To reach Net Zero, we will need to step away from business models which rely on patterns of production and consumption that are fundamentally incompatible with a Net Zero world.

We need innovative business models that embrace novel ways of designing, producing, and using products and services.

In this episode, we explore the exciting possibilities of the circular economy with Andrew Morlet, Chief Executive Officer at the Ellen MacArthur Foundation, and Aleyn Smith-Gillespie, who leads the Carbon Trust’s work on the circular economy and business model innovation.

[00:00:22] And the challenge really that companies have is to create the business model of tomorrow while still operating the business model of today and to then manage that transition from one to the other. Welcome back to net zero. What's innovation got to do with it? The podcast where we explore one of the critical ingredients for decarbonizing our economies at breakneck speed. Innovation. I'm Simon Retallack and I'm Nina Foster, and together we lead the Carbon Trust's Net Zero Intelligence Unit. So far in the series, we've covered why innovation is so important in the face of an urgent crisis, and also why we need to deploy innovation to rapidly scale up existing technologies.

[00:01:37] That's right. Many business models rely on patterns of production and consumption that the planet simply can't keep up with, and for which technological innovation alone cannot provide the answer. To reach net zero, we'll need innovative new business models, which embrace different ways of designing, producing, and using products and services.

[00:02:15] Welcome Andrew and Hélène. Thanks, Nina. Thanks, Simon. Pleasure to be here. Thanks for having me. Um, a good place for us to start is to explore why companies need to rethink their, their business models in the first place and what the alternatives to business as usual might be. Andrew, clearly the Alan MacArthur Foundation is well known for inspiring businesses and other organizations to reinvent themselves, which is no easy feet.

[00:03:04] with, uh, models that were essentially extractive economic models. They, they really were relying on the use of finite materials that were essentially discarded and, um, taken out of the economy in, in very short order. And it always struck me that that was really quite a challenging model to maintain over a long period of time.

[00:04:07] Thanks very much for that. We look forward to diving into some of the topics that you raised there. But before we do, Alain, I'm going to turn to you. Obviously, we know that businesses are critical to determining whether or not we reach net zero. After all, they make or sell most of the products which cause emissions.

[00:04:46] So the scale of change that's needed really requires a, a substantial rethinking of how a company. Manufacturers, producers, sales, products, um, and all that, uh, at the core will require a decoupling of a company's activities or our economic activities from environmental impact from carbon emissions, whilst at the same time, ensuring that we still have thriving economies and societies.

[00:05:35] And, and, Alain there, you just talked about the importance of decoupling the business model from, um, uh, resource intensity, and that, of course, touches on circular economic, um, models, and that's really what we want to zero in on today is the ability of businesses to transform into circular businesses. So, Andrew, if I could come to you on this as a leading voice.

[00:06:30] A way of thinking about systems and system solutions and what we're essentially promoting is the idea of, of, uh, the circuit economy as a framework for system solutions that really are based on three fundamental principles. Um, the first one is to, to eliminate, um, materials that are not necessary, uh, to be added into the economy and to eliminate toxin, toxic materials and problematic materials from the economy.

[00:07:56] Um, and the third principle is about, uh, regenerating natural systems. And this is super important because a lot of people again, think of the circuit economy is really only relating to technical materials and how they're used in the economy. But what we're promoting is this idea of, of technical materials and the biosphere or the technosphere and the biosphere.

[00:08:44] So, we make space for nature on the, on the one hand, but then we want to actually design into the economy nature positive intent. So, Again, it's eliminate, circulate, regenerate, and all by design. So it's not, you know, how we deal with things after they've been used, but how we design this intention into the system from the get go.

[00:09:39] Having an opportunity to apply this thinking. So that ranges from, you know, washing machines and refrigerators in your house to the plastics packaging that you get your food in, the food itself and how that's grown, the cars you drive, the buildings you live in. So it's, you know, the clothing you wear, if you think about the topic of clothing and fashion, the potential for changing business models from one where you buy very cheap clothing that you use once or twice, they sit in your wardrobe for ages, and then you throw them away effectively.

