Investment in digital accessibility and digital literacy will be another critical component for government strategies aimed at encouraging innovation in the CE. Digital technologies are likely to play a critical role in accelerating the uptake of circular activities, not least because the barrier to entry is relatively low. There are many possible applications of data in CE approaches: firms are using active location sensors and radio frequency identification (RFID) to track and check the condition of products, which in turn allows the timing of repairs to be optimized and facilitates the sharing of assets between consumers; optical scanners are helping to identify materials in waste streams for more accurate separation into different categories; and online platforms can match available secondary materials and products with potential customers. Equitable access to these technologies, and to the employment opportunities and resource efficiency gains they can deliver, will depend on ensuring that workers – especially in rural and disadvantaged locations – can acquire the necessary training.
Developing novel alternatives to materials used by low-income households and rural communities will be as important as innovation in high-tech solutions. Plastic bottles, sachets and containers, for example, are invaluable for keeping liquids, food and household items safe from contamination and allowing them to be sold in amounts that are affordable for the average consumer in lower-income countries. Finding and funding novel alternatives will be critical to ensuring that the removal or substitution of existing packaging and containers does not curtail product access.
4.2.2 Novel finance mechanisms
Whether technology-intensive or not, CE innovations will need to be accompanied by innovative forms of financing if they are to be adopted. Many efforts to establish large-scale financing facilities for the CE in developing countries have yet to be operationalized, given the absence of a strong pipeline of suitable projects. Circular investments are often seen as high-risk, owing to their novelty and to uncertainties around the valuation and insurance of repaired products. Constraining factors also include long asset lifetimes, difficulties around ownership models for products flagged for reuse and remanufacture, and the cross-industry nature of CE models. Product-as-a-service models, for example, require new forms of leasing and insurance contracts and typically require longer-term financing. Similarly, circular business models typically rely on cooperation across a network of suppliers; banks may thus seek assurance that no single point of dependence in a given network poses a threat to the other participants. Innovative financing will also be needed to ensure that local entrepreneurs and small and medium-sized enterprises (SMEs) are supported in the transition to a CE.
A range of financing organizations will likely need to be involved, providing not only blended finance but guidance on how to structure and operationalize circular value networks. Collaborative approaches to financing guidelines could accelerate the creation of a lower-risk investment environment for private-sector financiers.
Financial instruments with novel risk-sharing mechanisms could help to enhance collaboration along the value chain. Such mechanisms could support the sharing of supply chain risk information, or underpin revenue-sharing and buy-back arrangements to mitigate losses to any one actor in the event of a disruption to supply or demand. A range of financing organizations will likely need to be involved, providing not only blended finance but guidance on how to structure and operationalize circular value networks. Collaborative approaches to financing guidelines, as seen in the CE finance guidelines launched by ABN AMRO, ING and Rabobank in 2018, could accelerate the creation of a lower-risk investment environment for private-sector financiers. Governments can also help to incentivize novel projects via public procurement rules and fiscal policy, potentially building on lessons from renewable energy markets. In the electricity sector, a combination of price guarantee policies – such as feed-in tariffs – and innovative public financing models encouraged the flow of private investment into renewable energy sources. This stimulated technological development in renewable energy. It enabled economies of scale to emerge so that, today, solar PV installations and wind power are competitive with conventional energy sources. In 2016, 90 per cent of renewable energy investment came from private sources.
At the level of individual strategies or products, initiatives to strengthen financial access will be key to enabling small businesses and low-income consumers to participate in circular value chains. Low-cost models for asset sharing, product-as-service models or subscriptions to software can enable lower-income customers to adopt CE products and services.
4.3 Addressing the social dimensions of the CE
In the past, the CE agenda has been criticized for being too focused on technical and engineering aspects, to the detriment of understanding the role of people’s desires and aspirations. Discussions of resource management have not always considered the social dimensions of resource access and resource use, or the shifts in attitudes and behaviour implied by a transition away from linear consumption patterns towards the circular and sharing economy.
