How do we move from pilots and beyond the ESG hype bubble to scale the implementation of the circular economy and how do businesses lead in this space?
How do we move from pilots and beyond the ESG hype bubble to scale the implementation of the circular economy and how do businesses lead in this space? In this episode of the Circular Economy Show, host Seb is joined by Lindsay Hooper, CEO for the Cambridge Institute for Sustainability Leadership (CISL), and Joe Murphy, Executive Lead of the Ellen MacArthur Foundation’s business network.
Together, they’ll explore the insights from CISL’s Competitive Sustainability report and the Foundation’s business network, offering perspectives on the state of the circular economy and related efforts. What will it take to scale? Join us to find out!
Read the full report discussed in this episode: Survival of the Fittest: From ESG to Competitive Sustainability.
Seb Egerton-Read 00:00
Welcome to the Circular Economy Show, brought to you by the Ellen MacArthur Foundation. My name is Seb, and in this episode, I'm joined by guests Joe Murphy, who's the Executive Lead for our Business Network at the Ellen MacArthur Foundation, and Lindsay Hooper, who is the CEO at the Cambridge Institute for Sustainability Leadership, or CISL. In the conversation, we'll be talking about the end of the ESG and circular economy hype bubble, what that means for business leadership and how we scale implementation for a circular economy. So coming to you first, Lindsay, thanks so much for joining the Circular Economy Show. Kind of, in some ways, the concept of this, of this conversation, this podcast, started with a paper that the CISL published, which was titled, provocatively, survival of the fittest, from ESG to competitive sustainability. I wonder if you could say first what kind of inspired you as one of the co-authors of that paper to write it.
Lindsay Hooper 01:04
sure pleasure to be here. We, when I say we, my co-author, Paul Gilding, and I were frustrated at the quality of debate. We could see that there were very real reasons why the height bubble, as we call it, or the ESG parties EFT called it why that had burst, why the tide was going out. But we're very concerned that the quality of the debate then was in some way throwing the baby out with the bathwater. It was ignoring the hard and fast laws of nature, the underlying drivers of the need for business action, the real risks to businesses of of a failure to act. And it was simply, uh, look, you're either doubling down on ESG and claiming somehow, in spite of the evidence the contrary, it's going to deliver, or saying it was all nonsense, and we should just get to back, back to business as usual. So it was a an intent to really provoke a different quality of conversation. We're not the only ones who landed in the same place of recognizing that many businesses are stuck between a rock and a hard place. They have the underlying drivers of a need to act, but lack of market support for action. Many others are landing in a similar place. Their arguments have been made over many years, but we felt that they were really being overlooked, and really wanted to put a stake in the ground. And to say, you know, it may not be popular, market sentiment may have shifted, but climate change is still real. It's still here, and the risks are really just going to escalate.
Seb Egerton-Read 02:36
And for the 1% of our audience who doesn't know, the ESG hype bubble that you kind of refer to, that ESG refers to environmental and social governance. And the hype bubble you refer to references this kind of wave of business targets and ambitions on a number of things, from from plastics to the climate crisis to biodiversity or nature positive targets the businesses have made with this kind of ambition to be both kind of economically viable in the long term or economically resilient, but also, you know, achieving success or a number of other things that we care about, such as tackling the climate crisis. I wonder if you could say, like, what in response to that, and the paper kind of articulates that that hype bubble might be coming close to bursting, or maybe already has burst in some respects. What does for anyone who doesn't, hasn't read the paper yet, who doesn't read the paper, what's the kind of two minute synopsis of what the paper says?
