Connected Systems: A 4th Principle for a Resilient Circular Economy
The circular economy has already captured broad business interest for its ability to drive innovation while minimizing resource use and designing out waste, helping corporations reimagine business models, products, and supply chains that align with a healthy climate.
However, the coronavirus pandemic, compounded by longstanding racial and gender inequality, has demonstrated that businesses cannot be successful without simultaneously solving for both the climate crisis and extremely high inequality. Social trust, physical and mental health, educational performance, economic growth, and quality of life all drop as inequality rises. As UN Secretary General Antonio Gutteres recently stated, “Everything we do during and after this crisis must be with a strong focus on building more equal, inclusive and sustainable economies and societies.”
Through the leadership of the Ellen MacArthur Foundation, three clear principles for the circular economy have emerged, based on natural systems:
(1) Design out waste and pollution
(2) Keep products and materials in use
(3) Regenerate natural systems
With the addition of one more principle, also taken from natural systems, the circular economy has incredible potential to shift the system towards a more inclusive and equitable economy:
(4) Distribute economic resources (opportunity, income, wealth) for inclusive, empowered participation
‘Distribute economic resources’ refers to intentionally choosing business structures that actively circulate opportunity, income and wealth to a broader group of owners, employees, suppliers, and regions, thereby enhancing resilience. Employee share ownership and local refill operations are examples of distributive business structures.
Greater distribution is a valuable precursor to inclusive, empowered participation. However, inclusion is an active process and ongoing choice. Inclusive business models are commercially viable models that benefit lower-income or marginalized communities by actively designing for them as customers, and/or including them on the supply side as producers, entrepreneurs or employees.
We’ll simplify this principle to ‘Distributive and Inclusive’ for ease of reference.
Kate Raworth, the author of Doughnut Economics, points out that 21st-century economies will need to become distributive by design, to “fit into the doughnut”, the safe and thriving space for humanity.
John Fullerton, the author of Regenerative Capitalism, highlights eight principles of regenerative systems, including Robust Circulatory Flow and Empowered Participation. He points out that just as human health depends on the robust circulation of oxygen, nutrients, etc., so too the circulation of money and opportunity are particularly critical to individuals, businesses, and economies reaching their regenerative potential.
In its Nature’s Unifying Patterns Design Checklist, the Biomimicry Institute identifies that nature distributes resources and incorporates diversity resulting in resilient, sustainable systems. Nature also rewards cooperation, so the checklist asks if your company fosters symbiotic, cooperative, community-based relationships.
At the moment, most solutions to inequality are focused on government policies (tax and redistribute, raising the minimum wage), while charities and non-profits work tirelessly to treat the symptoms of poverty and exclusion. While these are essential, they are insufficient. Given that current business and financing models concentrate income and wealth, and thus are key contributors to inequality, we cannot leave it solely to the government to redistribute. We must also leverage the potential of business to “predistribute” wealth, as Kate Raworth and others have pointed out.
What Might “Distributive and Inclusive” Look Like?
There are four key areas - ownership, operations, products and services, and supply chains - under the direct control of every business that leaders can leverage to “predistribute” opportunity, income and wealth. Distributing and circulating resources in these four areas deliver direct business benefits and will strengthen the resilient systemic impact we seek in the transition to circular.
The following framework presents opportunities for businesses and long-term investors to adopt the ‘Distributive and Inclusive’ principle to enhance resilience, innovation, and productivity.
Figure 1: Distributive and Inclusive Business Framework
Individually, these concepts are not new. For example, business leaders in the UN Business Call to Action are market leaders who recognize that inclusive business drives innovation, builds markets, strengthens supply chains, enhances competitiveness and uncovers profitability. Leading enterprises are implementing some aspects of this Distributive and Inclusive Business Framework, though they are often limited to low levels of distribution and inclusion by the primary focus on efficiencies to minimize price and maximize shareholder profits.
However, as companies design new products, new business models and rework their supply chains towards circularity, there is a critical opportunity to reap the business benefits of ‘Distributive and Inclusive’ in all four business areas. Simultaneously, a more resilient system that helps to solve for both the climate crisis and inequality is created.
