Category: Case teaching

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Steering businesses towards a circular economy

As I have previously blogged about, the students in my master course ‘measuring sustainability’ at NHH have analysed and proposed indicators that H&M and other fashion companies can use to steer their business towards a circular economy. We are very thankful to H&M and sustainability manager Luisa Book for collaborating with us on this case. The topic is very much of the moment as an increasing number of companies, just like H&M, aim to become circular but then also need appropriate tools to help steer their operations in this direction.

Some of the indicators the students proposed, such as amount of recycled material out of total use of materials, are maybe not new but are crucial when a circular business is the target. Moreover, the number of times a material can be recycled needs to be monitored in order to make sure that recycling is not just a prolonging of a linear path (see Circular Flanders great illustration of this to the left). In an ideal world, materials can be recycled indefinitely.

The students also argued that it is key to keep track of collecting initiatives i.e. when brands collect used or discarded products. How much of what is sold returns to the company for recycling? Moreover, companies need to monitor what happens with collected garments- are they recycled into new garments or in fact only downcycled (used for other less valuable products)?

One reason materials cannot be recycled is because the materials are contaminated for example by chemicals that hinder recycling. The students here proposed to measure the use of such chemicals or substances. By monitoring, the company can also try to minimize such use. To know if the product is made with substances that might hinder recycling, you need proper information about what the garment is made of and how it is made. Here the students proposed that H&M could develop more elaborate tags with information about the item which could help the customer to take care of it and, eventually, facilitate the recycling of the garment.

Another point that is crucial to circular operations is to keep the materials in the processes. In the textile industry, a lot of fabric gets wasted and does not end up in any garment. Consequently, some students suggested to measure the amount of material that ends up in a garments in relation to total amount of materials used. Ideally, all materials used should end up in a garment. Similarly, the students also identified microplastics as a threat because it means that small amounts of plastic fibers continuously leave the circular flow and non-renewable materials are subsequently lost.

Another aspect commonly discussed in the context of circular economy is the slowing of the circle i.e. the prolonging of a product’s life span. Here the students reintroduced the idea of enabling users to repair their clothes, for example by making sure all items come with threads or buttons necessary for repair or providing repair services in stores. The company can track both the use of repair services and number of items that customers could repair themselves.

I hope that H&M and other companies will find the students work helpful. How to measure a circular business is really at the forefront of both practice and research. In fact, two research colleagues and I just last week got financing for a project on circular business practices by Vinnova. That the students managed this task so well and were able to develop these very helpful indicators show, to my mind, that we at University teach students useful and up to date skills. We educate students that can in fact contribute to and improve current business practices.

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The link between circular economy & sustainability- a case with H&M

This morning, I introduced the case we will be working on this autumn on my course at the Norwegian School of Economics (NHH): managing business towards a circular economy and sustainability. The case is in partnership with H&M who is also a partner of the Ellen MacArthur circular economy initiative.

As I’ve written about before, I was not an early adopter of the circular economy. I do, however, teach circular economy as a trend in the sustainability area both at Örebro University and NHH. The more I reflect on the concept, the more of a convert I’ve become. So I thought I’d share some of my aha-moments about the circular economy and sustainability with you here.

First of all, what do we mean with sustainability? The established definition is from the UN Brundtland report (1987):

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs

As Kuhlman & Farrington (2010) (one of our key references in the NHH course) writes, this sustainability definition addresses the tension between mankind’s aspiration towards a better life on the one hand and the limitations imposed by nature on the other hand. This tension between social welfare and natural resources is more often than not ignored in the business debate on sustainability. We often pretend it does not exist. And of course, there are many win-win situations where environmental or social measures also bring down costs and/or increase income.  There are definitely low hanging fruit, efforts that are win-win or at least come at no cost.

However, there are cases where tension between social well-fare and environmental sustainability undoubtedly exists. The pharmaceutical industry is a prime example. The industry argues that it provides tremendous social benefit by saving lives (or at least reducing suffering) but the environmental pollution, especially chemical and water pollution, is high, both at production  and consumption sites. Why do such tensions between social well-fare and natural resources occur?

Operating in a closed system

Some of you might have heard about the Planetary Boundaries. Professor Johan Rockström and co-authors defined nine environmental boundaries we should stay within to ensure a stable living environment (see picture, borrowed from the 2015 article). What this figure tells businesses is that we are operating in a closed system. If we mismanage certain environmental resources, such as biodiversity and chemical pollution, we cannot compensate for these in other ways. If we cross these, there is no functional living environment we can operate within.

 

Why a linear business model does not work in a closed system

Now the problem with a linear business model (which most businesses have and what we often teach students) is that it treats input to businesses (and its outputs) according to the value chain- the business uses certain input and through a number of processes produces some outputs. These inputs, resources, the business uses appear to just exist. The environment is there for us to use and not affected by our use. Likewise, outputs and externalities from our production  just go somewhere. However, as the 1990 chapter on circular economy by Pearce and Turner states, eventually the waste we produce will affect the availability of new resources. And the accumulated waste affects our well-being too. The fact that business operates in a closed system has to be taken into account. Certainly for global businesses.

Now from the planetary boundaries perspective, the best would of course be to minimize consumption and for us to produce less in order to spare the environment and stay within the boundaries. This is in line with the minimalism and anti-consumerism movement. If we consume less, we do not need to produce so much. We can share, mend and repurpose etc. This is admirable and has a place, especially in societies with overconsumption. It is my approach to my own wardrobe situation. However, at this point in the debate, someone will throw in the argument that we cannot deny developing countries the same social benefits we have allowed ourselves. If we have been flying for decades, why shouldn’t they be able to?

Kate Raworth, with a background at Oxfam, illustrated this pedagogically in her ‘Doughnut Economics‘. It is a fact that there are large groups of people that are not getting their basic needs met. And to achieve progress on this point will in many cases require use of natural resources. Here, the tension between the social development and the availability of natural resources the Brundtland report sought to address is very clear.

Consequently, Raworth put those basic social needs into Rockström’s figure, in the middle, to illustrate that we want to maximize the social well-fare of people while at the same time staying within the planetary boundaries. We want to operate, she argues, within the green ‘doughnut’ formation in the figure.

Sustainability is getting the maximum social value while staying within the planetary boundaries

Working along the lines of minimizing and restricting consumption can, at least in some cases, thus deny us social value. Similarly, what many sustainability-minded businesses do is to try to minimize the waste and externalities from production. To reduce the ‘shadow’ of business, make them ‘tread lightly’ on the environment. There are many impressive initiatives with zero waste factories and water reduction regimes. These are all good, no doubt about it. We need these kinds of initiatives. However, the circular economy further adds that ‘waste’ should not simply be removed but could also become a resource for us to use. It’s a fact that we need some amount of production and that it uses resources and that there will be some amount of waste. What can we do with the remaining waste? How can we turn it into resources?

As this post is long enough, I will simply have to write about the challenges with making waste into circular resources in a follow up post. Still, I hope you see, like I do, why there is a case for circular business in a sustainable society. And I’m so excited about our case with H&M and what the students will come up with.

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Sustainability & fish farming: working with a real case

Aquaculture, such as fish farming, is a key industry to ensure  sustainable food production in the future. Foods deriving from the seas face many challenges such overfishing and water pollution. At the same time, sea food has many benefits such as low climate impact and high nutritional value.

It is quite clear today that wild fish supply is not sufficient and that aquaculture is necessary in some form in order to supply current populations with sea food. However, fish farming has been criticized for unsustainable practices through the years and the industry still struggles with some of them like sea lice, escapes and sustainable feed sources.

In the course I teach at NHH ‘Measuring sustainability’ we each year work with  a real case on how to measure sustainability. Last autumn, we collaborated with Norwegian Responsible Investment association Norsif on how we can measure and evaluate the sustainability of aquaculture companies. One of the things I love about these cases is the creativity the students show when coming up with new ideas and solutions. I truly believe this kind of creativity, combined with academic thinking and facts, is one of the most important skills we can teach students.

One of the learning points from working with the aquaculture case is how important national regulation is for sustainable fish farming. One of the drastic differences is the use of antibiotics. Aquaculture uses significant amounts of antibiotics, which is a critical issue considering antibiotic resistance, but the industry also shows that it can do without it when it has to, such as in Norway.

Another difficult issue is that fish farming in Europe is mostly done with omnivorous fish such as salmon. It is less efficient to raise fish that partly eats other fish than fish that only feeds on algea. Instead of feeding the salmon other fish, we could eat this fish directly and thus skip the step of raising the salmon. The fish in the feed can also lead to further overfishing. Of course we can feed salmon a vegetarian diet but salmon that are fed on vegetable rather than animal proteins may be lacking in Omega-3, which is one of the main reasons salmon are so healthy for a human diet. A better solution would be to instead farm a fish that naturally feeds on for example algea.

Another key issue for sustainability, the students discovered, is future orientation of the companies and investment in research to find sustainable solutions to issues we have not yet solved. During the course, we we’re visited by the head of sustainability and risk at Cermaq, Wenche Gronbrekk, who explained how the company works to address sustainability issues. Wenche has answered a few of my questions below and also describes their investment in future solutions: iFarm.

Sabina: The Norwegian aquaculture industry has made quite some progress in terms of addressing its sustainability challenges. What are, in your opinion, some of the main achievements? 
Wenche: We have made great progress in lifting the industry standard the past years through collaboration –  through dialogue and knowledge sharing between government, research and industry. Also, in the Global Salmon Initiative (GSI), addressing key issues such as standardization, feed ingredients and biosecurity. Vaccine development has also been key to advancing sustainability to the level we see today.

Sabina: Still, as we have learnt when working with this case, challenges remain. What’s on top of your to-do-list in terms of sustainability?
Wenche: Sustainability requires continuous effort, and we work every day to be better than just complying with minimum standards. Developing new solutions that address key problems is also a priority – such as our iFarm concept. It may solve many of the key challenges today through individualized treatment of each fish, increasing animal health and welfare, optimizing feeding and any need for treatment, which may in turn reduce the environmental footprint of our activities.

Sabina: Sustainability is, according to its definition, about the long term perspective, future generations even. Still most organisations operate with a shorter time perspective in their day-to-day business. How are you able to take the long term perspective into account?
Wenche: Salmon farming is largely dependent on taking a long term view – we operate in the sea and biological risks do not respect financial quarters. To have a business over time, our operations need to be sustainable in all aspects: environmentally, socially and economically. 

Sabina: Many who work as sustainability officers or even head of sustainability find that change management is crucial in order to conduct their work. Is this your experience as well?
Wenche: As a sustainability officer you need to work across the organization, break silos and in many ways be a change agent. Integrating sustainability in business strategy also means that many companies need to innovate their business model – and it is my experience that sustainability professionals often play a central part in this transformation.

A big thank you to Wenche and Cermaq for sharing your experiences with us and also to Norsif and Norsif member Folketrygdfondet and Tine Fossland who attended the students presentations and provided feedback on their evaluation models. We could not have done this without you!