Lessons from piloting circular business models in the fashion sector
Broad systemic change is key to creating the circular economy long overdue for the environment and the economy. Since 2018 Laudes Foundation has partnered with Circle Economy, Forum for the Future, World Resources Institute, WRAP, ReLondon and QSA Partners to help businesses roll out circular business models. Together we formed the ‘Bridging the Gap’ learning group, facilitated by Covox Ltd to understand how to move beyond pilots.
Our main conclusion, incremental and voluntary approaches, such as businesses piloting circular business models will only scale when regulation is on the horizon. The main lessons learned included:
- Policy change for transformational change
Two areas were identified as particularly impactful for enabling a circular economy. Extended Producer Responsibility (EPR), under which producers would have responsibility for the repair or responsible disposal of their products could be a game changer if it is accompanied by ambitious standards and a range of strategies. Even if actors chose the easiest options within such a policy, this option would still promote circularity effectively.
Tax mechanisms to enhance the competitiveness of circular business models, such as lower VAT for circular products or shifting away from labor taxes towards environmental taxes that are then distributed back to workers through increased social spending, could further enhance the competitiveness of such a model while potentially providing social returns such as more jobs. Currently labour tax and VAT structures reduce the incentive for businesses to shift to circular business models because they are more labour-intensive and offer less economy of scale than linear models.
- Necessity of financial backing
Any successful business requires financial backing. Therefore it is important to continue to lobby institutions for public funding for circular business models, but to also create structure where the state, and therefore the public, can share in the rewards, not just the risks. Businesses and investors also need to start to look at longer-term metrics for success (such as developing long-term service relationships), rather than just quarterly earnings.
- Focus where success with busines is more likely
It can be easier to start with businesses such as start-ups or private firms as they can think about business cases with a longer rate of return than listed companies. Circular Economy enablers should consider propositions to train industry in reverse logistics, as this is a training area welcomed and needed by companies. When starting to work with the company, identify an effective champion to help you, and find leadership beyond just the Corporate Social Responsibility Department.
EUR 1.2 million was granted by Laudes Foundation to support these initiatives, but there is yet no indication that major retailers are nearing full circular business model transformation. The risks for a major incumbent to spearhead such a transformation are too great for one company to take on alone. So, to move circular business models from pilots to full scale implementation, the industry needs to get behind government legislation for circular economy. This will create the certainty and level playing field for radical action.
- ^ William Lazonick, Mariana Mazzucato, The risk-reward nexus in the innovation-inequality relationship: who takes the risks? Who gets the rewards?, Industrial and Corporate Change, Volume 22, Issue 4, August 2013, Pages 1093–1128, https://doi.org/10.1093/icc/dtt019