Can SMEs change the world through a circular economy?

When I ask you about sustainable innovation, who do you think of? Is it the maker of an electric vehicle? Or the solar paneling on your roof? Could it be something as simple as the recycling bin? Often, the most important sustainability breakthroughs have been led by inventors, pioneers and people who simply wanted to improve on the status quo (the best example of this is Charles Fritts, who installed the first solar panels on a New York roof in 1884).

Before we talk about the how, let’s address the why. Why should SMEs care about an idea such as the circular economy? In short, the circular economy is the idea of using as little new material as possible in production. Instead, it is a system that seeks to reuse and regenerate materials or products, so as to reduce the environmental footprint of the entire lifecycle of that product or service. This isn’t just an issue related to the environment; the circular economy often makes business sense, given that fewer initial resources should mean less costs.

SMEs matter to proponents of the circular economy. SMEs make up the majority of businesses globally (90% according to the World Bank), and they fuel our economies. Looking closer to home, SMEs contribute around 30 and 40 percent of Saudi Arabia’s and the UAE’s Gross Domestic Product respectively, according to Funding Souq. If a business idea is going to take off, it needs to be pioneered by SMEs.

In many ways, the concept of a circular economy is intrinsic to the SME sector. Faced with restrictions on funding, simpler supply chains, and the need to manage costs, many SME owners have been informal pioneers of a circular economy approach that is all about using less to produce more.

Of course, the circular economy isn’t just about reduction. There’s an opportunity to be had to make money, one which works out at over US$4.5 trillion dollars if the World Bank is to be believed. Given the scale of the resource issues we are facing as we hit eight billion people on the planet and an increasing public appetite to buy more sustainably, a circular economy approach makes business sense.

The question is whether SMEs can make the changes needed to benefit from the opportunities present, so they can not only lessen any supply chain risks and lower production costs, but also create new revenue streams.

So, let’s look to what your approach to the circular economy could look like. Accenture’s Circular Advantage research defined five business models that SMEs could tap into. The first, the Circular Supplies model, looks to decrease a reliance on resources and reduce waste. This approach makes most sense for SMEs that produce products in large numbers or which need scarce, expensive commodities. For example, a producer of personal goods could switch out chemicals to use natural ingredients.

The second model is named Resource Recovery, and it’s simple enough to understand. Through this approach companies look to minimize waste and all associated costs. In effect, it’s about finding value from these waste materials. For example, a food company could look to turn its waste into energy for use in other areas (such as biodiesel).

The third model is Product Life Extension, and helps companies prolong the life cycle of its products through a combination of upgrades, repairs, or reselling. The product is used for longer, and is kept out of the landfill. This concept is ideal for firms that make products such as clothes, where there’s an increasing demand in the second-hand market.

The fourth model is one which we in the region area increasingly aware of. The Sharing Platform idea is all about consumers can use the same resource, but at set times. Think of an Uber, for example. Instead of the product being idle for most of the day, think of how the product can be used for longer, by more people, and at a lower cost for all.

Last but not least, we have the Product as a Service. Rather than buying an item, it is rented. This approach is increasingly common in regions such as Europe, where consumers can rent any high-ticket items for a set period. As a company, you don’t need to produce as many products, reducing your environmental impact whilst growing your customer base.

There’s various approaches SMEs can take to become more sustainable and contribute to a circular economy. The question left remaining is where to begin.