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Can it Pay to be Green?


Who is to blame for climate change? A question which is raising its head more and more frequently. In my opinion it is down to the incentives that our current economic system provides. Consumers care about what they can get out of a product, whether it be happiness or functionality, and firms are looking to extract the most out of consumers in profits and data. Apart from a few select small firms, little emphasis is placed on the environment as it is not seen as the most profitable way to operate. The same goes for a small echelon of consumers who can afford to spend in an environmentally friendly way. We have to change the basis of economic thinking, and the way markets function. 

What is circular economics? 

It is a theory built on the idea of maximising the life span of resources. This can be done by changing designs. One example could be the laptop, phone or tablet that you are using to read this article. In modern culture, these products are designed to be replaced. They thrive off aggressive release schedules and updates,  designed for consumers to throw away the old model and replace it with a sexier new one. At that moment, those recourses those metals are lost despite them still having value and use. An environmental tragedy. 

Is there a solution?

Buying habits are hard to change. But there is power in the current system. I believe we can weaponize the current system to act in aid of planet, rather than against it. 

One specific example I would like to look at is Caterpillar, the American heavy machinery giant. They place huge emphasis on keeping resources in their value chain for as long as possible, enabled by their ‘CAT Reman®’ program. It places emphasis on the remanufacture, refurbishment and reselling of their products as well as maximising the life span of their materials. Reducing costs for the firm the customer and the environment. This has fuelled a growth of their value (market cap), from $37bn at the start of 2016 to $97bn at the start of 2018. This overhaul has been helped by a vertically integrated production process, which means they are able to design circularity into the business from the very beginning. It is a great example to show increased focus on circularity, and it adds value to a company and its stakeholders. This is a great indicator to other firms, that moving to a more circular model is a great way to increase value and profitability. It really can pay to be green. 

Smaller firms are also showing that it is possible to run a circular business and be incredibly successful, changes can be as small as changing the method of sale from a one-time acquisition to a subscription-based model. We can take a look at ‘Mobox’, a tyre company that operates a subscription model. This changes their incentives, it is no longer about building a good tyre that is designed to be bought again, but instead one that must last for as long as the materials allow, providing great help to the environment. 

With improvements in technology and research firms are able to do effective supply chain analysis and see where there is waste and inefficiency. Allowing them to either capture and reuse that waste or design it out of the process altogether. 

There is hope, although the market for circular goods is still very small, there is growing investment in these areas. According to investment weekly, “ESG fund flows up 37-fold in past 3 years”. There is increased focus on ‘extra-financial’ investing, this growth of socially conscious investing will help to rapidly expand the market for circular firms and will help to usher in the next wave of economic change. It might even shift us to a society which focuses on not only the economic factors but the social and environmental factors as well. At some point in the future, we can hopefully become a civilisation that can thrive within the means of the planet. 

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