Podcast transcript: How redefining the circular economy could reshape a sustainable planet

Chris Hagler

Welcome to Sustainability Matters, a podcast series of EY. My name is Chris Hagler. I am one of the leaders in our Climate Change and Sustainability Practice, and your host for this series. We designed this podcast series to provide leading trends and practical advice around the environmental, social, and governance, or ESG issues and opportunities facing businesses today. The concept of circular economy has been around for decades, but has seen a new wave of attention in recent years with discussions on resource scarcity and waste management being spurred on by various events, including the rise of e-commerce, China's decision to reduce its import of waste in 2018 and videos of sea creatures struggling with marine debris going viral. The increased consideration of circular economy concepts is well deserved, with one study finding that only 8.6% of the world's economy today is considered circular¹. 

There is a tremendous potential benefit to pursuing circularity in our economies, with a yield of up to US$4.5t in economic benefit possible, between 2015 and 2030². One of the questions top of mind for many EY clients is, “does our organization understand what it means to be circular?” If so, is it equipped to leverage circularity, to both increase resilience as well as compete in today's marketplace? In today's discussion, we will give you an introduction to circular economy concepts and provide recommendations on what your organization should be considering, on its journey to circularity. Here to share their expertise and experiences are two guests. Antonis Mavropoulos is the author of “Industry 4.0 and the Circular Economy,” and is also the Founder and CEO of D-Waste. We also have Mark Weick, one of my colleagues in our Climate Change and Sustainability Services Practice here at EY, and he is the Managing Director leading our Circular Economy Practice. Thank you for joining, Antonis and Mark. As we get started, let us let the listeners get to know you, just a little bit better. Antonis, can you give us a bit about your background and your interest in circular economy?

Antonis Mavropoulos

Thank you very much for this opportunity. In brief, I am a chemical engineer. I prepared myself to become a high level of certain quantum mechanics, but due to the economic crisis in Greece, my scholarship was cut off. So, I shifted by luck to waste management from 1993. And, I found it so interesting that I stayed. I am a chemical engineer with a master’s degree in Management and Advanced Negotiations. And I started to deal with circular economy from 2012 — at the same time, when I realized that circular economy and Industry 4.0 are the same package for the evolution of our civilization.

Mark Weick

Hi, I am Mark Weick. I am also a chemical engineer. I spent 36 years with a major chemical producer and plastics producer, and was introduced to environmental issues relatively early in my career as a researcher, and then later, as an environmental sustainability leader. I had the privilege of directing both ESG and enterprise risk management for the company for a decade, and became quite acquainted with issues related to plastics waste and the environment, as well as the circular economy, and helped lead some initiatives for circular economy at my company.

Hagler

Hi Mark. You said earlier that you have been learning from Antonis and his book for quite a while, with your dog-eared copy of his book. So Antonis, your book is titled, "Industry 4.0 and the Circular Economy," and I am not sure that everyone listening to this podcast even knows what those terms mean. Could you give us a definition for Industry 4.0 and circular economy?

Mavropoulos

This is not as easy as it seems, especially for the definition of circular economy. But I will straightforward share with you my view. When you talk about Industry 4.0, actually you are talking for a huge technological evolution that does not only improve how we produce, but transforms really, in a systemic way, the way we produce products, the way we use resources, our energy systems, our social systems and our political systems. I think this is a common characteristic of all the industrial revolutions. They don't just come up with technological advances, but these technological advances, in one or another way, transform the whole social and political landscape. And, for the good, or the bad, we are living in such a period of a systemic transformation of our technology, that we change all the landscape we consider as our modern world. Now, if I want to say in one phrase, what we call Industry 4.0, I can describe it as a revolution of artificial intelligence, as a revolution of drones and autonomous cars, and as a revolution of robotics and sensors.

