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Report: Towards a Circular Economy in Asia

Report: Towards a Circular Economy in Asia

Posted on Tuesday, June 17, 2014

A look at the concept of The Circular Economy and why it can play a potentially critical role the developing world.

Long-term economic development is high on Asia's agenda, but how this change will come about remains highly contested, especially since it is competing with other pressing issues - from rebalancing and financial stability, to environmental concerns, social unrest and security threats. A paradigm shift is necessary to raise the quality of economic growth, while offering rich rewards across societies for businesses and citizens, moving away from the depletive cycle induced by the current "take, make, dispose" model.

The challenge of transitioning to growth models that are effective in the long term is complicated by widespread debate over its nature, from both economic and business perspectives. Questions remain regarding how to foster such growth and help new models reach scale. Due to its systemic nature, the shift involves all members of society - businesses, banks and financial services, policymakers and regulators, as well as consumers - but the sequencing of change is contested. Businesses say that they are waiting for better regulation, more funding and for consumers to be willing to pay. Consumers say that businesses need to act and radically change their products and business models. Regulators say that some sectors, including consumers, are resisting change.

In such circumstances, how do we turn a vicious cycle into a virtuous one? Who should take the lead - policymakers, businesses or consumers?

Undoubtedly, policy can play a decisive and leading role. Three decades of strong and fast growth in China were ignited by Deng Xiaoping's opening-up policy in 1979, one of the world's great examples of policy-driven change. Of course, business creativity and entrepreneurship, as well as favorable demographics, played critical supporting roles; but at its heart, this was a decisive policy measure meant to change the nature of the economy.

Today China is attempting to enact another policy-driven economic transformation by rebalancing its growth to ride higher on the value chain and be more socially redistributive and environmentally sustainable. While the jury is out on the larger questions of transformation, measures such as environmental taxes, carbon emissions trading zones, administrative guidance on pollution and financial incentives are already having an impact on business and industry in the locales where these are being instituted.

While China offers a window into how top-down policy can produce change, not all governments or economies are able to adopt similar approaches, nor is the top-down approach always the best way to bring innovation and business creativity to the fore. Arguably, the best example of a non-policy based game-changing driver in recent years is the Internet, which transformed business, trade, communications and consumer habits from the ground up. The fact that the changes took place in a very uncoordinated and spontaneous manner made possible a very high level of innovation that would have been unimaginable under a top-down framework.

Businesses that are interested in the long-term and believe in collective responsibility are thus confronted with the task of making real their contributions to positive development within the context of their operational, financial and business needs. It is all about a better way to do business, continuing to produce valuable goods and services profitably, while helping to safeguard and rebuild social as well as natural capital.

The business models that will carry this out are being explored today, and it is in this spirit that the Ellen MacArthur Foundation and Fung Global Institute have partnered to put forth the circular economy as one such model that could hold much potential for Asia. A workshop was held in Hong Kong in April 2014, bringing together over 40 business leaders, investors, researchers and others to explore issues related to Asia's adoption of business and growth models that support sustainable development.

This report summarizes the outcomes of the workshop and introduces the concept of a regenerative circular economy, which expands on the established practices, such as recycling and remanufacturing, to address key issues around resource efficiency, waste and value recovery within supply chains. It is an idea that is both attractive from a purely commercial perspective, as well as for sustainability.

We hope that this serves as a starting point for further discussion and experimentation on the role of business in sustainable growth and prosperity. We also acknowledge that solutions for sustainable growth will not be found in a single model, no matter how compelling the model may be.

A wide variety of organizations, businesses and thought leaders have suggested a range of other models for sustainable business, which also deserve our full consideration. For example, FGI has looked at Sustainable Lifestyles, in which products are conceived and designed to help consumers make more sustainable choices in their daily lives. Other businesses are trying to structure themselves around the concept of Creating Shared Value, in which businesses create economy value in a way that also generates value for society. Still others build strategy based on principles such as ethical sourcing, social impact investing and human-centered development.

For much of the world, creating pathways towards regenerative development, which decouples growth from the consumption of finite resources and helps rebuild capital, represents new terrain. Ideas and models will need testing, iteration and refinement, even as they are scaled to address urgent issues across the economy, society and environment. We hope this report will be a step in that direction.

Asia Global Institute

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