Just how does a major multi-national car manufacturer transition to a circular economy business model? This was the topic addressed by Carlos Tavares, former COO of Renault, at the recent Circular Economy 100 Annual Summit.

Within the context of big business embracing the responsibility of driving sustainable consumption and reducing the strain on Earth’s resources, Tavares was asked to expound on Renault’s circular economy activities and how Renault and the wider automotive industry could benefit from adopting a ‘circular’ business model.

Firstly, circular economy thinking opens the door to breakthroughs, said Tavares. As a result of Renault’s ‘Kaizen’ continuous improvement philosophy and circular economy focus, the company is already starting to transform the way it does business around the world, which is yielding positive business and sustainability results. The company has made particular progress since becoming a founding member of the Ellen MacArthur Foundation four years ago, Tavares explained.

The importance of the circular economy to business

Despite the fact that his generation tended to be thoughtful consumers and took care to save money and respond respectfully to resource constraints, Tavares said that it was nevertheless the same generation that mismanaged raw materials and promoted the linear business model which has brought us to the edge of our impending resource crisis.

By not integrating their personal philosophy into business practices, these business leaders also largely failed to recognise the financial benefits of a circular economy. Now, there is no time to lose in understanding these benefits.

Similarly, while buzzwords such as ‘reduce, reuse, recycle’ belonged solely to environmentalists 20 years ago, they should now be central to business leaders’ vocabulary. And businesses should be leaders in this area because their success depends on the availability of raw materials, said Tavares. He went further to state that in fact, the circular economy is about more than the environment – it’s about creating stable business conditions and ensuring profitability.

For example, the wild price fluctuation of steel that took place between 2004 and 2008 was a result of linear thinking. The sustainable use of resources helps to guard against market volatility, reducing financial risk.

Renault’s progression to the circular economy

Renault has four zero-emission electric vehicles and is the only vehicle manufacturer to have created a full zero-emission product range. It has forecast sales of 36,000 units in 2013. This is a result of Renault and Nissan investing in zero emission technology 14 years ago. And they did this because it was the right investment to make to ensure the long-term viability of their industry.

Despite its progress in developing zero-emission technology, Renault still sells primarily combustion-powered vehicles, with 80m cars sold in 2012 and an anticipated 200m by 2020, as the global population rockets. Clearly, this trajectory cannot be maintained. The automotive industry has no choice – it has to do business differently.

Maximising the value of materials in end-of-life vehicles (ELVs) is vital, Tavares believes. He highlighted that each car contains high quality materials worth 2,500 euros. This is because cars are made to be durable. And because of that, these materials maintain a high residual value. So, the car can to provide value, not least as it’s designed to be dismantled for repairs. In this way, the circular economy is a part of car’s manufacturing DNA.

Renault is also using more recycled materials in its manufacturing operation. Recycled materials constitute some 25% of the weight of a new Renault. And in addition to saving natural resources by consuming fewer virgin raw materials, businesses can benefit from the significant price differential that exists between these and recycled materials (up to 20%).

At Renault’s plant in Choisy-le-Roi, the company is producing 120m euros of reconditioned powertrain parts annually, although Tavares explained that these are only guaranteed for a year. In the EU, 60% of powertrain repairs rely on reconditioned powertrain parts, so this presents a good business opportunity.

As the company strives to find more ways to close the loop, keep its products competitively priced and use natural resources sustainably, it will be ramping up its efforts to remanufacture more parts (both mechanical and electronic). For example, one initiative will entail batteries in electric cars – if the battery falls below 25% capacity, Renault plans to recondition the battery at no cost to the consumer.

Renault is also investing in new expertise to expand its recycling capacity. It has invested in two specialist companies specialising in waste and end-of-life materials.

Moving towards a service-based model

Interestingly, Tavares believes that in order to survive, the automotive industry will need to move from producing and selling cars to selling ‘mobility services’. Just in the same way that the mobile phone industry is now capitalising on sales of minutes and services rather than physical units, carmakers will need to recognise that changing the nature of ownership will transform relationships across the value chain.

