In the current period, business transformation issues have acquired a special relevance. Among the key are digital transformation and ESG transformation. Circular economics squeezed linear one, so it is important not to get confused in terms and modern approaches.
Linear economics contains the simple principle “Take – Make – Dispose”. Such an economy is unidirectional: we extract raw materials, we use renewable or non-renewable resources, we produce product, packaging, energy, etc., we sell and deliver to consumers, we consume, then we turn into a form of waste.
This approach is extremely simple and understandable, so it has been dominant for a long time. At the same time, the linear economy carries significant financial and environmental risks to business, ignoring opportunities of recycling and reuse of materials, its feature is serious dependence on raw materials that leads, obviously, to the exhaustion of resources. In addition, linear economics creates a global problem with the growth of landfills, where all waste is buried, and very long time is required for its decomposition.
The concept of circular economics (circular or cyclic economics) assumes the possibility of reusing materials and waste-free production. Unlike linear economics, circular economics unites economics and ecology in principle of 3R: “Reduce – Reuse – Recycle”, which is important for ensuring that consumption of limited natural resources is slowed down. This concept expands to 5R over time, adding components “Redesign – Rethink”.
Obviously, all these stages require investments in the latest technologies and processes, and not all materials are recyclable. However, opportunities of saving and optimizing costs through recycling and reuse of materials, redesigning and reducing are really extensive. In other words, the circular economy is attractive not only from the point of view of integration with the environmental agenda, but also from a financial point of view. It gives business access to the new markets of the responsible consumption. Among other things, ESG financing is actively developing, which involves investors coding ESG factors in investment strategy and decision-making to minimize risk and provide sustainability management of ROI.
We distinguish socially responsible investing (applying the exclusion methodology in accordance with ethical principles); impact investing (applying methodology of conformity on social and environmental metrics, but not necessarily returns); PRI (Principals for Responsible Investment) investing (applying measurement methodology in accordance with environmental and social principles to increase returns); green financing (investment programs for verified green projects).
A circular economy has several advantages over a green economy. Firstly, biodegradable and eco-products are often significantly more expensive. And it is not always obvious, for example, what is preferable – plastic or paper bag that, as Greenpeace estimates, carries 5 times more waste. However, within the framework of the green economy greenwashing continues to develop.
Global economy, according to The Global Circularity Gap Report-2023 is only 7.2% circular (compared to 9.1% in 2018).
Further development according to the model of linear thinking according to different estimates will lead to emissions of 65 billion tons of greenhouse gases by 2030, in this context, many countries have accelerated the transition to a cyclical economy. The first national strategies and road maps for the crossing were presented by Germany (in 2012), China (in 2013) and Belgium (in 2014). Own initiatives were made public by international organizations such as the UN, the World Economic Forum, Association of Southeast Asian Countries (ASEAN), Organization for Economic Cooperation and Development and even the World Bank.
In Russia, among other things, a unique national project “Ecology” should be noted which has been implemented since 2018.
The circular model contrasts with the classical vision, but more and more states, companies and, in fact, people make a choice in favor of these responsible solutions. The “Responsible Consumer” appears – it means customer or buyer, who prefers products of companies that are responsible for environment and society. Such a consumer chooses consciously responsible goods and services (meeting the criteria of responsible consumption). According to various estimates, such consumers are ready to overpay from 10% to 30% for the products of such manufacturers. It is important for them that business, together with ensuring high quality of the product, implemented programs for environmental protection and social development. Similar priorities determine the portrait of the responsible consumer as the person leading responsible lifestyle, protecting the environment, taking care of education, economic growth and health supporting reduction of inequalities in all spheres.
Indeed, the linear model assumes the use of materials with “planned obsolescence,” products are produced from large quantities of cheap raw materials, and the production is designed so that it stops work after a certain period.
Not all consumers are interested in products from the fast fashion and fast food categories, which resonate more with the consumer society. Such people discovered benefits in the concept of sustainable consumption not only for their own environmental conscience, but also for the wallet.
Globally, a complex transition to a circular economy is key to Russia for a number of reasons. Beyond the obvious reasons, associated with the reduction of the negative impact on the environment, such transition is in the interest of the major stakeholders. Society gets many preferences, including increasing employment. Cyclic economy allows to solve the problem of forming a large amount of waste, as well as the resulting health problems. According to Rosprirodnadzor, in 2021, 8,449 million tons of production and consumption waste were formed in Russia. 3,937 million tons were utilized and neutralized for the same period.
For comparison: in 2016, these figures were 6,221 and 3,265 million tons, respectively. For recycling in 2021, 1,595 million tons of production and consumption waste were utilized.
The business gets the opportunity to optimize its costs. The problem of high carbon intensity of the economy is solved, which is especially important in energy sector, which accounts for almost 80% of all emissions of greenhouse gases. Taking into account the expected low level of indicators for the reproduction of scarce and strategic minerals, we should note the possibility of a cyclical economy to contribute to the solution of resource problems. Among other things, this is a prospect for the state to cut costs for the elimination of accumulated environmental damage through the introduction of new taxes. According to Rosstat, in 2021, the receipt of environmental taxes amounted to 3,982,7 billion rubles.
By Ksenia Sadykova, cand. econ. sciences, Assistant Professor, Basic Department “Innovative Management and Social entrepreneurship ” of Charitable Foundation for Support of Educational Programs “Captains”, REU named after G.V. Plekhanov