Social norms and consumer behaviour are key to the success of the CE, and developing countries are in many ways ahead of developed countries when it comes to consumer attitudes towards goods and services. The new consumer classes in developing countries are not perfectly replicating the consumption patterns of developed economies. Affluent Chinese, Indian and Indonesian consumers tend to be younger and more internet-savvy than their counterparts in European and North American markets, shopping online more and spending less on durable goods and more on lifestyle experiences such as travel. On average, people living in lower-income economies tend to display more ‘circular’ behaviour than those living in higher-income countries. Moreover, despite considerable variation, per capita resource consumption is generally lower in developing countries than in developed ones. In India, for example, 60 per cent of discarded plastics are recycled, compared to just 6 per cent in the US. Similarly, the Marshall Islands recycles 31 per cent of municipal solid waste, whereas New Zealand recycles only 15 per cent. In fact, the Marshall Islands forms part of a group of Pacific islands (including 14 countries and eight territories across Melanesia, Micronesia and Polynesia) that collectively recycle at least 47 per cent of waste; they aim to increase this share to 70 per cent by 2025.
Where current and anticipated trends in consumer behaviour are towards ‘throw-away’ models of resource use, nudge tactics and awareness campaigns can encourage perceptions of product reuse, recycling and asset sharing as mainstream and appealing. Experience of policy design around the world in support of sustainable consumption indicates the importance of environmental cues and targeted information in disrupting habits, particularly when the impacts of individual changes may be hard to see. A campaign to encourage more responsible water use in Brazil, for example, included a calculation of the volume of water wasted over an individual’s lifetime through leaving the tap running while teeth-brushing; in São Paulo, the campaign contributed to a reduction in water consumption of more than 30 per cent. In the case of ‘switch’ changes – involving switching from an unsustainable behaviour to a more sustainable one – schemes that automatically make the sustainable option the default have been shown to be successful. So, too, have information campaigns that alert individuals to changes made by their peers: one frequently cited study demonstrates that hotel guests are more likely to reuse their towels when told that most guests at the hotel had done so.
Encouraging positive consumer attitudes will be particularly important to the scaling up of value-added surplus products (VASPs) in the food system. Certain approaches will require a degree of public education to demonstrate their safety and to socialize their use. For example, sludge recycling – the collection, treatment and use of human sewage – offers opportunities for the manufacturing of fertilizer, fuel, building materials (bricks and cement), animal feed and bioplastics, but there has been substantial consumer resistance to expansion of the associated supply chains in many countries. Moreover, considerable effort will need to go into influencing consumer mindsets to avoid the ‘rebound effect’ whereby price reductions for a commodity that occur as circular practices take hold either increase consumption of that commodity or result in higher spending elsewhere in the economy.
Policies will likely be needed to promote equitable access to the CE-associated benefits – including increased access to cheaper transport and living spaces – that are enjoyed predominantly by the wealthier segments of developing-country populations.
As the middle classes expand, governments in developing countries will need to manage a growing divergence between the consumption and wastefulness of a fast-growing elite and the consumer habits of an increasingly ‘left behind’ group of poorer and more vulnerable people. Policies will likely be needed to promote equitable access to the CE-associated benefits – including increased access to cheaper transport and living spaces – that are enjoyed predominantly by the wealthier segments of developing-country populations. It will also be important for policymakers to manage gender inequities. As women tend to have poorer access to digital technologies – in Africa, only 12 per cent use or own digital technologies, versus 18 per cent of men – there is a risk that the roll-out of the CE will further exacerbate inequities in women’s access to goods, services and employment.
4.4 Summary
- Developing-country governments will need to provide an enabling environment for private-sector innovation and change in public behaviour if the CE is to take hold at scale. Fundamental to such an environment will be a robust policy architecture that creates the right incentives and punitive measures to guide industry action, that integrates the large and vibrant informal sector, and that encourages foreign investment in domestic industries engaged in circular activities.
- Innovation strategies will be required to encourage R&D in CE solutions beyond recycling and waste management. Where CE approaches are untested or involve coordination across multiple actors in a supply chain, novel financing mechanisms are likely to be needed to lower the investment risk.
- Development of a comprehensive CE will also depend on public uptake of circular behaviours, including consumption of used or refurbished goods and participation in asset-sharing models. Equally as important will be policy measures to tackle inequities in resource access and use, both between low- and high-income groups and between genders, to ensure that the benefits of the CE are reaped widely and fairly.