Throughout the history of humanity, the practice of extracting natural resources has been practiced, through agriculture, fishing, hunting, mining, etc., processing resources, using and disposing of them. Although it is true that from this economic model the economic growth has been very fast, as has been recently experienced by several countries such as China and India, significant attention has not been paid to the problems that this economic model brings.

Multiple companies have recently become aware of the problems they face in following this economic model, among them, the risk of being subject to the availability and price of the material resources used for their processes, for example, fossil fuels or precious metals. The problem of the availability of resources can only become more acute, considering that the population will grow more, especially in the regions of Africa and Asia, estimating a population of 8 billion people in 2030 and 9 billion in 2050, in addition to the increase in life expectancy of each of the individuals present (BSI, 2017).

Similarly, the intense and rapid extraction of natural resources has led to and intensified negative impacts on the environment, such as air, soil and water pollution, acidification in marine ecosystems, loss of biodiversity, inefficient waste management, and even favored climate change, which are major reasons for promoting systemic change in the way goods are produced and consumed (European Environment Agency, 2016).

The waste generated by the exploitation of resources can be identified throughout the entire production chain, from extraction to manufacturing. It is estimated that every year the OECD countries use 21 billion tons of materials that are not incorporated into the marketed product, which translates into 21 billion tons of waste that is not consumed in any way (Ellen MacArthur Foundation, 2013).

Figure 1. Global resources extraction growth (Ellen MacArthur Foundation, 2013)

From these risks carried by the linear economy, the circular economic model emerges in response, which has arisen as an essential element in the transition to a more sustainable future, replacing the linear economy. In which companies extract natural resources, use them in their production processes and market them to the final consumer who discards it. Most of the advances in sustainability have focused on resource efficiency and the use of clean energy, however, in terms of design and minimization of losses of raw materials and generation of waste, efforts have not been so relevant (Ellen MacArthur Foundation, 2014).

The circular economy is an economic model that tackles each production cycle with a systemic and regenerative approach, by identifying each of the resource flows that take part within a product. It offers governments and companies a path to resilient growth that regenerates natural capital, optimizes the use of resources, minimizes risks by reducing dependence on finite primary resources and linear business models; enhancing competitiveness and welfare

The circular economy is a conglomerate of various actions and methodologies used in production and service processes to generate options for organizations that allow them to develop economically, reducing costs and risks in the short and long term, by avoiding further exploitation of resources and promoting economic development through the implementation of business models that allow economic savings while reducing the environmental and social impact of industrial and service processes.

Background

The circular economy emerged as a concept from the 60s, taking principles and ideas from previous theories. It is as a result of this, that the circular economy has different interpretations from the organizations, which causes an abundance of different terminologies, therefore, the confusion of decision makers. This situation acts to the detriment of what is desired, by discouraging organizations from becoming interested in applying a circular model in their operations (BSI, 2017).

There have been several schools of thought that have shaped the various aspects that make up the circular economy, among these are some such as:

Blue economy

The basis of this economic scheme is to convert the waste generated from one process into the input of another, generating systems called “Cascades”, thus saving costs and making the product cheaper for the consumer.

Industrial ecology and symbiosis

It lays the foundation on which the systems focus on closing their process cycles and designing the industrial plant, so that the waste from one part of the process becomes the input from another.

Biomimicry

The main contribution of this discipline consists in the design of sustainable technologies adapting structures developed and perfected by nature over thousands of years. This way of adapting nature’s structures not only translates into improving current technologies, but also in bringing cities closer to the natural environment.

Cradle to Cradle ^®

The design philosophy of this concept considers that all the materials involved in industrial and commercial processes are nutrients. It perceives the safe and productive processes of the biological metabolism of nature, as a model to imitate it and develop a technical metabolism of industrial materials.

Regenerative design

It is a concept based on systems theory, oriented to processes, linked to practices derived from biomimicry and permaculture, which are concepts that indirectly speak of regeneration. Regenerative design goes beyond sustainability, because sustainability is determined as that which remains over time without degrading, but does not regenerate or create something new, while regeneration does.

Social metabolism

It is a set of flows of matter and energy that begins when socially grouped humans appropriate materials and energies from nature (input) and ends when they deposit waste, emanations or residues in natural spaces (output). Its contribution to the circular economy model is mainly directed at the different stages of economically applied social metabolism, that is, appropriation, transformation, circulation, consumption and excretion.

All these theories, concepts and disciplines have contributed in a different way to the circular economy, some even share principles with each other, but approached from a different perspective or objective, it is important to know them to understand the historical background of the circular economy and how it has evolved , to realize that it is a concept in constant change, which is adapted to the needs of the time in which it is applied.

Benefits

The main advantage of the circular economy over the linear one is the improvement in the resilience of the organization’s economy. The transition is the only way to prevent the problems associated with the linear economy, such as price volatility, resource shortages due to overexploitation, among many others. Keeping resources in a constant circular flow through strategies such as reuse, remanufacturing, recycling, etc., allows a company to increase its independence from the exploitation or acquisition of virgin raw materials.

The circular economy is an effective alternative for economic growth since it not only offers growth opportunities, but this growth is kept stable. The creation and launch of new business models, as well as the promotion of circular industries, can trigger employment and economic growth. In sectors such as renewable energy, recycling, adaptation and mitigation to climate change, among others, high and medium-skilled jobs that are well-paid can be created, which is essential in emerging economies to trigger growth and quality improvements of life.

One of the objectives of a circular economy is the regeneration, not only of the environment, but also of the communities where the projects are developed. That is why projects must be developed taking into consideration not only to prevent and reduce the environmental impact of our actions, but also to give back to the environment and communities so that natural and social capital is regenerated.

