The circular economy – the multiplier for impact sourcing

circular economy multiplier for impact sourcing

Article by Catherine, published in Intelligent Sourcing magazine, Issue 2, June 2017

This article explores how you can use procurement to make a social impact in manufacturing, agriculture and extractive industry supply chains, helping disadvantaged workers and communities.

Increasingly, organisations are embedding ‘doing good’ into the core of their strategies.  Anticipating how global trends will affect their operating environment, and adapting their business practices to decouple growth from resource consumption and ecological degradation, they link their growth to driving social benefits.  They aim to future proof their operations and supply chains by tackling social problems through their business models.

Read on to explore:

  • Why this is rising up the business agenda;
  • The principles underpinning future-fit alternative models;
  • Ways the circular economy supports impact sourcing, with some direct and indirect examples.
  • How impact sourcing supports broader procurement challenges,
  • How to make the business case.
  • Finally, there are suggestions for easy ways to get started.

Negative feedback loops

Most industrial processes take some materials, make something, sell it, and at end-of-use, we throw it away – a ‘linear economy’.  Resources ‘embedded’ along the process – energy, labour, water and materials – also leak out.  Worse, nine million people die of disease linked to waste and pollution each year – 20 times more than die from malaria.[i]

 Measuring what you manage

The open-source Future-Fit Business Benchmark checklist helps you understand the issues in your own business.  It uses the four Natural Step system conditions for a sustainable society, ensuring we do not undermine nature’s ability to support human and other living systems by:

  • Polluting the earth through extraction of substances from the earth’s crust (eg metals, minerals & fossil fuel products)
  • Polluting the earth with man-made substances (eg Greenhouse Gases, antibiotics, volatile organic compounds, other toxins)
  • Physical degradation (including land degradation, deforestation, desertification and draining of water sources)
  • and in that society, there are no structural obstacles to people’s health, influence, competence, impartiality and meaning

The circular economy supports this, with an intelligently designed, ‘whole system’ approach, creating more from less .  Business models recover products and materials, focusing on use instead of consumption.  ‘Waste’ is converted to new inputs, such as processing oranges to make juice:  biorefining creates valuable by-products; pectin, pulp and zest go into food manufacture; orange essential oils are valuable for pharmaceuticals and cosmetics, and citrus peel creates a silk-like textile.

Inputs are sustainable: renewable or recycled from supply chain waste or end-of-life products.  Circular products last longer, are used more intensively and used again, with efficient disassembly and separation of each material for recovery.  The tightest loops create most value:  re-use, reselling, and then repair and remanufacture – recycling is the last choice.

How does the circular economy support impact sourcing?

The circular economy redesigns the negative feedback loop of destruction and depletion of resources and living systems, so we regenerate what we need to have enough, for all, forever.  It opens up value opportunities in every sector, worldwide.  Circular approaches reduce risk, whilst increasing agility and flexibility.  Business and society become resilient, sustainable and fit for the future.

The circular economy decouples products and services from resource consumption, going much further than resource efficiency and recycling.

  • Cycling finite materials and using sustainable renewable materials, including water and renewable energy, helps both people and planet. Local flows and business models designed to encourage durability, repair-ability and reuse all help reduce waste and improve productivity.
  • Resource efficiency, recovery of process inputs and converting ‘waste’ into new inputs and by-products reduces cost, creating new revenue streams and employment.
  • Remanufacturing and repair creates markets for more affordable, high-quality products and equipment.

Circular approaches can create a win-win solution, making an impact in the most effective and efficient way, and building strategic advantage.  Sourcing and manufacturing, based on circular economy principles, can create opportunities for excluded or exploited communities, and distribute value more equitably.