[00:10:56] So you've seen the innovation in. Fashion where you've got, uh, reuse models and resale models emerging. And there's a number of these that, you know, companies like Rent the Runway who have become, uh, what's referred to as a unicorn in terms of being a billion dollar business, uh, in very short order. And there's several of those.

[00:11:47] packaging manufacturers innovating and spending literally billions of dollars on innovation and new systems for, uh, circularity. So you've got both ends, uh, of the big players and the small players. I think it's super interesting that mix because, um, Big companies often struggle with, struggle with the innovation and adoption of those ideas.

[00:12:29] Clearly the benefits are there. From an energy point of view, climate point of view, broader sustainability point of view of a circular economy. But what's in it for individual companies? What are the sorts of benefits that you've seen circularity bring, um, at a sort of company level that, that means there's a powerful business case for them to do this?

[00:13:19] And, um, this was, uh, essentially taking an engine block and instead of, you know, trashing it or scrapping it and then recycling it, that is, you know, expending a huge amount of energy to melt the metal and turn it back into a casted block. They were re manufacturing the engines. So they were essentially taking a used engine.

[00:14:01] It's, it's remanufacturing was, you know, extraordinarily profitable. And you see companies like Cat, Caterpillar, John Deere, many of the industrial players, uh, in the, Mining space and heavy equipment use remanufacturing as an example, and it's, it's extremely profitable. That's an interesting example, but there are, you know, there are, there are numerous other ones where we're seeing companies who are trying to essentially, um, de risk their value chains by establishing, um, more, Integrated relationships across their value chain.

[00:15:12] So a good example is in the food space with Companies who are now investing much more closely with their farmers and sort of working out how they can ensure that they've got more regenerative food production that is more viable in the longer term, more resilient to climate change and more resilient in terms of creating community value.

[00:15:54] And then I wonder what you think of those sectors that Andrew has picked up on. Do you think those are the sectors that are most ripe for the circular economy? Or are there any others that you think are really well positioned for this kind of innovation? Well, I share Andrew's view that all sectors have the potential to tremendously benefit from this type of business model change and finding better ways to create value and to give value to end customers is.

[00:16:43] That's what we need to do, uh, but this huge shift that we're going to see from, and we need to see from fossil fuel to renewables will be basically shifting, uh, resource intensity from fossil fuels, but still towards, uh, materials. You know, of course, you need a lot of materials, a different wide variety of materials, many of which are environmentally sensitive or have created environmental damage upstream, as Andrew is mentioning in the supply chains, um, whether it's batteries or wind or solar.

[00:17:39] And, uh, we have, you know, programs with a number of companies in these different sectors, and they're now becoming more and more conscious of that fact. The oil and gas sector, clearly critical in all of this, uh, is circularity appropriate for them? Are there limits to, to, to the circularity model when it comes to oil and gas, do you think?

[00:18:22] But you've got to, you've got to make the distinction between the companies and the businesses that are. Investing heavily and trying really hard to find innovative solutions, um, from the others who are not, who are just simply, uh, you know, biding their time and, and, you know, maximizing their profits through the extractive cycle and, um, We have to get policy aligned towards the front running innovators to help them to be able to move further and faster.

[00:19:24] And they need, they need regulatory help to be able to do that more. And they need to be eco, need the economics to work through the leveling of the playing field. Because you can't have, you know, companies who are investing in very, you know, very significant transformations being penalized because they're not able to match the economics of the extractors, the people who are not doing that.

[00:20:09] That's essentially the point of saying this is not a waste and recycling issue alone. It's about stimulating design of solutions, and that takes many forms. You know, the way in which we, um, educate, uh, you know, in education, how we we orient new engineers and designers for this topic, how we can stimulate, um, Innovation and research and innovation through government expenditure.

[00:21:08] The other one is around investment, uh, for infrastructure and for, uh, innovation and for, uh, for learning, for skills. So, uh, we should be, you know, governments should be investing specifically in those things. Um, the other one is, is around, um, establishing collaborations between public and private sectors.

[00:22:05] So those are the five. Stimulate, uh, design, um, make the economics work, invest in infrastructure and, uh, innovation skills, um, collaborate for systems change and, uh, manage resources to preserve their value. You've just outlined there, you know, quite how many different actors are involved in this transformation.