Lindsay Hooper 03:31
Briefly the argument is, or the case we're making, is that the case for business action should be grounded in the reality of and the real risks of climate change, of environmental degradation, not short term reputation, market sentiment. So that case for action has not gone away. It acknowledges, though, that the markets that businesses are acting in today often don't reward the action, the investment that will be needed to transform the business to be able to sustainably, sustainably meet society's needs. So leading businesses are increasingly hitting the barriers of market limits, market willingness to pay more shareholder willingness to where the costs of investment in transition. And so businesses collectively are being limited only to the win wins, only to the things that can be afforded within today's markets and everything else is really being left, and the cumulative impact of all businesses doing only what can be afforded in today's markets will put all businesses at risk. So the argument is, the science is clear and the risks are increasing. The markets are providing limits to transition. Businesses are between a rock and hard place. It's therefore, in their own interest to assertively advocate for and work in support of market shifts, and that requires a combination of innovation, demonstrating that it's doable, assertive advocacy, and also building wider political and social support for change to markets. To effectively design out the tension between profitability and sustainability.
Seb Egerton-Read 05:05
And we'll definitely be coming back to those themes during the course of this conversation, Lindsay, especially those kind of three areas of action that you mentioned. I wanted to bring Joe into the conversation this point, because I guess a lot of the themes that Lindsay is mentioning, Joe, given your role at the Foundation, working very close to our business network will be extremely familiar in the world of circular economy, we've worked for a long time with some of the kind of early movers, if you like, in the across different industries.
Joe Murphy 05:34
Yeah, for sure. And the report was really well received. You know, within our organisation, it definitely got a lot of us talking and across the network, I think it, you know, it kind of said the right words at the right time to capture a sentiment, just to take a step back on the circular economy. And, you know, I've been at the Foundation for nearly nine or 10 years now. And the very when we really first started, the whole premise of the circular economy was about making new markets. You know, that was the idea as an economic thesis. So saying, how, how do we design an economy which actually capitalizes on some of the shortcomings of the linear economy and just builds a more more prosperous, more rez, more more resilient economy? And fundamentally implicit in that has always been the need to actually create whole new value chains, create whole new markets. So again, the paper was also quite a helpful sort of validation of that core original thesis for the circular economy. I think circular economy has quite a nuanced positioning in the world of sustainability and sustainability efforts, and we've seen lots of progress and action across our network. We've also seen lots of challenges and failures and things not working. And what we're doing at the moment is trying to categorize that action into different sort of archetypes, if you like, how do you actually do market making? How does that actually work in practice?
Seb Egerton-Read 06:57
And I guess what you know, the foundation, I also, like you, have worked for quite a long time at the foundation, and when we started, of course, the circular economy was not a well known concept at all. There was, like, a very small number of businesses almost more curious about it than acting upon it. I guess what we seen during that build up of our activities is a lot of in of what I guess Lindsay would describe as, like individual organisations trying to do things and then some efforts that are a bit more cross sectoral, or more in that kind of policy advocacy space. What are some of the big learnings that we've had as an organisation, or that we see kind of coming out from our network of businesses and wider network as well?
Joe Murphy 07:39
Yeah, so maybe just to give three examples. So one of the archetypes we're looking at is really just individual companies taking this set of ideas and trying to implement it and capture, generate and capture value by themselves. So if you take someone like Philips, they have set a target to grow the revenue they earn from circular-economy related products and services to 25% of their total revenue by 2025 and they're actually on track to achieve that. Have achieved that. So Philips is a great example where whether that's redesigning specific products or changing the business model around how they sell MRI scanners to hospitals, they've actually been able to demonstrate, individually, the ability to generate a greater percentage of revenue from these products and services. Another example, which is more sort of collective action, is what the work that we did on the genes redesign, we got 100 brands to sign up to a set of guidelines to show how they would redesign genes to be fit for a circular economy, so removing some of the aspects of the design today that make it problematic for onward pathways once someone has used a pair of genes. So brands agreed on a set of definitions and guidelines, but then innovated individually and sort of competed, if you like, individually to actually implement those changes, and the net result has been 1.5 million pairs of genes on the market, and that's increasing year on year. And the global commitment for plastics has done a similar thing for plastics packaging at an even bigger scale. The third example is not from our network, but is an example that I quite like is a project called Project Zemba, which was run by the Aspen Institute and involved Amazon and Patagonia and a number of other brands. And that's a collective Buyers Club, essentially. So companies collaborating are going one step further than agreeing common definitions are actually aggregating their purchasing power by putting money into a third party who then contracts on their behalf and ultimately secures lower carbon bunker fuel for future shipping of their products in the future, which allows them to hit their CO2 targets. So. There are different archetypes and different examples, many examples that we've come across. But what we're really trying to understand now is, how do you actually design how do you facilitate those acknowledging that there are it takes all sorts of of effort to make new markets.
