Insights Report – Developing a Circular Economy

Developing a Circular Economy

A critical conversation at Capital Club Dubai on Developing a Circular Economy in the region with a powerhouse panel.

Key takeaways:

  • Though there is no regulation for the private sector to comply towards a circular economy strategy, the impending risk of not participating is huge.
  • Consumers, customers, clients, and employees will not accept companies who do not take responsibility for their supply chain. It isn’t just a moral imperative but a business case that increases efficiencies and innovation.
  • Packaging is not naturally recyclable, so designing for circularity is very important.
  • The Extended Producers Responsibility (EPR) policy is coming to the region but this needs to be properly enforced and monitored to develop a proper circular economy, where the loop is closed, and ‘problems’ are not pushed somewhere else.
  • Regulatory push for circularity and sustainability is needed to create a level playing field for all industries.
  • Value needs to be assigned to resources by making it more expensive to use the landfill, which will create a ripple effect across all industries.
  • The investors are maturing in the region and are taking the decision-making for circularity away from companies and into their own investment strategies.

What are the challenges in introducing circularity within your organization?

Rajesh Garg: Landmark is a Middle East company headquartered in Dubai, and while many perceive us as a retail company, we are a brand company with 95% of the products designed by us. We have oversight of the entire supply chain – where the cotton is grown, where polyester is procured, how energy efficient are the factories, etc. Our brand Splash has been on this journey for over five years, and today 90% of the products are sourced responsibly. It is a moving target and the more we learn, we can become even more responsible in sourcing decisions. For example, all the denim for jeans is procured from suppliers who recycle 100% of water.

The biggest challenge is awareness, not just with the consumers, but also within our entire leadership teams. We built a full framework of sustainable products, sustainable operations, and sustainable customers to educate 90 of our top leaders from each business unit about our impact and achievements.

It is no longer about costs and more about how we can go further into creating more sustainable products. All our brands are on this journey and have timelines. They are talking to suppliers to come along, to raise their standards upstream in China, India, Bangladesh. But, if they don’t meet our sustainability standards, we are ready to change suppliers.

It sounds like a very complex process with tremendous amount of work to be done. What is the motivation?

Rajesh Garg: It starts with the shareholders and owners being very conscientious. The company is not publicly listed and there is no external pressure to comply with sustainability standards. It is a decision made by the owners. Having said that, we also recognise the impending risk of not being ready for the tsunami of customer behaviour change which is coming. It’s showing up in all the surveys. At present the claim to care about the environment may not always convert at point of sale. But that is changing fast. The next set of customers of all ages (not just Gen Z) are all going to make purchase decisions based on impact.

What criteria do you examine before investing into activities that help in achieving circularity?

Aditya Shah: We invest across industries, such as renewable energy, water and waste-water treatment, waste management and recycling, agriculture, cooling, etc.; inherently infrastructure type of assets. The model we’ve adopted is to decentralize the infrastructure and make it more sustainable. We have done this successfully in the solar, cooling, and energy efficiency space. We’re about to do the same for water and wastewater treatment. We offer fully financed solutions and invest in the solutions ourselves. All we need is predictable revenues over a period. We don’t take commodity or revenue risk but are willing to risk on performance or product delivery, provided we have a counterparty who is willing to sign a 10–20-year agreement with us to work on solutions for circularity.

How important is design to ensure the success of circularity?

Priya Sarma: It is very important to understand that packaging by nature is not recyclable, as it is made up of so many components. Designing for circularity is probably one of the most important starting points. We are very cognizant of the fact that, while we must design for circularity to ensure that the product is recyclable, we must also reduce the amount of plastic used, divert it from landfill and reuse it. We need to use ‘better plastic’, which can be easily recycled post-consumer use. Designing for recyclability is challenging and requires a lot of investment, but it’s a very important starting point.

How do you balance financial and sustainability decisions?

Rajesh Garg: Being both Group CFO and the CSO makes perfect sense and aligns well with the company’s vision. Since finance is ubiquitous and touches every part of the business from design, purchasing operations, supply chain, customers, stores, it is a great function through which to understand impact – to track and monitor it. The financial role also requires rigorous and authentic reporting of numbers internally and externally, so no there is marketing or PR manipulation risks. And the most important is the affordability issue which pushes the organization to find cost neutral solutions. In fact, the more our finance team investigates sustainability/circularity objectives, we find that there are many low costs or zero cost neutral solutions. The low hanging fruit is enormous. In fact, we are saving money, which is great, because then this can go towards further investments.

Priya Sarma: It is important to be cognizant of the fact that initially it might be seen as a cost, it is an investment. We are clearly seeing the benefits in our supply chain with more than 250 large factories globally. It drives efficiency and tends to reduce costs. Besides the improved efficiency in manufacturing, we see continuous improving in relations with suppliers and customers. And better retention of talent because the younger generation want to work for a company with purpose.

There is a lot of talk about circularity, but is recycling being done correctly in the UAE?

Aditya Shah: Even though since the last decade, environmental services have been in the same bracket as the other utilities – water, electricity, and cooling – it is still playing catch up. And a big reason is that the regulatory push is slow in coming. Many environmental related initiatives have been voluntary, and since there is no requirement from law, there is no level playing field across this industry. There is no additional motivation unless it is already part of the company/owners’ DNA. However, in other regions, the same international players are a lot more sustainable in their operations because they are required to do so by regulations.

One proven way to create a level playing field is by enforcing the ‘Extended Producer Responsibility’ (EPR), which forces companies into design thinking or to create products which are more circular. Because they would have to take responsibility of making sure that their products are disposed of in the correct manner or find different uses of them. Many industries in other regions, have done this successfully, for example with solvents, oil, tyres, end of life vehicles, batteries, etc. Several industries have adopted circularity well with the right regulatory framework in place.

Where do you see the region progressing? Where are the major roadblocks and suggestions to overcome?

Aditya Shah: We need to make it more expensive to dispose waste into the landfill, because it is the first step towards converting waste into a resource. The only way to do this is to attach some sort of value to it. This will have a ripple effect in how waste is collected and disposed of. The lack of segregation at source has been one of the biggest pain points when it comes to circularity or recycling of material. And again, this is because no value has been attached to it, and the moment you assign a value, the entire ecosystem will mature and treat waste as a resource. Multiple recycling initiatives have started coming up and the feasibility of these resources is the biggest challenge. Addressing value and scale are key to a successful transition towards a more circular economy.

Rajesh Garg: Though EPR is needed, we need to be careful that problem is not pushed somewhere else. It is important to report what percentage of products will have post-consumer use materials. If companies find a way to cheaply dispose waste to another jurisdiction and it becomes somebody else’s problem, then we are not creating proper circularity. The loop needs to be properly closed.

Priya Sarma: Given the high rate of growth in the UAE, on average, we tend to produce about 38 to 40 million metric tons of waste per annum, of which, a large amount is commercial and construction waste. Of this, about 6.5 million tons is municipal solid waste, and 16% is plastic (1.1 million tons). If you analyse the breakdown of the different types of plastic in this waste and can divert 75% from landfill and recover a yield of 60%, the potential revenue per annum for the UAE is USD800 million per annum. This is a huge opportunity.