I can describe it as a revolution of 3D printers, but in the core of it is that machines today are trying to do for our brain power, what they already did for our muscle power. And this opens new unbelievable ways to resolve a lot of our own problems, if we deal with this revolution in a clever, smart way. Now, as for circular economy, there are roughly 114 different definitions of it. And, unfortunately, most of them, they identify a circular economy as a kind of advanced recycling. But this is not the case. A circular economy is not an improvement in the current linear economy systems. Circular economy is a transformation of the whole supply chain — for each and every product — that aims to make the economic system more resilient, less resource-intensive and more friendly to climate change. So, if we want to talk about circular economy, we have to integrate, in a common definition, the social, the environmental and the economic aspects. And this is really what is missing for most of the definitions. So, in my way, in my understanding, circular economy is a new production and consumption system that aims to make our societies more fair and more resilient, our economies less resourceful and more waste-less, and finally, it aims to contribute to a more sustainable planet.

Hagler

What a fantastic definition, and in particular, to connect the societal side of our economy to the environmental challenges. I think you're right, most people define circular economy specifically on the environmental side, but broadening that definition to include the transformation on the societal side, I think, is critical and I really appreciate your perspective on that. Mark, did you want to add to that conversation?

Weick

I think a bit of historical perspective from the engineering perspective is helpful here. In the first industrial revolution, at the end of the 18th century, we, through the introduction of mechanical production facilities with the help of water and steam power, moved things forward toward the second industrial revolution at the end of the 19th and the beginning of the 20th century, where you had mass production with the help of electrical energy. And I love what Antonis just said related to brain power and muscle power. In other words, the third and fourth industrial revolutions take what the first and second did, with regard to muscle and animal power, and turned it into brain power in the third industrial revolution, in the beginning of the, say, 1970s, through application of electronics and information technology. That further automated production. But in the fourth industrial revolution, which we're going through now, it's a revolution where we're seeing, on the basis of cyber and physical production systems, really the merging of the real and the virtual worlds, the tangible world and the thought world. It is an incredible revolution that is accelerating. And Antonis, I want to direct a question toward you related to that because one of the things that you bring up in the book is that this fourth industrial revolution is happening now and certainly will accelerate whatever production systems we put in place but will not necessarily lead us toward a circular economy without some thought and some intentionality. Can you comment on why that might not be the case?

Mavropoulos

I think this is the core of the problems we face today. Okay, if you go back to industrial revolutions, you can easily find out that in all revolutions, we were able to produce more products, more goods, with less labor, less energy, less material. However, the problem was that this increase in productivity was, after some years or some decades, was overtaken by the increase in consumption. So, each industrial revolution till now created an unprecedented load of pollution. It created the environmental footprint and the resource footprint of humanity, and I think now we can be pretty sure that our environmental and economic footprint in the world is very close to its natural limits, to the limits that our world can accommodate it without substantial damages for our future. Now, I think this industrial revolution, the fourth one, it gives us the opportunity to do things in a completely different way. We know very well that this industrial revolution cannot become realized as the previous ones. We know very well that we don't have the luxury to increase more — three or four times our environmental and economic footprint on the planet.

At the same time, the rise of artificial intelligence and its integration in all the supply chains, that is a matter of time to happen worldwide, gives us the opportunity not only to control but to reduce the environmental and economic footprint. So, we have, for the first time, the global consciousness, the understanding, but also the tools to have an industrial revolution that will make the economy maybe bigger, but its resource and environmental footprint smaller, or even to eliminate in specific areas. So, this is a real opportunity that, for the first time, we are able to understand it on such a level, on such a scale. Now, unfortunately, this is not the only way to go forward. Unfortunately still, the linear business models, especially in the most crucial sectors of our economy, are the ones that bring more profits. So, also there is an historical opportunity, the main way, the mainstream thinking, is to continue the business as usual. So, once again, we need radical innovation, and this radical innovation, in order to follow the opportunity that exists, has to start from the business models and gradually, to take all the industrial supply chains. This is why, in my book, I insist a lot to demonstrate the opportunity ahead of us, but also the problems to follow this road and the need for radical innovation in the business model.

Hagler

This concept is logical and your argument is very compelling. What does it mean for companies though? How can they or should they shift their thinking, or their processes to be able to produce more, to meet needs, without increasing the environmental impact on our world?

