×

Finding $25 trillion in the trash

If you thought the Paris climate summit had fallen off the agenda after last month's success, think again. Here in Davos, we recognize many of the same business leaders we saw in the French capital. Climate change and resource scarcity are fully on the World Economic Forum's agenda.

The private sector knows that the Paris accord had its shortcomings. National commitments fell far short of goals to limit the global average temperature rise to less than 2 degrees Celsius, let alone 1.5 degrees. And there was no explicit move towards carbon pricing. But the direction of travel has been set and business leaders know that much now falls to them.


Timothy Allen | Getty Images

In the search for urgent action, most eyes turn to the carbon intensive sectors. But in fact, Davos is putting the circular economy center stage. The World Economic Forum on Tuesday hosted the Circulars, the annual awards that recognize innovation and achievement in the circular economy. That's for two reasons: Companies both large and small can make a big impact with circular models across multiple sectors. And the opportunity is one of massive growth. Breaking from today's model of 'take, make, waste' could unlock $25 trillion of otherwise lost revenues by 2050, according to Accenture Strategy research.

Think of it this way. As manufacturers rely on ever less stable sources of minerals, as Californian farmers rely on ever less reliable sources of water, the cost of doing business goes up, chocking off demand. The prices of metals like copper, iron, tin and nickel, nearly doubled between 2000 and 2015. The real price of oil in August 2015 was still 55 per cent higher than in August 2000.


The circular economy is often thought of as a means to avoid pouring waste into landfill. That's a mistake. In reality it's an opportunity to turn other forms of waste into wealth. Wasted assets, like the average car that lies idle for 90 percent of the day. Or the wasted lifecycles of products that are designed for premature obsolescence. And the wasted value of materials that are simply underused.

Partly in response to the volatile prices of cotton, Mud Jeans realized the best way to keep hold of materials for re-use was to lease their organic denims (at $5 a month) to a loyal customer base. That's given them a distinct edge in the market. Similarly, Philips is selling 'lighting as a service', charging customers not for LEDs, but for their usage.


The re-use of material is now becoming mainstream. In China, one company recently unveiled an apartment block entirely built from 3D printing from waste recovered from construction sites. Caterpillar Inc., saves itself and its customers considerable money and up to 90 per cent of energy use by remanufacturing millions of components each year. Dell, a winner of last year's Circulars awards, now ships over 80 percent of its laptops and tablets in sustainable packaging, made of materials such as bamboo, mushrooms and wheat straw.

There's another reason why the circular economy is big in Davos. The World Economic Forum's focus this year is the Fourth Industrial Revolution. In other words, the impact of digital technologies. And the circular economy is nothing if it's not a digital revolution. Mobile, analytics, cloud and machine to machine technologies drive many circular practices – from the sharing economy to tracking resource use throughout supply chains. In work we have done with the World Economic Forum, we suggest the societal benefits of digital are two or three times greater than the gains to industry. That's largely due to the environmental impact of these technologies. But policy change is needed to unlock this opportunity.


If Paris made progress, it was by beginning to make carbon intensive business too expensive to pursue. Now it's time to show that today's waste dependent business models are also obsolete. One way is to make waste too costly. Governments are more actively penalizing waste, reducing fuel subsidies and implementing environmental standards. But a better move would be to put the circular economy on an equal footing with today's linear economy. Taxing natural resources more and labor less would be a good start. Above all, governments and businesses need to broaden their definition of waste and recognize that it presents an enormous resource for generating growth.

Commentary by AccentureStrategy's PeterLacy, global managing director, strategy and sustainablity, and Jakob Rutqvist, senior manager, strategy and sustainablity practice. They are the authors of Waste to Wealth, the Circular Economy Advantage, published by Palgrave MacMillan. Follow them on Twitter @peterlacy and @JakobRutqvist.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.