Notably, the customer will benefit from the assurance of driving an affordable, reliable car while the manufacture will develop good customer relationships and fully optimise the product lifecycle. Manufacturers could even consider selling raw materials to their Tier 1 suppliers.

However, moving ‘beyond property’ will not be easy. Tavares welcomed more expertise and collaborations with fellow auto industry players as well as the Ellen MacArthur Foundation. The company has just confirmed it is extending its contract with the EMF for another three years.

Finally, making the circular economy a reality will require every business to be confident that the circular model is more competitive, sustainable and ultimately, more profitable than the traditional linear way of doing business. While the transition may be hastened by deepening resource loss, it still requires the complete dedication of business leaders, if it is to be successful.

Watch Tavares’ presentation at CE100.

CE100 Annual Summit: making the circular economy a reality

Emerging economies are more likely to use incentives than penalties to encourage recycling among businesses, according to the KPMG ‘Green Tax Index’. This stands in stark contrast to Europe, where companies tend to be penalised for poor recycling performance. The US also bases its approach on incentives, all of which prompts the question of whether Europe should consider adopting a similar tack.

The accountancy firm compared tax regimes in different countries and their impact in encouraging reuse or recycling of materials. Overall, it found that governments have become more innovative in using tax and other fiscal instruments to conserve resources, reduce waste and encourage reuse and recycling. Landfill taxes are also very widespread.

Of the countries analysed, incentives for efficient use of materials or waste recycling were part of the national tax code in South Korea, China, Brazil and South Africa.

In Brazil, manufacturers benefit from a tax credit on the acquisition of certain waste materials if they are destined to be recycled into new products. Eligible waste materials include plastic, paper, glass and various metals. Meanwhile, Mexico City provides a good example of waste-reduction tax incentives offered by municipalities. The city grants a tax credit to corporations that recycle or reprocess their solid waste.

China proved unusual in taxing the use of certain minerals, including iron and tin ore. The reason for this is a government push to conserve domestic mineral resources and prevent further damage to the environment. Molybdenum, magnesium, talc and boron are also taxed.

Incentives are also offered in China, with KPMG citing the example of reduced or no VAT on goods produced from recycled materials. Qualifying goods include sand produced from construction waste, powdered rubber made from end-of-life tyres and electricity or heat produced from organic waste.

Incentives and penalties in Europe

In Europe, France was singled out as having a system based entirely on penalties, with a tax on the removal of refuse from buildings liable for property tax (except factories), and on the recovery and elimination of both paper and electronic waste.

The Netherlands abolished its Packaging Tax in 2013 in favour of a Packaging Waste Control Levy payable by companies that introduce more than 50,000 kilos of packaging into the Dutch market.

Across the North Sea in the UK, there is a nationwide tax on the commercial exploitation of virgin aggregates, namely rock, sand and gravel. The levy aims to encourage increased use of untaxed alternative construction materials such as recycled construction and demolition waste.

“It’s time for Europe to take a leaf out of the BRIC economies’ book and use more incentives to encourage businesses to recycle,” comments Nigel Hunton, MBA’s CEO. “We’re working with the UK government to discuss the possibility of introducing zero or reduced VAT on products made from recycled goods.”

To read the full KPMG report, please click here.

» Video of John Gimigliano of KPMG discussing some key findings from the survey.

We’re delighted to welcome Barry Crowley to MBA Polymers as our new Chief Financial Officer.

Barry joins from Edwards Group where for the last eight years he has been Group Financial Controller. Edwards is a leading global supplier of vacuum equipment and technology services. It was acquired by private equity investors in 2007, successfully listed on NASDAQ in 2012 and acquired by Atlas Copco a Swedish based global industrial company in January 2014.

Before joining Edwards, he was responsible for financial business change management at RWE npower. Prior to that had a 13 year career with GlaxoSmithKline as Director, Business Development (UK Financial Services), Corporate Accounting Manager and Accounting Development Manager, He trained as an accountant with KPMG in Ireland, and is member of the Irish Institute of Chartered Accountants.

