Why does the circular economy offer the packaged good industry not only an opportunity that is inspiring – but one that makes sound business sense, too? Let me explain as I see it.
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What I am saying is this: We are not starting from scratch. Let’s see the circular economy as a genuine opportunity for further scaling up the sustainability of packaged goods, and a great business opportunity as well. Because the reality is: it offers both.
Today, when we dispose of used packaging, we not only create waste – or litter – we also throw away value. A recent research study by Accenture calculated that wasted value to be $1 trillion per year globally. The Ellen McArthur Foundation and McKinsey estimate that the FMCG sector could save €700 million in material costs.
It’s not so hard to imagine this if we trace the costs inherent in packaging alone: for example in Europe, manufacturers procure new or recycled packaging raw materials for billions of euros every year. In many markets, we pay taxes to put these packages on the market and EPR fees to have these packages collected and recycled, and on top, we contribute to anti-litter measures. In total, the European association for packaging in the environment (European) estimated that the European industry pays €3,1billion every year in EPR fees alone.
As we are thinking how to make the circular model work, we need to start looking at the entire lifecycle cost of packaging and see how to capture value along the packaging value chain: How about considering collection as a new way of sourcing quality materials? How about not only making our packaging material lighter, but also purer and simpler, to reduce cost at the beginning and the end of life? How about working together to enable technology advancement and innovation along the value chain?
Admittedly, making these disruptive changes is very hard in financial terms in times where oil prices at a record low and virgin material is offered at a fraction of the price of recyclates. As we speak, Recyclers across Europe are going bankrupt and closing shop. We risk losing the bedrock of the circular economy just when we want to ramp up.
It is a challenge for business and for policy-makers and regulators alike to balance these market failures and set the right incentives and framework conditions now. Internalisation of externalities, valuing natural capital use etc. are strategic concepts to will help to bring circular thinking into the language of finance and economics. However, it is also not inconceivable that, in a year’s time, we will look at an entirely different oil price and a turned financial situation for the recycling market.
This transformation is a long-term economic strategy, not a quick-fix solution. Or in the words of Warren Buffet: ‘Price is what you pay; value is what you get.’ Let’s keep hold of that value even if the price is not right, yet.
I am confident we can make the business case for the circular economy and, over time, make the big changes I’ve mentioned a reality. And the reason for that optimism leads me to two of the key drivers that I think will help us achieve a truly circular economy: game-changing innovation and effective legislation.
This article originally appeared on LinkedIn as part of a four-part blog series from Ulrike Sapiro, Coca-Cola’s director of sustainability for Western Europe. Read the next posts in the series: