October 11, 2022 By James George
Sheri Hinish
6 min read

Evolving our thinking toward a human-centered circular economy

The principles of a circular economy are to eliminate waste and pollution, keep materials in use and regenerate natural systems. Applying these principles to everyday business applications is more vibrant than ever, especially as organizations shift toward new economic models. But approaching this without clarity is also where some of today’s challenges start to precipitate.

Collectively, business and society have excelled at discussing why it’s important to make these shifts. But to date, no one has holistically cracked the how. The economic argument for a circular economy has been largely anchored in the environmental elements of systems change, not in risk mitigation and proactive resilience, and certainly not incorporating the social impact of the changes to the system. But it’s crucial to put local communities and their approval of the social license to operate (SLO) at the center of the economic argument.

What would a circular economy look like with equitable access at the center?

As climate challenges heighten, consumers are taking notice and demanding change, and investors are asking companies for more transparent environmental and social governance practices. People are shifting their behavior to live and work more sustainably. Businesses talk a lot about a “just transition” and “economic equity.” But this has not translated into significant action so far. Why does progress feel so slow?

The role of society in systems change

Sustainability solutions so far have mainly spoken to environmental stewardship and profitability, as described in a report by the Institute for Business Value (IBV), Balancing sustainability and profitability. As we try to shift “systems,” many have overlooked the social dynamic of systems change. Thus, they have only created partial solutions that focused on economic growth at any cost, with incremental and inconsequential environmental benefits.

The supply chain crisis has limited our ability to make and distribute “stuff.” Empty shelves and shipping delays have crystalized awareness of the complexity of supply chains and how important they are to communities and economies. At the same time, supply chain leaders face mounting demands for sustainability, adaptability and value creation—all of which expose new risks and new opportunities for transparency, visibility and resilience.

Some of the greatest supply-chain thinkers have been talking about resilience and the capacity to recover quickly from difficulties. Resilience planning is a future-proofing method to not just ensure short-term recovery after a disaster, but also reduce long-term disaster risk.

Over the next decade we will see greater and greater disruption to global supply chains, due to climate change and poor systems design in an economic model that externalizes the total costs of ownership. According to the IBV report “The Resilient Digital Supply Chain,” extreme volatility has cast dramatic performance and financial impacts on supply chains over the past three years. 67% of Chief Supply Chain Officers (CSCOs) report significant negative effects on demand forecasting. 66% report greater volatility in order cycle times and 47% report that order rates are becoming worse.

We will see greater levels of climate migration—individuals forced to leave their homes due to climate related conditions—and disruption to communities. Typically, these communities sit on the poverty line and therefore have lower levels of resilience in times of disruption and change.

In the 21st century, businesses are built on distributed, long supply chains that prioritize a low-cost model and, in many ways, externalize risks tied to Environmental, Social and Governance (ESG) performance. This paradigm hits the communities at the base of our supply chains—where our clothes are woven, our food is harvested and our product materials are created or extracted—first and worst.

But what if the connection and collaborations between communities and corporations were closer and could increase resilience?

As the global population and middle class grow, so do climate migration and the widening economic divide. Threats like climate change and biodiversity collapse will permeate every facet of our access to clean energy, commodities, clean water and healthy and nutritious food. Choice will only continue to intensify these issues. Is the concept of shared value enough to cross the gap? We must demand regenerative, restorative disruption and investment to reach far and deep for progress.

During a panel at COP26, Philipp Hildebrand commented that “25% of global GDP is at risk over the next 20 years.” If we do nothing, or move too slowly, this will affect all of us. It will preoccupy all our lives and choices.

Therefore, if businesses want to create future resilience, we need to put social impact and community, not just the environment or the economics, at the heart of all of business decisions. We need holistic change and new models of success that are equitable and inclusive and that generate shared value for people and planet. This often means breaking away from the use of traditional key performance indicators (KPIs).

Future economic planning needs to be viewed through a social lens and is completely compatible with current circular economic thinking. The circular economy is about accessibility, ingenuity and resourcefulness. It’s about growth in a regenerative and restorative economy. It cannot only be for the affluent, or for those who choose to spend an extra “green premium” to offset the environmental impact.

The circular economy is an economic resilience model where materials are available and humans are also consumers of eco-services. A social circular economy is merely the next evolutionary stage of unpicking and solving for the complexities we face.

If you are a business that has a distributed supply chain, crossing borders, industrial verticals, and communities, why would you not consider the resilience of that community, that supports the start of your supply chain, as an area where you can create the greatest level of business risk mitigation and build resilience?

This is about creating resilience within a community to weather all coming storms: in climate, health, education, nutrition and all other problems and pressures that the community faces now and in the future. When we consider what systems we need to create for the future, what role does business play to ensure resilience? And importantly, what is stopping this shift?

As business leaders, how do we ensure the community that supports our workforce, and ultimately is our workforce, has access to fresh clean water, to healthy and nutritious food and to the education needed to meet the needs of supply chains? How does business create direct community resilience, to secure future economic resilience and de-risk for the long term?

In an Institute for Business Value (IBV) study of CSCOs and other C-suite executives, 32% of organizations cited increasing sustainable operations among their most important business priorities. This focus has forced supply chain leaders to become serial innovators linking social and environmental issues with business solutions. Many business leaders are using a circular economy approach to mitigate near-term cost concerns and focus on long-term value to the customer.

Transitioning to a circular economy requires supply chain leaders to embrace a new mindset and develop an appetite for business un-usual. Emerging technologies help organizations meet these complex challenges: Data incorporated from multiple sources—internal, public, scientific, marketplace—can be infused into business processes and decision-making to improve environmental outcomes. Virtualization can underpin the circular economy by applying the 9 Rs of circularity: Refuse, Reduce, Reuse, Repair, Refurbish, Remanufacture, Repurpose, Recycle, and Recover.

A new paradigm connecting the social license to operate to human-centered circularity and resilience

“You can’t do business on a dead planet.” More importantly, you can’t move ahead without treating the causes.

Our paradigm shift and new approach require us to think more about replicability rather than scale. The solutions to the challenges communities face today—to bridge the digital divide, to ensure access to education, arable land, clean energy and healthcare—will be complex, specific and socio-economically bound. We are drawn to simple solutions, as they create visible action. But complex problems require complex solutions, and that complexity can only be understood by taking a community-first approach, bringing the challenges and nuance of a geography to the heart of the solution, be that social, cultural or economic. This is the lens we must bring to our thinking. How do we bring people to the center of our solutions?

Any solution framework will also have to use data and technology to help redesign the way that local system works and how it creates equitable access. We have the tools to make this change happen. We just need to put them in the hands of the people that need them to thrive. And we must co-create these solutions with them.

To accomplish this, IBM has worked with Pyxera, a global organization dedicated to addressing challenges at the community level. Pyxera emphasizes creating and sustaining inclusive, equitable and regenerative systems. The organization has participated with IBM Impact Initiatives to support organizations committed to building stronger communities through economic resilience.

Businesses can create resilience by solving challenges at the community level, engaging with employees and community members. Doing so allows them to forecast and mitigate the risk associated with some of those meta-challenges faced collectively, which individual businesses cannot stop or influence on their own. This is therefore an opportunity to bring together the right stakeholders, the right organizations and the right community members to solve for the long term. We can help safeguard economic resilience by creating community resilience. It is a concept of shared value made possible by bringing the community to the heart of the conversation.

Learn how to prepare your organization for the future, create greater transparency and improve employee and customer experiences

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