[00:22:48] Um, what we did was we created a, uh, an initiative called the Global Commitment. We originally had a group of around 10 10 companies that came together around this topic and said, uh, you know, we need to create a set of. Um, definitions, a vision, a reporting mechanism, um, a, um, a, a, a program office for sharing information and learning in, in, into a challenge and we created the, the global commitment, which was set off in 2017.

[00:23:56] And an important thing there was, you know, you had to have the definition of what each of those things meant. So there's a working definition established and a timeline and measurement, et cetera. So they've made huge project progress on this over the years. Um, but what's really interesting about it is that you've got innovation within the actors themselves who, who in five years have taken off market.

[00:24:44] So that's a pretty big shift as a voluntary commitment by these signatories. Why that's super important is that that the leading actors showed policymakers what's possible, and that's informed many of the national roadmaps. And it's now informing the global commitments. I'm sorry, the The global treaty for plastics that is in process at the moment, and you've got a group of of high ambition, uh, businesses, the business coalition that's actively trying to inform policy to say these are the things we need to get in place, whether it's infrastructure, whether it's materials design, whether it's financing, et cetera.

[00:25:54] What role do you think, do you see here for regulation to, to accelerate the, the, the the move to a more circular economy. Regulation certainly has its, has its place. Uh, and I think as was referred earlier on, one of the, uh, aspects is that it needs to be fair. It needs to, uh, ensure that, uh, everyone's operating on a, on a balance, uh, sorry, on a, on a level playing field.

[00:26:42] And many times these have Significant benefits for consumers, for end customers, actually, they all really point in that direction and for society as well. So it definitely has its place, um, but it's best done in collaboration, I think, with industry, uh, because then you get informed regulation and you also have industry that is buying into that whole process.

[00:27:19] They can take action now, can seem quite quickly. Overwhelming for some, where, where would an individual company start on this journey of reinvention from your perspective? Yes, uh, so companies really need to be anticipating what's going to happen in the future. Uh, I think there are learnings from past discontinuities, uh, whether it's the advent of the internet, uh, you know, over 20 years ago, um, or, or others that we've seen since.

[00:28:26] of tomorrow while still operating the business model of today and to then manage that transition from one to the other. And it's a huge challenge for companies that are established as opposed to startups who can start from, from a blank slate. And so, um, That, that highlights really the importance of leadership in a company, and we see those companies that have taken a strong stand are those where the CEO, the senior leadership is really taking that on board, and then that percolates down into the rest of the organization.

[00:29:27] So what companies need to do is effectively where the external pressure doesn't yet exist to give them themselves that innovative pressure internally, um, and then, of course, put the resources behind that, you know. bring teams to coalesce around those goals. And every single business unit, every single function within the company then starts to can start aligning behind that.

[00:30:11] Um, because it's a journey that, that, you know, companies are going on and departments and companies in different parts, different departments and companies are going on. So, you know, I think your question about where to start is, is the point is to start and to treat it as a learning journey. And I think the what we found is that these collaboration platforms or finding ways to collaborate, you know, pretty competitively and across value chains is is hugely helpful because there's, uh, there's so many common learning challenges and, um, Uh, opportunities that exist through, uh, sharing, you know, as everybody transforms that, um, companies should seek them out and they, they should really, you know, see this as a, as a fundamental transformation.

[00:31:24] So, Alain, I wonder if you could explain a little bit about why that collaboration with suppliers is so important to business model innovation. Well, in the context of, uh, of climate, the, uh, I think it's probably also applies to nature, nature based impact as well. The vast majority of the impact, especially in the manufacturing sectors, lies in the supply chain.

[00:32:33] How shared value can be created. So there's a great examples of companies that open up really the process to the suppliers. We actually seek the suppliers for the solutions as well that they may not be able to find on their own. And to co design, co create, uh, and co invest in the process. And then also Co benefit.