The concept of inclusive workforce is well understood, with many business leaders recognizing the need to improve diversity and inclusion and a range of organizations advocating for investing in skills training and living wages. The Better Jobs Strategy is an excellent example of the business benefits of investing in people, and valuing employees as assets worthy of training investment rather than expenses to be minimized facilitates this shift.
Shift Circular is focused primarily on raising awareness of and developing strategies, partnerships, and toolkits to enable businesses to advance distributive and inclusive ownership, as well as distributive and inclusive value chains.
Circular, Distributive and Inclusive Businesses Leading the Way
Below are just a few of the companies that inspire us and showcase possibilities.
Distributive and Inclusive Ownership and Wealth
According to research from the Democracy Collaborative, democratic governance and shared equity improves business performance, builds stronger communities, and often results in innovative approaches to protecting the environment. Some examples of businesses embracing this strategy while advancing the circular economy include:
A $1.2 billion employee-owned resource recovery company, Recology also recognizes the role of arts and culture in enabling the communities they serve to “see” their vision of a world without waste. Their innovative Artist in Residence program enables us to see the value in discarded materials.
Chandos is Canada's only B Corp Certified commercial builder. It is 100 percent employee owned with a deep commitment to social procurement, waste reduction, diversity and inclusion, and Indigenous reconciliation. Last year, 80 per cent of waste generated on its sites was diverted from landfills and it committed to shifting at least 5 per cent of addressable spend to social enterprises and businesses owned by equity-seeking groups by 2025.
CERO is an award-winning commercial composting company, contributing to a circular food system in the metro Boston area. As a worker-owned cooperative they are built on the mission of improving communities, creating good green jobs for Boston’s working class and communities of colour. CERO raised capital through a community Direct Public Offering.
Distributive and Inclusive Value Chains
As highlighted in Figure 2, resilient natural systems are actually more distributed and diverse than efficient. Yet most large enterprise supply chains, as they seek efficiencies and cost savings, follow a Pareto distribution, where ~80% of the spend is with only ~20% of the suppliers. We recently observed this lack of resilience first hand as supply chains struggled to deal with the onset of the pandemic. Roger Martin, leading business thinker, recently wrote “…an excessive focus on efficiency can produce startlingly negative effects, to the extent that superefficient businesses create the potential for social disorder”.
Corporate leaders, such as L’Oréal, are not only redesigning products for circular packaging, but also investing in inclusive purchasing, and living wages in the supply chain.
Below are a few businesses that highlight the innovative potential of circular, distributed and inclusive value chains:
Materiom is an innovative renewable materials research collective developing biomaterials based on natural chemistry. It is women founded and led, with a vision to develop locally based, biomaterial supply chains.
Rheaply enables reuse and asset recovery, specializing in enterprise asset management technology for the circular economy. It is a minority founded and led busin ess that leveraged its technology to ensure that resource and equipment poor parts of the Chicago health system were able to source PPE during COVID.
Biohm aims to revolutionize the built environment through the development of bio-based materials, such as mycelium insulation panels, which are carbon negative and transform waste/by-products into construction supplies. It is a minority-founded business, investing in community-led biomanufacturing facilities.
Distributive and Inclusive Products & Services
Accessible and affordable products and services improves things for all of us. It also drives innovation and expands markets. Companies that have developed circular, accessible and affordable offerings include:
Algramo is a circular packaging reuse and refill model. Launched in Chile and now expanding into the US, it sells staples at wholesale prices regardless of quantity purchased. Customers pay for the product, not the packaging, using refillable containers at Algramo refill stations.
M-Kopa Solar is a renewable energy provider. It sells solar power systems for low income households in East Africa, leveraging mobile money (m-pesa) to enable affordable daily micro-payments, with systems owned after approximately 1 year.
Toronto Tool Library & Sharing Depot
The Toronto Tool Library and Sharing Depot is a circular reuse and sharing business model.They offer more than 10,000 items to enable residents at all income levels to borrow instead of buy, for less than $5 per month.
Economies are complex adaptive systems, embedded and bound by natural complex ecosystems. The circular economy transition must include the systems principles of distribution and inclusive, empowered participation to create a truly sustainable and resilient economic system. Best of all, businesses and their communities will directly benefit.
Please reach out if you are interested in collaborating to further develop this principle and framework, including incorporating ‘Distributive and Inclusive’ into broader circular economy guidelines.