Seb Egerton-Read 10:16
And to some degree, we need all, all of the all the above, at some level, in the in the economy.
Joe Murphy 10:24
Yeah, arguably, we need a generation of 1000s of these type of activities and intermediaries to set up to actually facilitate the new markets, build the new infrastructure, implement the new technology that's going to enable companies to really make this transformation and bring some these, certainly solutions, into the money so they're commercially viable. To Lindsay's original point, that if it's just sort of tinkering on the edges, and it's leveraged mainly around target setting and reputation, you're not actually able to bring solutions that are commercially viable. It's going to be extremely hard to transition at scale, just it just won't happen.
Seb Egerton-Read 11:03
And Lindsay one of the... Oh, please do, yeah.
Lindsay Hooper 11:06
Sorry. No, go ahead. I was just going to jump in, but go ahead. Well, I was going to maybe, maybe this offers the link as well. I was going to say one of the things I really liked about the paper that you published was it somehow straddled the line between being quite realistic while still remaining optimistic, like, you know, offering a pathway forward. And I wondered whether, and part of that is being realistic about what has or hasn't really been achieved. But also there are, you know, you point towards solutions and the direction of travel, the things you think businesses should be doing to move towards competitive sustainability. And I wonder if you could say something about those solutions, and maybe in the context of commenting on some of the solutions that Joe was speaking about there, or some of the archetypes that Joe was speaking about there. Absolutely. And so the point, I really liked exam, all of those examples, and I was going to jump in on all of them. And I think the first one was a really good example of how the target setting was aligned to a strategic pivot. There was a clear commercial case and a plan, not simply we'll set a goal because everybody else is and we think they ought to. So I think that's really key to success, having that that value lens, and also Value at Risk lens on why would we set this goal and also a commercial strategy, then to make the most of it, rather than hoping that somehow rankings or reputation will translate into financial value. I think in the some of the challenge that we the one of the examples we had in the paper was around plastics and to your second archetype around the recyclability being important, that's a necessary but insufficient piece. We also need the infrastructure. We're going to need the collection piece at the end. So how do we then look at the wider set of interventions that are needed? And the point around government action wasn't simply it's just a blunt tool of, say, carbon pricing, or that may part of the mix. It's also around public procurement, and it's around infrastructure. It's around putting in place the broader structures that will be need to needed in order to transition whole industries. So I think that there are some really important and practical things there for business. It is. There is actually quite a lot of low hanging fruit efficiency gains, reducing exposure to some of the price shocks. There's obviously, as you've highlighted, some of those future business models where there can be real commercial strategies. And then I think we've where we've seen huge momentum has been in places where we've had that package of government incentives and infrastructure, and that's really driven faster change than had been anticipated. So we know that it's possible. We know that change can be achieved. We just haven't yet designed markets to do that in a whole range of ways. So I think there are lots of positive insights and lessons there, then there. But the other point you highlighted was the one of scale. I think we've learned that relying on a small group of leading businesses is not enough. It may take a small group of leading businesses to start building momentum, but we're going to need trade associations. We're going to need this needs to be the business voice at scale, not just the usual suspects who've been calling for and pushing for action, we're going to have to get huge scales. So that means those businesses not saying we're great, we're at the leading edge, those businesses working to activate trade associations, industry bodies more widely, activating their supply chains.