The circular economy provides opportunities to overcome the problems concerning unsustainable product design, promoting durability and promoting the transition from product offerings to service offerings, which generates employment, economic development, consumer loyalty and a sustainable business model.

This economic model offers decision-makers the possibility, through activities integrated into their processes, of including people in situations of social vulnerability, reducing the use of toxic materials and generating sustainable alternatives that imply an improvement in well-being.

The goal of implementing the circular economy is to decouple the economic growth of companies from the exploitation of resources, as a preventive and risk management measure in the event of resource depletion, which is why problems such as scarcity of resources are prevented. and the volatility of their prices. Likewise, adequate environmental care, protection of biodiversity, improvement of the communities involved, among others, are obtained as co-benefits.

The implementation of the circular economy represents an opportunity for economic growth of up to $4.5 trillion by 2030, in addition to the resilience of global economies and the protection of natural capital. It will allow companies to take advantage of taking the necessary precautions in the face of new regulations, pricing of externalities and potential changes in fiscal models so that in the future there are competitive improvements (Accenture Strategy, 2015).

Figure 2. Brazil’s Bulcão Farm Private Reserve Reforestation

Current actions

Currently, the number of companies that have undertaken projects that directly promote the adoption of business models adapted to a circular economy is limited, however, these projects increase day by day, in different sectors, from textiles to manufacturing:

Michelin

Michelin since the 20s has had a tire leasing program with a payment per kilometer mechanism, it also offers other services such as the improvement, maintenance and replacement of tires, to optimize vehicle performance.

Figure 3. Michelin Tire

Hacia 2011, la división de arrendamiento, Michelin Fleet Solutions tenía alrededor de 290,000 vehículos con llantas rentadas, en 23 países. Esta es una gran área de oportunidad, puesto que, en Europa, 50% de las grandes flotas de camiones externalizan su gestión de neumáticos.

Al trasladar su negocio de la venta de neumáticos a uno de arrendamiento implica que la responsabilidad del futuro de sus productos permanecerá siendo de Michelin. Esto no solo se produce en el beneficio de la conservación de recursos, sino que impulsa a que Michelin fabrique sus productos de forma más durable y así reducir los costos por mantenimiento necesarios para poder seguir comercializando sus neumáticos (Innovate UK, s.f.).

Mobike

Mobike is a relatively new company, it was launched in 2016, however, it has had quite rapid growth, in which its expansion reaches at least 160 cities around the world, including Mexico City, and soon León, Guanajuato. In just a few years, it is estimated that the replacement of automobiles by these bicycles has achieved the mitigation of emissions of 1.2 million tons of CO2, which is equivalent to taking 350,000 cars out of circulation (Ellen MacArthur Foundation, 2017).

Figure 4. Mobike in Mexico

Mobike not only addresses sustainability and the circular economy from a sharing model, but also in the design of its bikes. The bikes that are used by Mobike, are manufactured by suppliers who are responsible for designing them in a modular way, durable and easy to repair, this is useful to a great extent, because it extends the life of the bike. This provides benefits not only to the environment due to the lower exploitation of resources, but also for Mobike as an organization as it entails lower costs for the acquisition of new bicycles (Ellen MacArthur Foundation, 2017).

Closing the Loop

It is a company of Dutch origin that offers users and sellers of cell phones in Africa the service of collecting electronic scrap. Later it is in charge of separating it and conserving only the metals, in a scheme of “urban mining” as an alternative to mining of virgin resources. Minerals from urban mining are cleaner, produce up to 90% less CO2 emissions, and are conflict-free minerals (Fundación EU-LAC, 2018).

Figure 5. Closing The Loop urban miners (Fundación EU-LAC, 2018)

Los beneficios del proyecto van desde mejoras medioambientales, beneficios sociales y aumento de la concientización, no solo hay beneficios para los inversores y miembros de la empresa, también para los recolectores y su entorno, se estiman que aproximadamente 3.000 personas han sido beneficiadas por el trabajo realizado por CTL. Los ingresos de Closing the Loop han aumentado significativamente desde su entrada en funciones, por ejemplo, en 2014 tuvieron ganancias de 250,000 euros, mientras que en 2017 reportaron 700,000 euros (Fundación EU-LAC, 2018).

Outlook

In a circular future, mainly consumers will have more opportunities to purchase or subscribe to products and services. Likewise, consumers’ current need to replace a product more than once a year may disappear by eliminating planned obsolescence practices.

Another benefit for consumers is to enjoy and have more accessible, higher quality services that reduce their carbon footprint.

Organizations that successfully adapt to the circular economy will benefit from diversifying their activities, creating or implementing new activities that provide competitive advantages and protection against the risks associated with the linear economy.

In a McKinsey survey in 2011, the percentage of respondents seeking to apply sustainability measures reached 70%, the main reason being, reducing costs or improving operational efficiency. Likewise, in a joint report by Bloomberg and the World Economic Forum, investments in 2010 for sustainable initiatives increased by 30% compared to what was estimated in 2009 (Ellen MacArthur Foundation, 2013).

Everything indicates that investment and profitability in sustainable projects does nothing but rise, greatly benefiting organizations and investors who may have uncertainty about the implementation of measures that can significantly change their processes.

Emerging regulations must take into account that there are necessary changes to be applied by the public sector, to encourage and allow organizations to implement circular business models, not only with environmental and waste laws since the circular economy is a cross-cutting issue that it applies to all sectors that the government regulates, in tourism, mobility, housing, social benefits, etc.