur Foundation. I

can think of no more appropriate stage

for presenting the proposal and

launching this initiative than the Annual

Meeting of the New Champions—the

Forum’s ‘Summer Davos’ in China,

which is taking place in Dalian this year.

I hope you enjoy the report and the

proposal for action it contains, and we

look forward to engaging with you on

this pivotal initiative.

Towards the Circular Economy: Accelerating the scale-up across global supply chains

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