Seb Egerton-Read 14:36
And it's quite interesting, because in some let's look on, I guess business lobbying has a kind of like, kind of negative connotation. But in many ways, the conversation we're having here is like framing it as an absolutely necessary part of like, if progressive businesses are lobbying, are giving policy makers confidence, are uniting around the kind. Packages you were talking about Lindsay that have a real opportunity to shift the market. That feels like you're arguing that's an absolutely essential part of tackling things like the climate crisis.
Lindsay Hooper 15:11
I think so. And I we have as an organisation, been very active in this space, as you know, for a long time. We hold the Corporate Leaders Group in for a long time in the UK, in the EU, and now in in South Africa and in Kenya, bringing a voice of businesses who recognizes in their interests to get market reform. But of course, we do speak to organisations. I've been in boardrooms where they've said, Look, you know, it's the bad guys that do lobbying. We're the good, responsible guys. And then I said, Well, what is your strategy? You going to sit and wait and hope the market transitions? Or are you going to actively work to to try to accelerate that transition? And I think at the moment, it's also naive to be thinking the responsible thing is to sit back. We're in a context in which we know that those who benefit from blocking progress have got very deep pockets, are very focused on spending money on using strategic communications and advocacy to block progress. So sitting back is basically enabling arpeggiating the status quo. I don't think we will get change without those who've got resources and can see the need for change to be really assertive in pushing for it. So I think, of course, that needs to be done responsibly, and there are good guidelines around how to be responsible in lobbying and engaging with democratic processes. But at this stage, it does seem somewhat naive to simply sit back, recognising that others are lobbying very hard to block any progress.
Seb Egerton-Read 16:45
Yeah, and Joe, I was reflecting on our, you know, our time together in the circular economy space. It's almost unimaginable 10 years ago that the circle economy be as prolific as it is now in policy and business strategies. But similarly, it feels like there's this moment in time from kind of individual business or individual organisation transformation to market transformation, that is, it's a pretty big stepping stone for the circular economy to move from being a kind of really good idea or something that, you know, we can see can work when the context is just about right in certain circumstances, to something that has the impact that foundations kind of forecasting and suggest it can have, and not just the foundation of any other organisations.
Joe Murphy 17:28
Obviously, yeah, it's, it's a growing up sort of phase, and I agree totally with Lindsay in in that, in the change and will not happen without policy. You know, without enabling policies that can actually support industrialization and scale up of these solutions. So so many of the sort of barriers you run into when working with individual businesses on how to implement some of these solutions is that the economies of scale just make it really hard to shift from something like a, say, single use packaging, to reusable packaging. You need the infrastructure and the systems to develop to be able to make those just cost competitive. And, you know, companies do the modeling, okay. Well, if, if we had this, if X, Y, Z was in place, it would compete, and we'd easily be able to switch over, for example. But, but to the gap between where we are and actually having that infrastructure is significant. So you know, one of the archetypes we also work on, of course, as an organisation, is is supporting that joint adverse advocacy. And I think that's a really important call to action across the field of actors here and NGOs, particularly around to that point, around creating credibility, creating platforms that have integrity for businesses to call for joint, you know, with joint, sort of common voice, if you like, around what needs to happen to support them to move as an industry, and then they're very happy to compete beyond that, you know. So set the foundations, and we'll compete away, and we'll, we'll do what we do every single day of the week, which is just try and knock the stuffing out of each other to capture market share. But there's a net, there's a level of investment and advocacy that's required to create that, that playing field to then a level playing field to to play on. I would also say in parallel circular