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Can a Business Case Be Made for the Circular Economy?

The circular economy is a concept few can wrap their minds around. For one thing, not everyone agrees on how to best incorporate “circularity” into their business models. For another, switching gears of any kind requires change, which, in turn, necessitates some kind of financial investment, at least at the outset.

And just what is circularity anyway?

The Ellen MacArthur Foundation, one of the circular economy’s biggest proponents, defines it as an economic framework that looks beyond the “current take-make-waste extractive industrial model” by keeping resources in circulation, regenerating natural systems and designing out waste and pollution.

“The whole intention of the circular economy is to keep materials and products in flow and then feed them back into the system,” said Annie Gullingsrud, a circular-design strategist and a member of the Sustaining Voices advisory board.

Transitioning to such a system is clearly a moral imperative. With global garment production poised to increase by 63 percent by 2030, according to the Global Fashion Agenda (GFA), a sustainability think tank, the fashion industry remains a “net contributor” to climate change.

Combined, the apparel and footwear industries account for more than 8 percent of global climate impacts, or the equivalent of 3,990 million metric tons of carbon dioxide in 2016, a 2018 report from Quantis estimated.

“Consumption is only going to grow, and if we do not act now to find a solution to the take-make-dispose model, the strain on our planet will get much worse,” Eva Kruse, the CEO and president of the GFA, said in May.

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That’s not to say incorporating circularity spells only sacrifice. A business case could be made for circular models, which can deliver “tremendous value” to retailers while enabling them to “eliminate waste, drive positive impact across the fashion value chain and improve their competitiveness,” according to Harry Morrison, managing director of Accenture Strategy.

Earlier this summer, Accenture Strategy and the innovation platform Fashion for Good published a first-of-its-kind analysis of circularity’s financial viability in the fashion industry. The study examined three models: rental, subscription-rental and recommerce. All three, it found, supply opportunities that can drive a higher margin per garment compared with the baseline linear model.

“Circular business models can also drive value by improving customer engagement and retention,” the report’s authors wrote.

Certainly curtailing waste, a tenet of the circular economy, can only improve the bottom line, Gullingsrud said.

“When a company is overproducing, it’s costing them money,” she said. “So there are financial benefits that exist from rightsizing operations.”

It might even behoove companies to take a more “three-dimensional approach” to calculating costs, said Clare Lissaman, director of content and impact at Common Objective, a networking and intelligence platform for ethical fashion. They could borrow a page from Kering, for instance, and quantify the environmental impact of their activities through annual Environmental Profit & Loss accounts.

“The current predominant business model used by the fashion industry does not take into account the cost of environmental or social externalities into its pricing,” she told Sourcing Journal.

Indeed, Kering, a 2019 Sustaining Voices honoree, doesn’t view sustainability as an expense but rather a long-term investment for both its business and the planet.

“When it comes to circularity, the business case is more about the reality of climate change and the impact this will have on the continued access to high-quality raw materials,” said Marie-Claire Daveu, chief sustainability officer at the French luxury conglomerate. “It just makes good business sense to find ways to reuse raw materials and to avoid using new natural resources.”

Patagonia, another 2019 Sustaining Voices honoree, says its Worn Wear program, which sells gently used items in addition to encouraging repair and reuse, has grown 40 percent in the past year alone. This isn’t all that surprising, a spokesperson said. The secondhand clothing market has grown 21 times faster than conventional retail over the past three years. By 2023, it’s expected to double in value to $51 billion.

In the long run, twiddling thumbs may do more ill than good. To remain resilient on a planet wrecked by biodiversity loss and rising temperatures, businesses must adapt or perish for want of trying.

“We may need to invest initially to reshape our supply chains and educate consumers towards a circular future,” a spokesperson for Asics, a 2019 Sustaining Voices honoree, noted. “[But] although it may not be easy, we should not be underestimating the long-term economic effects of environmental pollution, climate change and resource depletion by our industry.”

For more on Sustaining Voices, which celebrates the efforts the apparel industry is making toward securing a more environmentally responsible future through creative innovations, scalable solutions and forward-thinking initiatives that are spinning intent into action, visit sustainingvoices.com.