Direct impact

Forward-thinking businesses use procurement to make a positive social impact.  Critics of the mobile phone industry point to the use of potentially harmful materials, questionable labour practices, and business models that encourage planned obsolescence, inability to repair, and short product lifecycles.  Dutch company Fairphone began as a conflict-mineral awareness campaign in 2010.  Seeking to prove consumer electronics could be produced in a sustainable, ethical way, all along the supply chain, they set out to create “the world’s first completely fair smartphone”:  with a long-lasting design, fair materials, good working conditions, re-use and recycling.  Fairphone became an independent company in 2013, later becoming a certified B Corp.  There are now 150,000 Fairphone owners worldwide.

Fairphone has four ‘core action areas’ to create a fairer supply chain:

  • Fair materials – source materials that support local communities, not armed militias, starting with conflict-free minerals from the Democratic Republic of Congo.
  • Long lasting design – durable, rugged and repairable, to extend the phone’s usable life, and give buyers more control over their products.
  • Good working conditions – factory workers deserve safe conditions, fair wages and worker representation, so Fairphone is working closely with manufacturers that want to invest in employee well-being.
  • Reuse and recycling – addressing the full end-to-end lifespan of mobile phones, including use, reuse and safe recycling.

“…to actually change the system you need to understand it, and with a mobile, you need to understand all the complexities of production.  So Fairphone is a way to open up that system and shows that you can use transparency and social goals in your decision making”  Tessa Wernink, Director, Fairphone [ii]

Transparent and honest

An overarching aim is to ‘tell the whole story’.  Through making the supply chain transparent, Fairphone wants to trigger wider societal discussions about where products come from and how they are made, encouraging members of the public to join the movement and share their views in the community forum.

Shared value

Buying directly from organisations that employ disadvantaged people can maximise the positive impact.  Often these organisations may be hidden, their margins squeezed, amongst multiple tiers of suppliers in the supply chain.  Celebrating these suppliers and sharing the value created is beneficial for all parties, often improving the product’s customer appeal.  Rype Office, a UK-based supplier of high quality, sustainable office furniture, aims to create profitable, positive impacts.  It offers a design service, and focusses on reuse, repair and remanufacture of furniture to reduce costs and environmental impacts.

Rype Office is working to create a ‘Fairtrade’ procurement approach, building close relationships with social enterprise suppliers to make the most of available skills, help them to develop the commercial side of their operations, and ensure the rewards flow directly to the social enterprises, in the form of both commercial revenues and brand exposure.

For example, Rype Office is partnered with Greenstream Flooring, a social enterprise creating vocational training for long term unemployed in impoverished Welsh valleys and with a mission to provide flooring to low-income households.  Reclaimed carpet tiles cost less than new, reducing costs for business customers, and the revenues go to helping Greenstream Flooring to achieve its worthy social aims.

When it needs new box frames in sofas, Rype Office sources from the Merthyr Tydfil Institute for the Blind (MTIB), channelling expenditure directly to aid those with disabilities, thus avoiding value lost through sub-contraction.  Rype Office’s marketing activities help increase the profile of MTIB, and ‘telling the story’ to the client and those using the furniture highlights the social value of impact sourcing while increasing the appeal of the sofas.

Rype Office also employs disadvantaged staff directly for projects large enough to provide a meaningful period of employment.  This teaches vocational skills and creates employment pathways, helping to secure full-time/permanent positions at the end of the project.

Indirect impact

A ‘whole systems’ supply chain perspective can highlight opportunities to support workers, their communities and the local ecosystems they depend on.  Designing ecologically sustainable systems significantly improves resilience and resource security, simultaneously reducing the negative impacts of pollution, waste and degradation.  High profiles examples include Unilever, committing to Zero Net Deforestation by 2020 for four commodity groups: palm oil, soy, paper and board, and beef.  By 2025, Unilever aims to achieve a circular solution for its plastic packaging: either reusable, recyclable or biodegradable.

Environmental initiatives, such as the Forestry Stewardship Scheme, CanopyStyle, and socially-focussed schemes like Fairtrade, are increasingly influential.

