The benefits of a circular economy in tech
As we all become more aware of the climate crisis and as consumers increasingly move toward upcycling and reuse, the circular economy is gaining popularity.
It’s a simple concept that can go a long way: emphasizing the reuse and recycling of products, components, or individual materials within hardware. The tech sector relies on a vast array of devices – that often come with a steep upfront cost – and reducing waste here can cut costs and reduce the environmental impact of the whole industry.
There’s great potential for the circular economy in the tech sector but leaders need to know how exactly it can benefit them before they begin upending their existing system of business.
Making the case for the circular economy in tech
In its most straightforward terms, the circular economy is focused on replacing a linear model, in which items are used and then thrown away, with a model where useful items are reused and those that no longer work are disassembled to extract key parts.
Repair and recycling form the backbone of the circular economy, with the exact balance of the two varying depending on the condition of each product.
This overlaps with the idea of the ‘right to repair’, which can be found in UK and EU legislation and aims to improve the lifespan of consumer electronic devices by forcing manufacturers to provide spare parts and readily provide repair instructions. But where right-to-repair steps in for consumers, the circular economy aims to overhaul an enterprise’s entire supply chain and purchasing strategy to reduce waste.
For tech businesses looking to buy into the circular economy, the approach may seem logistically difficult or even infeasible. Some businesses, such as those expanding into AI model development, rely on state-of-the-art equipment that can only be bought new and becomes obsolete relatively quickly.
These short product cycles can give leaders the idea that the circular economy is a ‘nice to have’ that does not align with their strategic goals.
Within the tech sector, it is more than possible to take a circular economy approach, as Arnaud Brunet, director general at the Bureau of International Recycling (BIR), explains:
“The tech industry has a symbiotic relationship with the circular economy, as it can enable circularity through innovation while benefiting from lower costs for materials and growing demand for greener solutions.”
Does adopting a circular economy approach mean that tech companies need to sacrifice profitability? Not necessarily.
“It is estimated that transitioning to a circular economy could generate $4.5 trillion in new economic output by 2030,” says Paul Sheeran, SVP for SMB and Channel at HPE Financial Services, in conversation with ITPro.
“To capture this advantage, tech companies need to consider everything from how they design products to what they do with them at the end of their use, new business and financing models, and the necessary incentives and legal structures.”
Key benefits of a circular economy in tech
Any tech business considering a circular economy approach will want to drill into the key benefits – Brunet argues that in the long term, the circular economy will simply become a case of necessity due to rising material prices.
“Most projections are pointing towards key elements and materials becoming rarer and subject to competition,” he says. “Recycling can help companies have resilient supply chains.”
But the benefits extend beyond the raw materials used to create new products, as Brunet expands upon:
“By adopting circular economy principles into their strategy and production, tech companies can reduce their emissions and meet the demand for sustainable solutions.”
These benefits extend deep into the heart of the business, Sheeran points out. “If implemented and practiced correctly, a circular economy approach enables companies to optimize efficiencies, keep assets in use longer, reducing raw material extraction and minimizing e-waste potential.”
With companies in all sectors feeling pressure to adopt environmental, social, and governance (ESG) strategies, the circular economy could become a win-win. In the short-to-medium-term, it helps firms say they’re taking climate action and meeting their emissions targets – inclusive of scope 3 emissions, which occur down one’s supply chain – while down the line they reduce their hardware CapEx.
And then there is the wider influence that tech companies can have, beyond their own operations. Sheeran: “A circular economy approach benefits both technology companies and their customers as it drives innovation with product development teams constantly striving to achieve higher product efficiencies, find new ways to optimize resource usage, and reduce the amount of waste generated at the end of use.”
As Olivier Blum, EVP of Energy Management at Schneider Electric points out, the circular approach can help spur innovation and competitive product development. “It can progressively evolve the company’s mindset to design products with repairability and modularity in mind,” Blum tells ITPro.
“This, in turn, leads to significant customizability of products as different parts can be easily changed instead of having to be completely replaced. This can be a game-changing competitive advantage.”
Blum is clear that there’s a clear reputational benefit here, noting that for those who adopt a circular approach ahead of the curve, “you can also improve your reputation amongst industry experts, analysts and the media, which all feeds into how existing and prospective customers perceive you”.
Tech as a circular economy powerhouse
In adopting a circular economy approach, tech companies can change their own practices and processes for the better and influence supply chains to do the same.
A third factor is the potential for the tech sector to provide circular processes to other sectors and customers that aren’t inherently tech-driven. Blum gives the example of “providing services that reduce wastage such as smart manufacturing,” as well as “finding markets for unneeded hardware and other equipment for example via lease or sell services”.
Sheeran adds that tech companies can provide their offers as a service, which can effectively disrupt the commoditized business model. He says this “breaks established patterns of mismatched supply and demand, thereby making our economy more circular,” and “lifts part of the responsibility from the customer with the tech companies retaining ownership of the product throughout its entire life cycle”. Crucially for Sheeran, this avoids over-provisioning.
There is plenty of potential for tech companies to embrace a circular approach, both for their own benefit and that of their customers and supply chains, even without any push from the side of the regulators.
Looking at the circular economy as part of the holistic approach to doing business, there is a strong case to be made that it dovetails neatly with aspirations a tech firm might have to build a sustainable business model.
If one considers that the continued use of raw materials in a way that generates unrecoverable waste is unsustainable, then the circular economy isn’t just an idea that can benefit tech businesses – but a necessity.
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