Mavropoulos

Speaking frankly, the type of business leaders that we have today, I am talking about the average business leadership, is not the type that understands the challenge of circularity, is not the type that understands how important it is to create urgently, circular business models and circular supply chains. We need a new type of leadership, and this requires a new type of training, of education, a new type of university, in many cases, and a new way of business economics thinking. Now, the second thing that we require besides a new leadership, is to realize that corporate governance, in a circular economy landscape, is not the same as corporate governance in a linear economy. Let me give you two examples about it. In a linear economy, price dictates, more or less, the outcome of an organization. In a circular economy, price, in some cases, becomes less important comparing to circularities. Why is that? Because the most important thing for a circular business model is to coordinate all the different loops of materials. And not just to exhaust them and make them faster. This coordination has not only to do with price, it has to do mostly with the need to develop differential supply chains that can substitute on demand, or on a permanent basis, specific materials. And this is a completely new thinking of the governance of the company, of the coordination required between suppliers and the company, and of the markets on which we are activated.

Hagler

So, it's not just shifting technology, it's shifting how we lead, how we think, how we make decisions. Mark, you've been in the thick of this with your previous work. What is your perspective on how companies can shift to this new way of thinking?

Weick

As Antonis is already pointing out, the global economy is now experiencing a unique confluence of opportunities and risks, carrots and sticks if you will, that accelerate the need for clear business strategy, leading from the linear take, make, dispose economy, toward an economy that is more regenerate by design. And where waste is redefined and reused, and no longer really defined as waste in many ways. And so the world is moving more quickly toward a circular economy, which is going to involve in my mind, first off, a lot of product innovations. These product innovations will anticipate accelerating needs and regulations, for maintenance, increased maintenance of products or increased repair of products, where we've seen right to repair movements for all kinds of the items that we use in current daily life that are difficult for us, as consumers, to repair. Refurbishment of products is going to gain a new place in a more circular economy: reuse, redistribution. Yes, recycling and then resourcing those items into new raw materials. That all gives space for tremendous product innovation. But there is also going to be business model innovation as well, fueled by a different kind of thinking, as Antonis just mentioned.

Business models that anticipate the benefits and the costs of regulations, and other market forces that shift the value of different pieces in the value chain. So, different shifts of raw material pricing and availability. For example, we move into electric vehicles, and we move into the first generation of disposing of solar farms and wind farms. How are those materials reused? What is really the definition of waste? And how do you value those materials in the context of the ecosystems that we all share? How do you make extended product use models work across the supply chain? How do you make extended producer responsibility for products, packaging, waste and emissions work, across new supply chains? And Antonis, I want to direct a thought to you where, in your book, you say that Industry 4.0 and a circular economy will require a different kind of waste management, and even more waste management into the future. Can you tell me a little bit more about your thinking on that?

Mavropoulos

Yeah. I think that is a crucial point as well. Let me start by this. I am sure we are all familiar with the fact that each industrial revolution is characterized by a new type of energy resources, a new type of raw materials, and a lot of new products and goods. Now, we have to add in this understanding, that each industrial revolution is characterized also by new types of waste, which is more or less the new products, the new resources that were used, when they were transformed in waste. Now, I think, if we want to be very emblematic about Industry 4.0, we can say that the emblematic waste stream of our era is what we call e-waste. It's the waste of our electric and electronic equipment, our mobile phones, our computers, our smart TVs, and this emblematic waste stream, it's something that we started to realize by 1995 that it's rising. We found it much more frequently in our waste streams than we thought. And then it took us roughly 15 years to find out what is the right solution for that. And then, around 2010, we knew the technologies to deal with that. And from 2010 to now, we are trying these technologies to make them applicable and accessible worldwide. Why am I saying this? I am saying this because I want to demonstrate that roughly it has taken us 20, 25 years, to adapt and find solutions for the new waste stream of the fourth industrial revolution: the e-waste. Now, there are more waste streams that are coming, very characteristic of this industrial revolution. We have some 100,000s of tons that will become waste streams, between 2020 and 2025. We have huge amounts of new, synthetic clothes, including clothes with sensors. We have the very emblematic new waste stream of wind turbines, but we don't know yet how to deal with them exactly. 

