Considering the Larger Business Implications of the Circular Economy in India: An Ongoing Conversation

The circular economy is fast being perceived as a business enabler rather than an impediment. With tightening rules and regulations around emissions and waste disposal, businesses stand to make more savings by opting for a “waste not, want not” approach. I will leave the implications for the environment and our planet aside for a while and focus squarely on the implications for businesses and for-profit organizations.

As opposed to the traditional take-make-dispose linear production (which has stayed entrenched since the industrial revolution until now), a circular model helps businesses to:

● Comply with regulations and potentially qualify for subsidies and other incentives

● Reduce dependence on external supply chains, which can be a boon during a disruptive crisis such as the COVID-19 pandemic

● Engage with customers on a values level, thereby strengthening relationships beyond a transactional exchange

● Generate profits in new ways, like servitization that extends equipment lifecycles

● Prepare for expansion to new geographies that might have stricter compliance policies

However, at least at the early stages, it won’t be all smooth sailing. The circular economy and equivalent business models can prove notoriously difficult to adopt in the real world, and might even destroy certain lines of businesses as we know them.

Barriers to Circular Business Models

Gartner’s research reveals an interesting insight on why circular business models aren’t more popular despite their obvious benefits: companies find it difficult to engage with customers in order to procure materials that have reached the end-of-life stage. Let’s say that a popular fashion brand advertises a drop-off facility for old and discarded clothing. In exchange, customers would receive a discount coupon, store credit, or even cash. It is unrealistic to expect that 100% of buyers will opt for the facility and actively contribute to the brand’s circular business model, no matter the incentivization.

Then there is the matter of supply chain centralization. Traditionally procured raw materials, end of life materials, and recycled supply from waste vendors must be consolidated to power an efficient and sustainable production pipeline. This requires a major overhaul of existing supply chain structures, not to mention the question of getting ROI from reclaiming a poor quality material.

Finally, the impact on small businesses that relied on the traditional linear model has to be considered. Wastewater treatment plants, solid waste disposal companies, e-waste recyclers, and other lines of businesses that depend entirely on the traditional way of doing things will need to be rehabilitated. And this affects India’s unorganized waste management sector very severely.

Rehabilitating Impacted Businesses and the Unorganized Sector

For organized businesses, this means rewiring supply chains, value streams, and customer bases that have existed for decades. For example, a standalone e-waste recycler would need to upskill resources and onboard new technologies/techniques so it can partner with larger businesses towards shared goals. There’s no denying that some business models would be rendered unusable, even as new processes take their place.

It’s a far more difficult proposition for the unorganized sector. In India, ragpickers comprising the informal waste management sector, comprise anywhere between 1.5 million and 4 million individuals. The national capital alone employs 500,000+ workers for this task. Given that nearly 90% of the country does not have a standardized waste disposal system, creating an orchestrated and organized pipeline for end-of-life procurement will require formidable effort from businesses.

As we ink new policies, partner with international bodies, and encourage large corporates, this backdraft has to be proactively addressed to get sustainable gains.

In recent news by Navhind Times “ The National Green Tribunal (NGT) has approved the business models suggested by NITI Aayog to curtail the time-consuming process of preparing the detailed project report and tendering for projects under solid and liquid waste management as well as legacy waste remediation, which have been the main issues faced by different states in non-compliance of NGT orders. The three-member bench of judges comprising Adarsh Kumar Goel, S P Wangdi and Dr Satyawan Singh Garbyal, said that the models suggested by NITI Aayog should be acted upon by all states/UTs as per viability to shorten the procedures.

NITI Aayog has formulated the Model Concession Agreements (MCAs) and Model Request for Proposals documents (RFPs) for Integrated Solid Waste Management (including Bio-Remediation of Legacy Waste) and Integrated Liquid Waste Management (including Faecal Sludge Management) on Hybrid Annuity Model (HAM) of public-private partnership (PPP) which have been uploaded on the Government e-Marketplace (GeM) portal for easy adoption by states to undertake solid and liquid
waste management.”

We are seeing moves from National Green Tribunal and NITI Aayog to address a long outstanding demand to address segregation of waste management and modernize waste collection methods. Many service providers and technology companies like Ajeevi Technologies which focused on waste management have an opportunity to use IoT and Analytics for improvement in collection techniques, management of waste and driving efficacy & efficiency of the process.

Towards Long Term Wins

While incentivization for business is necessary, our eyes should ultimately be on long-term wins for the country, future generations, and the planet as a whole. The bottom line is that businesses are now operating on finite resources with an incrementally decreasing capacity to support growth. Research suggests that a circular economy development path could cut carbon emissions by half by 2030, much lower than 2018 levels. This would save governments billions of dollars — for instance, soil degradation costs approximately $40 billion every year. And businesses would gain from trickle-down benefits in the form of subsidies and ease of doing business concessions.

Fortunately, the technology now exists to support such an ambitious roadmap, from enabling supply chain reorganization to driving customer awareness and innovative ways of handling waste. To take a simple example, IoT sensors embedded in cars could help track vehicles across their lifecycle so that the manufacturer could reclaim them through their own efforts or via a local partner no matter where the car is discarded in the world.

The first step, I firmly believe, would be a detailed assessment of your existing operational strategy with a candid look at waste production and linear business models. Right now, just 16% of US businesses have adopted the circular economy framework (62% plan on doing so) — and the number is expectedly lower in less mature economies. Businesses must realize the clear opportunities they are missing and the mounting costs of not going circular in the next few years. This realization, actioned in the form of circular operational strategies and customer awareness initiatives will help save our planet in the long term. In India the CEO of NITI Aayog way back in mid-2019 recognized that “Circular economy has the potential to generate 1.4 crore jobs in the next 5-7 years & create lakhs of new entrepreneurs. Resource circularity is need of the hour to implement circular economy.”

Let us see how we progress to the path of circular economy and create new jobs while managing our natural resources better.

Comment below with your thoughts. You can also continue the discussion with me at Arvind@AM-PMAssociates.com.