[00:33:16] So we have, uh, in, in our current program that we're running at the moment, which Call the, uh, it's a joint industry program for, uh, sustainability in the offshore wind sector, uh, 11 or 12 of the biggest developers in the world are coming together around a common challenge, which is to decarbonize the supply chain because they realize they need to decouple ultimately to be more resilient and they're working Uh, together to create a set of common standards, ways of increasing transparency in the supply chain for data, uh, and then also to, uh, drive the innovation that they see as needed to bring down emissions going forward.

[00:34:11] So supply chain collaboration, clearly vital. Another really vital piece of this seems to me at least to be consumer engagement. Clearly for a circular economy to become reality, we need. consumers to be buying less, sharing more, handing products back to be refurbished, etc. Um, how do we leverage the power of, of the consumer, Andrew, from your perspective?

[00:35:02] Um, because, um, short of policy changes and policy changes really work, I mean, if you look at the, uh, the plastics bag, the plastic bag 5P charge that was introduced in the UK a few years back, it completely Took them off the market in in no short order and the take up of reusable bags by people is just a no brainer and people are very, you know, happy to do it.

[00:36:05] You open the cupboard. It all falls out. You know, repack it and You know, a week later, it's a jumbled mess again. I mean, we all experience in our kitchens every single day the dilemma of plastics packaging. And, you know, if we were to do some simple things like design, put design standards in place, and to converge on bottoms and tops that fit it, for example, develop systems where you could return packaging easily and conveniently.

[00:37:16] I mean the fact that we call people consumers is a problem And you know us around the table here who are a fairly well educated bunch, you know We're trapped into this mindset that it's a you know We, we, we treat people as consumers and we say it's their problem. It's not really their problem. It's, it's what we put on the market and how we, how we market and we, we, we advertise and the system service solutions that we offer.

[00:38:08] Um, and it would be good to discuss how we might create a system like that. Um, creating, creating a system where material flows are tracked. Does that happen at a business level, an industry level? or a city level. What do you think, Andrew? I think it's all of the above. Increasing transparency is, you know, a huge part of the, um, solution.

[00:39:00] Uh, the, the annually reported, um, volumes on market by companies who are participating. They're telling us how much, what's the volume of plastics they're producing, how much of it is using recycled content, what are they investing in reuse, uh, how are they actually, uh, um, looking at compostables and other, other materials innovations.

[00:39:52] Uh, be able to make better choices of the solutions that emerge. And, you know, that, that spans from everything that we do in terms of advertising, labeling, but also, you know, what we put on our cereal boxes to help people understand the story of their food. I mean, you know, really basic stuff. You know, I think there's a combination of, of regulatory mandated standards and reporting and independent, um, independent certifications and those things, but it's also the way in which, you know, companies can tell their stories as well, because most people in the public don't know what regenerative agriculture actually is, but they, they do understand that.

[00:41:17] So I really hope that that will be addressed very quickly. The second area, which is a personal pain point of mine, is that I would love my electronic devices to last a lot longer than they currently do. So I certainly hope that will be improving. And, uh, thirdly, uh, I, uh, must say I, I am, um, a, a, a bit of an online shopper, like perhaps most of us, uh, uh, and also, um, you know, I go to the supermarket a lot to do errands and packaging is a very big issue that I think, uh, needs to be dealt with, um, making sure that packaging is not, things are not over packaged, um, but also, um, that it's dealt with in the right way as well.

[00:42:24] And, um, so hopefully we can make some real progress on that. Um, I think the third thing for me is. Actually related to the transformational technology space, you know, we're at this moment where we're seeing, you know, explosion of artificial intelligence possibilities and digital, and I would hope that we see, you know, some fundamental breakthroughs in material science in the ways in which we are able to see transparency and, and You know, imagine a world where you can go into a supermarket and you point your phone at whatever it is and it tells you exactly where it came from and exactly what's in it.

[00:43:36] Yeah, I agree. And we're far off from a fully circular economy. But I think what I took from this discussion is that businesses can implement changes within their own organisation, and also beyond that with their suppliers. And those initial steps can already drive quite a big impact. Absolutely. Well, we've got one final episode left in our series, which means only one more type of innovation to discuss.

[00:44:22] You can also follow the Carbon Trust on social media to be the first to hear when it comes out. Until then, thanks very much for listening.