Circular Economy

Challenges and Opportunities for Ethical and Sustainable Business

Helen Kopnina, Kim Poldner

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000427189
• Edition: 1
• Topic: Commerce
• Subtopic: Déontologie des affaires

How can we design circular business models? How can we organize the transition from a linear to a circular economy? And how can we imagine circular futures that help us transform current realities? This book aims to provide answers to these questions while addressing the challenges and opportunities of the circular economy.

The authors reflect on why conventional sustainability models – such as the 'triple P' (People, Profit and Planet) or eco-efficiency – have failed in addressing environmental challenges, including climate change, biodiversity loss and pollution. They then move on to explore innovative circular business models, which propose to eliminate environmental damage by radically reforming the system of industrial production. Organizing the transition is a collaborative effort: entrepreneurs, consumers, policymakers, multinationals and intermediaries need to work together to foster the emergence of the circular economy as an institutional field. Together with younger generations of learners and equipped with beyond-human-centred values towards awareness of the material and natural world, novel circular futures can be imagined.

Offering points of reference for continued critical discourse and examples of practically applicable sustainability solutions, this book will be of great interest to students, teachers, practitioners and scholars of circular economy.

Part I

Designing circular business models

1
Changing the logic of value creation

The transformative and transitional potential of a framework for sustainable business modelling

Niels Faber and Jan Jonker

1.1 Introduction

Besides having a profound effect on societies, the cry for sustainable development resonates directly in the realm of business and the economy. The variety of social challenges currently facing society is seemingly endless. Among these are the search for a sustainable future, resolution of natural resource depletion, decreasing or eradicating pollution, working towards social equality or creating an inclusive society. These changes should, of course, result in, among other things, greenhouse gas (CO₂) reduction, an improvement of biodiversity and the enhancement of social inclusion. While these meta-objectives are worth pursuing, it remains unclear who is in charge of addressing, let-alone ‘solving’ these entangled, wicked problems (Churchman, 1967; Rittel & Webber, 1979; Weber & Khademian, 2008). Wicked problems are defined as complex and interlinked issues for which no single solution exists. Subsequently, the pursuit of a solution in one area unavoidably leads to a series of new problems in related areas ( Jonker & Faber, 2019).

When navigating society through these wicked problems, three dominant realms emerge: (1) Governments, (2) Businesses and (3) Citizens (Mintzberg, 2015). On the one hand, the state sets the institutional boundaries, issuing rules and regulations and guiding the behaviour of organizations. On the other hand, companies have been given the opportunity to set these rules to their own liking or avoid them by off-shoring their company, or parts of their company, altogether. In spite of these positions, companies are seen as the nexus for providing goods and services in the commercial as well as the civil domain (e.g. water, utilities, care and infrastructure). Meanwhile, citizens have increasingly been deliberately framed and addressed as mere consumers. This enables the decay of citizens’ civil capabilities and responsibilities, thus withholding them from fulfilling their part of the social contract (Barr et al., 2011; Faber & Hadders, 2015). This principal change in framing results in a purely monetary transactional approach towards civil (common), public and commercial products and services, illustrating the axiom ‘everything has its price’.

The amalgamation of social issues and challenges has shaped growing debate and practice on the meaning of sustainability (WCED, 1987; Faber et al., 2005) and what the implications are for business (Ehrenfeld, 2008; Schmidheiny & Stigson, 2000). To address these challenges, solutions must be crafted and materialize in such a way that business changes its course. Yet, the existing institutional and organizational fabric of our society is still based upon an economic activity based on prioritizing short-term profit and the linear use of resources and materials. The existing order is a principal obstacle to the much-needed triple transition required across the globe. This concerns the parallel execution of three transition lines: (1) fighting climate change, (2) the transition to a sustainable energy supply and (3) the realization of a CE. The essence is a paradigmatic change of economic activity that focuses on value preservation: a fundamental decrease of material use. A complete reconsideration of the logic of value creation in the realm of business is required. This implies focusing on how value creation comes about in business modelling, and the implications this has for the ten building blocks of which the BM is composed. This contribution sets out to analyse the paradigmatic change of the process of value creation leading to a redesign of business modelling. In particular, we aim to explore changes in the nature of value creation and how this is reflected in the logic of a new generation of BMs. Section 2 examines the changing notion of value creation. Subsequently, Section 3 discusses the essence of business modelling with regard to value creation. Then in Section 4 we take this notion to conceptualize three sustainable BM archetypes and show how this translates to the value creation logic of a BM. Finally, in Section 5, we envision the promise of sustainable BMs.