Nigel Hunton, MBA’s Chief Executive commented, “Barry brings exactly the right financial experience to MBA Polymers at this important stage of our development. He has a record of leading financial transformation in Edwards from the carve-out from The BOC Group, acquisition by private equity, an IPO and finally a trade sale. Importantly for us, this experience has has also been coupled with delivering organisational change within major blue-chip companies arising from organic growth, acquisitions and mergers and implementing the necessary financial reporting, systems and processes. We welcome Barry to a fast-growing business starting to make a real impact in the world of recycled plastics.”

UK policymakers are calling for lower VAT on products with recycled content, following the launch of a new report entitled ‘Circular economy: ending the throwaway society‘. Produced by the Environmental Audit Committee, the report also recommends longer warranty periods for consumer goods and a ban on food waste being sent to landfill, as part of a wider move towards creating a circular economy.

“We had throwaway economics in the past, but that disposable society simply isn’t sustainable in the 21st century,” said Environmental Audit Committee Chair, Joan Walley MP. “Less than half of the stuff we throw away each year is recycled and turned back into something useful.

“The good news is that with the right government support, we can stimulate UK manufacturing, create jobs, grow our GDP and reduce our environmental footprint,” she continued. “We have to create a more circular economy that rewards innovative businesses, values natural capital, and is resilient in the face of rising global resource prices.”

The report recommends that the government should take steps to reform tax and producer responsibility regulations to reward companies that design greener products. In particular, it suggests that lower VAT rates should be introduced based on the environmental impact or recycled content of products. Tax breaks should also be considered for businesses that repair goods or promote reuse.

This could in turn lower the retail price for a whole range of products made using recycled plastic, from clothing to plant pots to vacuum machines, coffee-makers and computers. Dell, for example, has just become the first computer manufacturer to launch a computer made partly of third-party certified ‘closed loop’ plastics.

“The Environment Audit Committee’s recommendation to lower VAT on products containing recycled content is great news for British shoppers and consumer goods companies trading in the UK,” says Nigel Hunton, MBA’s CEO. “Should it be adopted, it could also provide a significant boost to the UK’s recycling industry. We fully support the creation of policies designed to incentivise sustainable product design and create a flourishing recycling market in the UK.”

Nigel and our founder Mike Biddle presented MBA’s thoughts on the challenges and opportunities for plastics recycling in the UK to more than 100 stakeholders at Westminster in 2013. Mike highlighted the sustainable business model that could help the UK to become world leader in recycling plastic waste, while Nigel called on MPs to introduce zero VAT for companies selling products made from recycled materials.

“By treating waste in the UK as a resource, and recycling it in a cost effective, environmentally sound way, the country could attract jobs and investment, reduce its dependence on fossil fuels and forge a reputation as an innovator in waste treatment,” says Hunton.

In addition to lowering VAT rates for recycled products, another important step will be establishing eco-design standards to ensure products are easier to repair, upgrade or recycle. In tandem, the government should work with industry to set longer minimum warranty periods for consumer products, the report finds. Finally, it also recommends streamlining the UK’s area-by-area approach to recycling in order to boost performance in line with the EU plans to increase recycling rates to 70% by 2030.

To learn more about how MBA Polymers could work with your company to provide high quality recycled plastic for your products, please contact us.

Earlier this month we held a fun day at our Worksop site to say a big thank you to our employees for their hard work. Organised by MBA’s Sue Thompson and Faye Wicks, the event was a big hit with all the family, with attractions including a tug of war, football, face-painting, bouncy castles, mini fairground rides and a land train running laps of a local field. Importantly, it was also a prime occasion to encourage young people to get involved with recycling and understanding the values of resources and how this helps protect the environment.

Children traded plastic bottle tops for tickets to attractions, with one child bringing over 1,800 tops to be swapped. They also created some fantastic bottle top art. It was a great way to inspire youngsters to think about recycling while having fun.

Speaking to local newspaper the Worksop Guardian, Wicks said: “The kids really got into it, and we showed them in a fun way that recycling does have its rewards. We believe it’s a really important message, and one we’re keen to keep delivering.”

MBA would like to extend the invitation to the wider public next year and engage families throughout the local community with recycling while explaining the important job we’re doing in keeping materials in use, diverting waste from landfill and contributing to the circular economy.

To see images of the day, please visit our Facebook page.