All these are new waste streams that represent new challenges for the waste sector and the industry, and this is why, in many cases, when I talk with my colleagues, I am saying, “if you are working in waste management, you can never say we have finished, we have found the solution.” No. Because at the end, waste is everything that comes out of the consumption system. And since we differentiate continuously products and consumption, the waste streams are continuously differentiating. Now, there is a huge misunderstanding here. A lot of people believe that circular economy means that we won't have any waste. This is thermodynamically impossible. Whatever you transform using labor and energy, cannot literally come back, and there are two basic problems for that. First is the problem that we use many composite materials, that is very difficult or very expensive, or technically impossible to separate them, after they become a composite material. The case of plastics is a representative case. The second problem that exists is that, when we produce things, we integrate inside them different substances. So, you make a plastic toy. It has the plastics, it has the painting, it has, five, six, different types of materials in it. When you recycle it, actually you are recycling also the painting. The painting, due to the recycling process, becomes a pollutant. The painting, which is an asset to sell the toy, becomes a problem when you want to reuse it or recycle it. So, one thing that is not clear to many people is that advanced recycling, more closed loops, more reuse and recovery, means also that you have to put the pollution aside. And putting the pollution aside means more waste management and a better one. The more we make closed loops, the more is the pollution that we have to separate, in order to have clean materials. So this is why I am saying in my books, a circular economy requires more precise and more advanced waste management than a linear one. This is the only case in which you can guarantee closed loops without health problems.

Weick

And I think it also is going to require the waste management industry working with the rest of the industry, at the design phase even. To be able to understand how, when you create a product from the very beginning, it can have multiple different lives, whether it is being reused, remanufactured or eventually recycled, which means a partnership with the waste management industry, as opposed to waste management being an afterthought. Is that right, Antonis?

Mavropoulos

This is why, in many cases in my presentations, I am saying that the waste management industry should fasten its seat belt. It will go through a radical transformation. But beside the transformation of the industry, I think there is another reality that waste management should be integrated into each and every part of the supply chain, in a different way than today. I think in the next 10, 15 years, what we call waste management for the industry, will be something like the software today. You will not be able to run a sustainable supply chain, without the integration of proper waste management techniques in each and every phase. Now, there is also another problem here. The problem is that, in this way, waste management goes beyond waste. Because when I am trying to optimize a supply chain and to prevent waste, this is not exactly waste management, it is resource management. But, on the other broad scale, one of the key trends is that the waste management industry has to expand beyond its traditional borders. It will not start from the bin. It has to start from the household, it has to start from the retailer and it has to start from the logistics. This is another challenge, because that means that waste management should be diluted, in one or another way, in different business processes.

Hagler

It sounds waste management is certainly a big challenge as we face Industry 4.0. What other challenges will corporations face as they head into this stage of our economy?

Mavropoulos

In this period, I am working as a mentor to different startups relevant to circular economy. And I'm not going to say names, but I will say the problems that we are trying to solve. We are trying to solve the problem of how successfully we can recycle coffee residuals. We are trying to solve the problem on how we can deal with the residuals of coconuts. In some other startups, I am trying to find out solutions on specific plastics. Now, in all these cases, we face similar challenges. Challenge number one: the technologies for the transformation of a lot of these materials do exist. But to collect the materials on the proper scale, in order to treat them and produce a new product, it becomes really difficult, because in many cases, the logistics are too expensive, or the quality of the collected materials are not guaranteed. You cannot make a huge industrial investment with uncertainty on the quality and the quantity of the raw materials. The second challenge we face is that, even when we have products coming out from circular loops, in some cases, we require a huge period of testing. Let me give you an example. If you take coffee residues, which is a very common waste stream and very useful also, you can take out of them raw materials for the cosmetic industry. But just because it is for the cosmetic industry, no one is ready to buy them, unless you go through an extensive testing through the medicine authorities in each and every country. So although the chemicals are the same, just because you produce them in a new way, it's not sure that you can sell them immediately. And in some cases, this testing for the same substances as they are already using, takes two or three years, or even more. And then there is another challenge. The challenge of the market conditions. 