1.2 Reconceptualizing value creation

The contemporary discourse on value creation mainly, but implicitly, concerns financial value creation. As a consequence, monetization of what is of value is an almost automatic process leading to the expression of these values in solely financial terms. A side effect of this common practice is the exclusion of values that cannot or can barely be expressed financially. This leads to externalization of costs (Buchanan & Stubblebine, 1962) and implicit values (positive as well as negative), such as eco-services including the decrease of biodiversity, density of insect populations and a safe neighbourhood. So-called business cases and the revenue models that underpin them thus reflect an incomplete and one-sided view on costs and benefits. If we want to progress in a transition towards an economy that fosters a sustainable society, a more fundamental debate on the meaning of value, what is valued and what value creation may cost is inevitable. This is an emerging debate that can be observed under various headings, including true and integrated pricing, shadow-cost calculation, integrated reporting, integrated life-cycle analysis and so forth (see, e.g. True Price Foundation and Impact Economy Foundation, 2020; Willekes et al., 2020; Adams et al., 2016; Gleeson-White, 2014). Each of these debates addresses the issue of taking more than one value into account simultaneously. We label these efforts ‘multiple value creation’ ( Jonker, 2015; Jonker & Faber, 2019), an expansion of the People, Planet and Profit maxim (Elkington, 1998). The debate on multiple value creation takes shape around three concepts: (1) value creation itself, (2) value destruction and (3) value preservation. Multiple value creation embraces three principles. We postulate these as (1) social inclusion, (2) ecological and environmental regeneration and (3) economic prosperity, addressed simultaneously. We use these principles as the foundation on which the value creation process takes shape, culminating in a three-stage approach to business modelling, consisting of (1) the Definition stage, (2) the Design stage and (3) the Result stage. The logic of BMs, the identified principles and the three stages approach together give rise to a template for sustainable business modelling consisting of ten interconnected building blocks.

There is some confusion on the nature of the concept of a sustainable BM. In order to understand this, we separate the construction of the model from the function of the model. The first concerns the way the model is pieced together and the underpinning logic used, i.e. the logic of value creation, organization, revenue models and impact. In fact, the logic used forms a methodology that enables the generation of actionable knowledge for the user(s). The model itself is not sustainable; it will be adjusted or reconfigured when circumstances demand. The second explanation refers to what the model in question does with regard to sustainability. From this perspective, a sustainable BM leads to organizing value-driven and sustainable impact. We argue that sustainable BMs bring forth a transformative potential that is necessary to address the wicked problems mentioned earlier. Integrated pricing and similar developments may very well be the stepping stones in shaping a new economic paradigm. Still, when it comes to sustainability and circularity many of the current organizational efforts do not focus on setting a new economic course, but on reducing the adverse effects of efforts tailored to the rules of the current economic game, without taking into account the concept of multiple values (e.g. Pagell & Shevchenko, 2014).

A BM shows how value creation is organized (Teece, 2010; Jonker & Faber, 2019). Conventionally, this leads to a three-step approach of the actual value created, the distribution and the capture (Osterwalder & Pigneur, 2002; Teece, 2010). The theoretical underpinning of Osterwalder et al.’s conceptualization of BMs departs from a focal organization that creates the requested value (also known as the ‘proposition’) and enables the distribution to target groups. Creation and distribution involve costs that need to be regained in the actual transaction with the customer (be it B2C or B2B). The actual transactions are based on monetizing the value of the proposition. All in all, this leads to a profit-and-loss comparison based purely on financial values. This is a rough yet accurate typification of our current take-make-waste, or linear, economy – an economy in which organizations are embedded as the central entities, whose activities are restricted by policy and regulatory frameworks.

In contrast, the concept of multiple value creation means working on more than one value simultaneously. Or to put it more precisely, it involves creating more than just financial value. For some, this means promoting biodiversity, or keeping materials in productive use in the economy, or restorative entrepreneurship – which refers to entrepreneurial activities aimed at the restoration of ecological and social systems. And to make it even more complicated, it is not a matter of either/or, but rather of the simultaneous pursuit of all values. Hence, monetization is no longer the core of value creation: money is just one of the components considered in the process of value creation. Ultimately, the aim of multiple value creation is to develop solutions which result in such things as enhancing biodiversity (see, e.g. Buchmann-Duck & Beazley, 2020), stimulating social inclusiveness and working on the idea of restorative entrepreneurship. The acceptance of multiple value creation may very well be the prelude to an economic paradigm shift.

To understand where this paradigm shift is coming from, we provide a framework of five fundamental positions of valu...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Acknowledgements
• List of abbreviations
• List of biographies
• Introduction: challenges and opportunities of the circular economy
• Part I Designing circular business models
• Part II Organizing circular transitions
• Part III Imagining circular futures
• Index