economy, sustainability, there's also a bit of an image problem around, around that topic, you know, because there are really, and again, notwithstanding, that scale up fundamentally requires this policy and this new infrastructure, but there are also companies that are winning today, because there are great examples, in case of studies, where companies are making money, you know, they're reducing costs, they're finding competitive advantages. And I think again, with this ESG bubble bursting sort of narrative. We've lost a little bit of that commercial savviness and astuteness to to the way we're thinking and talking about implementation of some of these solutions, you know. So just a very simple to give an example. H M redesigned their product design to procurement process recently, which allowed. Them to save $500 million of dead stock every year. Just having that elimination of waste efficiency mindset into how the an already extremely efficient business was working allows a tangible, real bottom line impact for a business. And there are many others startups, you know back market who are selling refurbished electronics, right? I mean, it's just a more competitive proposition now, because you can basically get the same thing for, I don't know, 40% cheaper, 50% cheaper. So there are real solutions out there today that have a competitive advantage, but fundamentally, for the scale of of impact, we need joint advocacy and kind of rules of the game being in place that the set level playing field are are essential. And I guess that comes a bit back to what Lindsay was saying about kind of not throwing the baby out with the bath water, in the sense that lots of good things have happened as a result of and are happening as a result of a lot of the efforts over the last, however long you want to play it back to, in the case of circular economy, 10 to 15 years. And I guess, like as we come to the end of the conversation, you know, that kind of leaves two questions. One is, what are the critical things that businesses should be doing to take a leadership role in this space? And I guess, like the other side of that is, are there any things they can do there on how do? They're unhelpful, like, Are there any things they shouldn't be doing? I don't know if you want to start with that one, Lindsay.
Lindsay Hooper 21:29
I think we do need to tackle the image problem. I think we need to acknowledge that it exists. This isn't quite answering your question, but I think that's a very real challenge, and I think that action to address climate and nature issues in particular, has been boxed into a space of being seen as anti growth, anti capitalist. And I think we need to not be limited by that framing on the defensive. But I think we really have to tackle that. And I think we also need to make it more relevant to political imperatives, competitiveness, growth, national security, access to economic opportunity. So I think there is a real need to be clear, sighted and politically savvy and step out of the box that it's been pushed into to rebuild some of that momentum and enthusiasm which is needed, because we need the sentiment as well as the economic analysis and so on. But I think looking forward, then there are some things that probably need to be stopped, partly because they may create the impression of progress, but actually which may delay the significant shifts that are needed. But also, companies just have to make hard choices about resource. There is so much resource at the moment being focused on things that are really not going to change the system or create long term value. So voluntary disclosures, where you're disclosing why I talk to companies and they're not even clear why they are, just think that they should so being really clear on the use of data and disclosures if you're setting targets, why? How is that? Is it aligned to a commercial strategy? Are we doing it because everybody else is doing so, if you're pursuing ratings and rankings, is that going to reduce cost of capital? How? What's that going to deliver for you?
Seb Egerton-Read 23:12
And that's really interesting, Lindsay. sorry to interrupt, but that's really interesting the context that, in many ways, that's the space that businesses will get critiqued on right, as in almost the reverse of that you're not disclosing enough, you're not hitting these targets. And it's and it says, and I really like the I really think it's interesting, the angle you're coming at that conversation from which is, well, if that's taking up your resource and time, and it's not actually having an impact to the bottom line of shifting that market make igniting that market transformation, is it helpful to do this?
