Entrepreneurs need help financially in order to turn their ideas into profitable enterprises. Investors need bright young minds to turn their capital into… more capital. The circular economy is going to provide an incredible potential for business growth, but it can’t happen without investors.
The circular economy (CE) is a framework for decoupling economic growth from resource consumption. In a world of increasing population and finite resources, such a model is becoming necessary for sustainable economic growth. That is why the concept presents a major opportunity for business growth, one that is already being described as a multi-trillion dollar opportunity.
There are many explanations as to why the circular economy is going to be necessary, but in keeping with Occam’s Razor, let’s just quickly describe it’s necessity using two variables: population and resources.
World population has already exceeded 7.5 Billion people, and is projected to reach 10 Billion in the 2050’s. There is a concept known as Carrying Capacity, which is a theoretical estimate that quantifies the amount of humans our planet’s resources can support. The median figure among the skew of models estimating between 4 and 16 Billion is 10 Billion. That means it is likely that our planet can only support 10 Billion people.
One of the principles of a successful circular economic model is the idea of providing goods as a service instead of a simply an object to be discarded by the consumer when obsolete. For example, instead of creating objects that contain any degree of planned obsolescence to ensure future profits, companies can offer use of their equipment as a service, ensuring infinite revenue. This might seem like a blow to the consumer, but it could potentially make life easier by eliminating the unforeseen costs of equipment malfunctions and degradation.
Phillips is currently offering lighting as a service to an airport in Amsterdam instead of selling them lightbulbs. This will provide an incentive for the company to create products that will last forever, instead of products that will only last a couple years (by design) so they can sell that product again later. Such a simple idea could eliminate the throw-away culture we live in.
So let’s take the simple economics Law of Supply and Demand and bring it into the equation. As the population grows, the total supply of resources becomes spread more thinly over a greater amount of people, thereby increasing demand. As resources are used in a linear economic model, they become no longer available once consumed, further increasing demand. This means that circular economic companies that hold onto their resources by providing goods as a service instead of selling the actual product, will benefit from that increased demand and become more valuable. Those companies will pick up their obsolete and used-up products from consumers and keep those resources in their circular material flow to be used over and over. Meanwhile, companies in linear models will run out of resources to build from and deteriorate.
If the majority of companies continue using the linear economic model, when coupled with population growth, this will eventually create resource scarcity. Business models that depend upon those resources and fail to adapt to the changing resource climate will simply cease to be. However, circular economic companies will be able to avoid this by building up the amount of resources in their resource pool that they maintain indefinitely. Resource scarcity will very likely cause unprecedented civil unrest, upheaval and war if a systemic change does not occur soon.
Circular economic business models will, if successful, keep resources in a circular flow that would theoretically last forever. As the concept of the circular economy becomes more widely understood, consumers are going to want to choose these businesses over those that are linear. These businesses will also have a sustainable model that won’t break when other linear models are shut down from scarcity. Supporting these business models will also help to prevent resource scarcity.
Several massive worldwide companies are jumping on the bandwagon with this idea, as they see the writing on the wall. According to a 2016 Greenbiz/UPS Research Study, nearly nine out of 10 of sustainability executives surveyed believe that the circular economy would be important to their business two years from now.
Here is a quick list of some of the leaders in the movement that have spent considerable resources conducting circular economy studies of their own: Each of the links will send you to a Study conducted on behalf of these companies:
Also check out this Greenbiz list of 8 companies to watch for in the Circular Economy
I would never tell you which companies to invest your hard earned money in, but I would warn you to keep an eye on whether or not your investments are leaning towards adapting to the economy of the future. Whether or not the company you are evaluating for investment is implementing circular economy principles will one day become a standard litmus test for long term investment.
There are agencies sprouting up all over Europe that are dedicated solely to exploring investment opportunities created by early adopters of circular economics. Circularity Capital is an organization that does just that, started by former Chief Executive of the Ellen MacArthur Foundation, Jamie Butterworth.
Stay tuned for more in-depth analysis circular economic investing opportunities.