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How can SMEs get into circular economy?

Chris Hopkins's picture

Large corporations play a key role in the emerging circular economy, but there are huge untapped opportunities for SMEs to take the lead, argues environmental journalist Maxine Perella.

That large business and circular economy go together is surprising to many. The circular economy seems in many ways an ideal fit for agile smaller businesses, entrepreneurs and start-ups. They can react quicker to shifting market trends, and bring about the more radical, disruptive change needed to go circular. SME’s involvement in the circularity agenda, however, is being hindered by a lack of financial resources, and a lack of awareness on how to best engage. Nonetheless, there are hopeful signs that the tide is turning.

According to Mike Pitts, lead specialist in Sustainability for the Technology Strategy Board, “…businesses have eroding profit margins from the increasing cost of raw materials and supply interruptions due to the effects of environmental change… They have to look at ways to make more money by selling less stuff and need help doing so.” Moreover, “Small businesses with smart ideas that can move fast will deliver such solutions, or in some cases disrupt existing sectors by offering a better customer proposition from the start.”

His advice to aspiring circular businesses is to first establish a robust supply chain that can retain value and support any business proposition. Christian Rudolph of Nextcycle, a German-based sustainability innovation firm, supports this view: “Only when they have developed the ability to understand and analyse the material and value flows of their specific industry will they be able to clearly formulate the added value of their own business and to identify the partners needed to design supply-cycles.”

Rudolph suggests capitalising on opportunities for reverse cycles, which are more profitable than ‘take-make-disposal’ options. “I strongly believe that circular economy practices, at least in Europe, will work their way up from the end of the supply chain, because this kind of thinking works just fine within the reasoning of resource efficiency, which is easier to digest for the linear system compared to cradle-to-cradle product design.”

In industrial terms, the circular economy model is founded on principles of designing out waste, which focuses mainly on the start-of-life phase. However, demand is growing for smarter end-of-life solutions to help unlock secondary material value and deliver it ready-made for applications such as remanufacture.

According to Kingfisher Group’s head of innovation James Walker opportunities can be identified for a new breed of waste management service provider. “Our business can’t get the right quality of reused materials at the right colour at the right price. Rather, we should innovate at the end of the chain … it needs a new type of waste management company to come along and realise this.”

Likewise Pitts feels that the end-of-life phase, dominated by traditional waste management companies, is the “least developed area” in terms of new players. Simon Graham, environmental strategist at SME Commercial Group – an office supplies firm that is looking to make its business model more circular – argues that the waste industry “…should reposition itself as a mechanism to help customers get resources from their supply chains.”

So, is the waste management sector one that is ripe for disruption? Seb Beloe, head of sustainability research at WHEB Asset Management, thinks so, predicting that the rise of digital platforms and the internet of things will help to identify value in waste through innovative technologies.

Pitts says the trend towards collaboration, where large corporations are seeking to partner with smaller enterprises to advance experimentation and scale up circularity will also help accelerate things forward.

“Some of the best circular economy projects have been led by small businesses with great ideas or key expertise. More and more big companies are keen to explore circular business models and need pilot projects to test ideas out. These offer great opportunities for small companies.”

This shortened article is a summary based on this original article by Maxine Perella.