Lindsay Hooper 23:43
So as long as it's not just cover for inaction, as long as it's actually we're going to really seriously focus on what it's going to take to transition and build thriving markets for the future, then I think there's a logic to that. If it's an excuse for doing nothing, then, no, that is not a great, great move. But I think so there, and there are also, I think, and a whole range of, I suppose, initiatives which are, in turn, well meaning, but aren't punchy or clear or specific enough that they will actually unlock change. So I think we need to go beyond the broad, you know, please. Can governments do something to really quite specific? Here are the specific interventions that we're going to need, whether in order to incentivize innovation or to scale solutions at work, or to phase out the damaging activity or the barriers to to market and scaling. So I think getting more specific, rather than in the kind of blah, you know, we'd like some good stuff, because I think that just doesn't cut through. What do we need a lens that is really focused on value and competitiveness? I think there's a need to look inwards and address some complacency. I think we still see assumptions in some business that they'll be able to jump before the market shifts, and not recognizing the wider systemic. Risk created by everyone taking that same approach. And I think it's really unrealistic that everyone will be able to jump. It just won't happen. It's not a thing before the music stops. I think really looking at what are those specific market shifts, policy interventions that would create a pathway to transition, that would level the playing field, reduce that competitive disadvantage from action, a focus, as I said, on engaging industry associations, getting that scale, the wider business voice. So governments aren't saying, Well, you say this, but another group of businesses say this, and you know, we don't know. So getting a really coherent, clear, loud business voice. And then I think in the innovation space, businesses tend to be good at doing the same things better, but not necessarily at transforming. And I think we'll need much more transformation of industry sectors than many businesses have prepared for. So what are their m&a targets? How are they working with innovators and entrepreneurs? How are they getting close to university breakthrough research on solutions that aren't yet in the market in order to look at and better understand and position themselves for the future. But I think fundamentally recognizing that the Doing nothing is a vote in support of status quo and will never inevitably lead to markets being eroded in the medium to long term.
Seb Egerton-Read 26:18
And and I like that point about there's a cost to an action. I think you have a line in the paper you say this kind of market transition is inevitable, like where it feels like that feels like one of the things that does feel inevitable, and that's the maybe the both optimistic and realistic end of your of your of the narrative. But for for a business that wants to be a leader, acknowledging that, you know, you can kind of choose to be part of the part of that, leading that market transition, or you can be caught in it, in some sense. And Joe, just one final kind of question to you. I guess this is also a moment in time for organisations like the Foundation who play a role in, you know, you mentioned the kind of facilitators of transition. Obviously, it's really important that there's big ideas and stories and visions and directions of travel, but, but it's also a moment in time for us as an organisation, for organisations like us and a lot of the people we work with, in terms of the way Lindsay termed it, moving from that kind of broader advocacy of of a thing that people can work towards to more specific transitions that speak to that kind of competitive value.
Joe Murphy 27:34
Yeah, absolutely. And I think that's why the paper sort of resonated as well, because it mirrored lots of conversations we've been having and looking at the circular economy field as a sort of subset of the wider sustainability field. I mean, I am anticipating, we're already seeing a bit of a rationalization of that. You know, of course, we need research, we need coalitions, we, you know, we need all of the sort of elements that are there. But there's, there's a lot of duplication, a lot of it's fairly macro. And if we're saying that the world is focused on pragmatism implementation, you know the solutions that can actually create the infrastructure that can enable the transformation of markets, that can bring circular economy into the money, if you like, and make it more competitive, then you need, you still need advocacy, you still need research, you still need coalitions, but then there needs to be a level of specificity to that which I don't think we're seeing across the board sufficiently today. So that's a big question for organisations like the foundation and the wider field around how are we reorganizing, retooling, not to lose you can't. It's danger to lose some of the North Star, the vision, the pieces that hold it all together, but to actually play really value adding roles, whether it's in sort of facilitating joint advocacy or facilitating some of these market making type activities. And that's that's really specialist work. And I think there's a, there's a big sort of shift underway within the ecosystem as organisations try and tool up to be more relevant, more value adding in that context.
Seb Egerton-Read 29:15
Joe and Lindsay, thank you so much for joining the Circular Economy Show. So while many really good things have been achieved in this most recent phase of the circular economy and wider sustainability. We know we need to move and orientate these ideas to a focus on commercial viability, and also in doing so, making them more specific and more focused, and we need to ensure that the money flows to a circular economy or wider competitive sustainability. Thanks for listening to this episode of the Circular Economy Show. We'll put the link to the paper we've been discussing in our show notes. If this episode's been interesting or useful you've learned something from it, please do share it with your colleagues and subscribe to our podcast on Apple Spotify, or wherever you listen to your podcasts, we'll see you next time you.