Collaboration beats competition

Sector collaborations are springing up, with competing companies joining forces.  The Electronics Industry Citizenship Coalition (EICC) aims to make a positive impact on people and environment, supporting the rights and wellbeing of workers and communities worldwide affected by the global electronics supply chain, with a range of initiatives including responsible raw materials, chemical management, trafficked and forced labour, and working hours.

Cotton provides livelihoods for millions across the globe but leaves a heavy environmental and social footprint.  Typically, it takes more than 20,000 litres of water to produce 1kg of cotton, and unsafe use of agricultural chemicals has severe health impacts on workers in the field and on surrounding ecosystems.  Cotton 2040, launched in 2017, was developed by Forum for the Future with support from the C&A Foundation and involves industry standard and non-profit organisations.  The scheme encourages collaborative action across four work streams:

  • Building demand for sustainable cotton
  • Cotton recycling and circularity
  • Traceability
  • Upskilling for resilience

The Better Cotton Initiative (BCI) standard teaches practices that reduce pesticide use and increase cotton yields.  Now implemented across seven countries, it has reported yields and profits per hectare 23% and 36% higher respectively than conventional cotton farming, whilst using less water and chemical inputs.[iii]  Farmers in India are giving positive feedback:

“Before it took four to five pesticide sprays to control pests, but with the inclusion of sacrificial crops, my overall expenditure has reduced substantially.  By adopting best practices shared by the BCI team, my net profit has greatly increased.”[iv]

Making the business case

Circular economy approaches multiply the benefits of impact sourcing, including risk reduction, resilience and agility, and wider value opportunities.  You might explore ways to secure long-term supplies, by decoupling growth from resource consumption and ecological degradation.

  • Are your suppliers facing water scarcity, soil degradation, and climate disruption? Could they swap something toxic, scarce or expensive for recycled or renewable resources?
  • Can you support smaller suppliers with tools and training, help them diversify with new by-products and co-products, and become more resilient? Could they generate revenue from waste, through new by-products and co-products?
  • Is farming profitable enough to be sustainable, and attract the next generation? Could precision farming or other regenerative practices help?

Getting started

Investigating your upstream supply chain, perhaps using the Future Fit Business Benchmark, can highlight long and short-term risks – such as reputational, environmental, or security of resources.  Could you encourage suppliers to develop circular approaches with social benefits for workers and communities, creating a ‘win-win’ solution and shared value opportunities?  Assessing key services and materials could highlight some quick wins, and help get buy-in from other stakeholders.  Collaboration might enable a faster, bigger-scale impact for more complex challenges.  “Do no harm” can develop into “do more good”.

A positive impact

The circular economy reduces ‘externalities’ including pollution and degradation, and transfers jobs from extraction and mass-production to service, repair, remaking and resource recovery.  Resources are safe, secure and used instead of consumed.  Circular, sustainable approaches fulfil the Future-Fit system conditions, transforming a business into a force for good:  creating enough, for all, forever.

“Businesses that work on the basis of circular principles are amongst the fastest growing in the economy” Dr Martin R Stuchtey, McKinsey Center for Business and Environment[v]

[i] Tearfund Virtuous Circle report: UNEP (2015) Pollution is the largest cause of death in the world, source given as UNEP SDG fact sheet, available at www.gahp.net/new/wp-content/uploads/2015/03/UNEP_SDG_FactSheet_March13_2015.pdf ; malaria mortality figures from www.who.int/gho/malaria/epidemic/deaths/en

[ii] Interview by Tim Hunt of Ethical Consumer, (2013) http://www.ethicalconsumer.org/ethicalreports/mobilesreport/fairphone.aspx

[iii] Edie.net (Feb 2017) WWF: Third-party sustainability standards can advance SDG progress for business https://www.edie.net/news/7/WWF–Sustainability-standards-can-advance-SDG-progress-and-offer-business-opportunities/

[iv] Better Cotton Initiative, (2014) Stories from the Field

[v] McKinsey (2015) Growth within: a circular economy vision for a competitive Europe. A report commissioned by Ellen MacArthur Foundation.

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