Speaking frankly, very few materials coming out of circular loops today are cheaper than virgin materials. So, there is an issue about markets here. We cannot hope for a circular economy, as long as markets are much cheaper and prefer virgin materials. And this is not a matter of technologies. It is a matter of who is dominating the market. And it's something that we need to resolve by proper regulation and putting new standards on the origins of materials, and for some people, putting new standards on the taxation on raw materials. There is, for me, a key issue here. It is about the social footprint of circular economy. Let me give you an example. We are trying to make closed loops worldwide for materials. Now there is a question: do we need it? The answer is very clear. For some specific materials, we certainly need closed loops. Rare earths as an example, which is a key element for every telecommunication product. Without rare earths, you cannot have internet, you cannot have 5G and you cannot have autonomous cars, okay. Now, rare earths need to develop closed loops worldwide. The question is: these closed loops will be for a better society or for a worse? We can have closed loops with better salaries, more employment, better social footprint, but we can have closed loops also with people working for no money or through slavery, as it is the case in some countries in Southeast Asia. So, the social footprint of circular economy should be substantially upgraded in our thought. It is not enough to have a positive economic and environmental footprint. We need to have a positive social footprint too. That brings me to the role that big companies can play. The more big companies integrate circular economy, including its social footprint in their operations, the more it will become mainstream and it will create the new example we need. Otherwise, the risk to have circularities for loops and to have circularities for specific materials but big problems for the people working around them, is a big risk that will not allow circular economy to flourish. And for me, sustainability is like a flourish in society. It's like a flower, either you make it flourish and enjoy it, or it can be still there, but no one will enjoy it.

Weick

The concept of flourishing is what we want for our society, for our ecosystems and for our planet. It requires a whole new way of thinking that is comprehensive, around not only the environmental issues, but also the social issues and the governance issues, around not only Industry 4.0, but also circular economy. Which means that, as the world moves quickly toward both increased use of artificial intelligence and Industry 4.0, and toward the needed circular economy, companies need to take the leadership to gain the advantages of capturing the value that comes from being a leader, and also lead society in the right direction, so that we do have a flourishing society that limits climate change, halts biodiversity loss and moves us toward a more circular economy. I very much appreciate you contributing to this podcast, Antonis, and highly recommend, for any of our listeners, his book, “Industry 4.0 and The Circular Economy.”

Mavropoulos

I want to make a final comment, only because I think it is important. Listen. A lot of people, they have not understood yet that you cannot manage climate change without a circular economy. And I want to make a very strong argument for that. According to the World Bank, in order to manage climate change by 2050, in order to exceed the targets set by the Paris Agreement, we need to deploy roughly three billion tons of metals, for wind generators, for the electrification of big cities and the electric cars, for new batteries and stuff like this. Now, these three billion tons of metals cannot be found just excavating the whole earth. The only way to assume this quantity is by taking at least 35%–40% of them through recycling and resource recovery operations from our existing infrastructure. So, in a very clear way, it's obvious that, circular economy can contribute 35%–40% to the Paris Agreement targets. And that is why sometimes I'm saying, and some people misunderstand me, that circular economy is becoming a condition for our survival on the long term of the planet. And this is why I insist that circular economy is becoming a broader industrial context and a broader driver for change, even comparing to climate change.

Hagler

Antonis, Mark, I really appreciate you being here. Such insight into major technological change that requires process, policy change and management thinking change, in order to have the kind of society that we all are striving for. To our listeners, if you want to learn more, Mark said it — we highly recommend Antonis' book on “Industry 4.0 and the Circular Economy.” You can also learn more at wastelessfuture.com. And please, to our listeners, we have more sustainability topics to come in our future episodes. Please check out any of our past episodes you may have missed. On Twitter, please follow me @chrishagler, and EY Sustainable Impact Hub @EY_sustainable. Please subscribe to the Sustainability Matters podcast, wherever you get your podcasts. Thank you very much.