Circular Economy Is The Latest Concept In Town With Potential To Change A Lot According To Some Businesses

It is very commonplace to lease a car or an apartment but it is not quite an everyday affair to lease out daily household products such as a washing machine or a lightbulb.

And this is just the aim of the circular economy. This system is so designed that materials and resources are made to remain in use for as long as possible.

And for companies that seek to elongate the useful life of products and thereby attain targets of sustainability, this system has turned out to be an attractive business strategy.

“The circular economy is in essence the way of moving forward from 200 years of linear value chains,” said Peter Lacy, senior managing director at Accenture Strategy and author of “Waste to Wealth – the Circular Economy Advantage.”

The idea of “take, make, and dispose” forms the basis of most firms which is a form of a linear model. Say for instance, resources, like metal and glass are used by a lightbulb company to produce bulbs which are ultimately disposed by customers after using them.

But large price changes and shortage of materials can create problems for companies functioning on a linear model.

“What the circular economy does is it changes that relationship in the shape of those value chains to be about take, make, take, make,” Lacy said.

The London office of the National Union of Students (NUS) is a place where the circular economy is at work. In this office, the movement in the room leads to the on and off of rows of LED lights that illuminate the office. The NUS has struck an agreement with Philips to avail light as a service for 15 years in place of purchasing the lightbulbs.

“At the end of the life of the lights, the lights belong to Philips,” said Jamie Agombar, Head of Sustainability at NUS.

A quarterly fee is paid by NUS to Philips for the light service. The fees cover everything from maintenance to replacement over the 5-year period. Philips on the other hand is able to maintain the ownership of the lights while being encouraged to providing the most efficient light, said Joao Pola, CEO of Philips Lighting in the UK and Ireland.

“Going for a model like this creates a big incentive to make our products more reusable in the future,” Pola said. “It becomes a win-win situation to improve the efficiency of the system for the customer and for ourselves.”

Other enhancements such as installing solar panels and rainwater harvesting were possible for NUS to make due to the fixed price for light, Agombar added. “A lot of that has been afforded because we rented the lights,” he said.

Recycling is just a part of the circular economy, says Accenture’s Lacy.

“What we’re saying in the circular economy is how do we come up with new business models that allow us to change the huge waste of natural resources and financial resources,” he said.

(Adapted form CNBC.com)

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