The willingness to implement circular economy principles among companies is there, and they acknowledge its economic and environmental importance. A recent report identified the 5 biggest barriers. We took a look at how these can be overcome.

When it comes to implementing circular economy, technological and regulatory barriers are surprisingly not key roadblocks at all. In fact, the top three of five barriers are culturally determined. These are the findings of a
joint survey between Deloitte, and the The Copernicus Institute of Sustainable Development, Utrecht University from October 2017, investigating the barriers for implementing circular economy.

The team surveyed more than 200 business and government officials as well as around 50 thought leaders, all generally very positive about circular economy, with more than half of the interviewees believing that circular economy will be implemented at scale in 10 years.

Prioritized by businesses, the five most pressing barriers were the following:

  1. Company culture
  2. Lack of consumer awareness and interest
  3. Operating within a linear system
  4. Low virgin material prices
  5. High upfront investment costs

Top three barriers – culture is impairing progress

As the first three barriers indicate, cultural barriers are the most salient ones. Most companies are still stuck in traditional business models, which impairs the transition to more circular ones. For those companies that are actually engaging in more circular modes of production, they are apparently met by disinterested consumers. When the whole product ecosystem including suppliers, consumers, etc. is often operating with a linear mindset and mode of production, circular economy is discouraged along the entire line. To overcome the cultural barriers there is thus a need for a systemic push. Critical mass to start creating real circular value chains however is still lacking.

The evidence that cultural or mindset barriers are the most pressing ones is backed by a brand new study from August 2018, assessing the barriers among EU countries. The study also found that not a single technological barrier could be found among the most pressing circular economy barriers, and that the market for circular economy is still a niche market.

“First-mover disadvantage

When looking at the non-cultural barriers, the fourth barrier of low virgin material prices is rightly addressed by the surveyed managers. For instance, fossil-fuel plastic is still cheaper than reused, recycled plastic, which means that the products based on circular economy principles are often more expensive than conventional ones. But as raw material prices are expected to rise due to political and climate change-related events, as well as critical scarcity within the next decades, there should be an incentive to reuse more.

The fifth barrier, high upfront investments, might give way to a “first-mover disadvantage” which explains why many businesses are hesitant. Businesses want to see the clear-cut benefits from others before they make their move. As one CEO put it “the first one that will invest in learning [about implementing Circular Economy] will probably lose money and only the second mover will earn a fortune. Hence, many people are now waiting for each other”. There is a tendency that businesses are lining up like penguins around a hole, waiting for the first to jump in.

It can be done!

Barriers aside, some companies demonstrate how each of the roadblocks can actually be overcome.

Addressing the first barrier about company culture, it is obviously not enough to just set up a circular economy strategy, there is a need to massage a new corporate culture that understands and practices circular economy. A company like Inditex trains 100% of their designers on circular design principles, making a circular mindset penetrate the entire organization.

To confront the lack of consumer awareness and make consumers more eager to buy into circular economy products, there are opportunities. Again it is about a mindset shift, making consumers collaborate and understand that they do not have a passive “end-user” role. The shift to Circular Economy entails more active participation from consumers, which can be hard to nudge. Some companies offer leasing models, which is in reality a long-term partnership between the consumer and company. Take Michelin, who morphed their business model from selling ‘tires as a product’ to ‘tires as a service’, having consumers pay per miles driven. It allows them to move from being a product manufacturer to become a service provider with full control over products throughout their life cycles. With such leasing models, manufacturers are also encouraged to produce more durable products.

A more intricate challenge is to find solutions that allow for the competitiveness of recycled material. In fact, with a lot of current regulation, it can be claimed that lots of virgin material is indirectly subsidized. According to the Deloitte report “change would happen quickly” if governments intervened, and first-mover firms might draw serious advantage.

Some interest groups are working in multi-stakeholder partnerships to propel this collective push. Consortiums and coalitions like Champions 12.3. and Global Fashion Agenda are collaborating to make circular modes of production much more attractive to businesses, governments, entrepreneurs and consumers. As Ellen MacArthur stated in The Sustainian, collaboration is everything.

Although mindset barriers are identified as the main barriers, the lack of regulation, incentives and sufficient infrastructure are still roadblocks. High upfront investment costs, could also be alleviated with the help from public investments, as private investors seem hesitant. In short, we won’t push markets without considerable support from governments. Some nations are pioneers in the field. Finland set up an ambitious strategy and roadmap to become Circular Economy forerunner by 2025, not least initiating a World Circular Economy Forum to gather top leaders within Circular Economy. Scotland, Holland and Germany also lead the way, with policies that could serve as best practice for other nations.