Circular Solutions, Community Revolutions: The Social Impact of Circularity

Our world is at a pivotal crossroads, grappling with issues like income inequality, nature loss, food insecurity and the pressing concern of climate change. The circular economy provides promising solutions to environmental threats and grave societal concerns. For instance, the transition to a circular paradigm is projected to create up to 8 million new jobs by 2030.^[i] Such transformative potential is reinforced by estimates suggesting that the circular economy could unlock $4.5 trillion of economic growth by the end of the decade.^[ii] Circular models, emphasizing the principles of the 9R model (refuse, rethink, reduce, reuse, repair, refurbish, remanufacture, repurpose and recycle), therefore promise not only environmental sustainability but also a novel wave of economic and social opportunity.

A new report, Inclusive Loops: The Crucial Role of Social Enterprises in the Circular Economy, by the non-profit organization TechnoServe and the Global Alliance for Social Entrepreneurship, funded by IKEA Social Entrepreneurship, deep-dives into the role of social entrepreneurs in circularity and the opportunities they present for companies to engage with. The findings are based on insights and expertise of a diverse working group, which included social entrepreneurs awarded by the Schwab Foundation for Social Entrepreneurship, members of the World Economic Forum's Global Alliance for Social Entrepreneurship and various leading companies deeply engaged in circular business models.

At the frontier of the circular movement are social entrepreneurs – individuals and organizations that are pioneering solutions to address societal challenges through novel business practices. Their role in the circular economy is manifold: promote circular business models, tackle the social risks involved in them or capture the vast potential for positive social impact. These entrepreneurs are actively redefining business norms while cultivating deep-rooted connections with communities worldwide. Their efforts ensure that circular business models are not only sustainable but also socially inclusive and beneficial.

The World Economic Forum’s report Circular Transformation of Industries points out that transitioning to a circular economy is not just about companies establishing circular networks. It reimagines how businesses operate, the ecosystems they are part of, and the consumer behaviours they shape. Such a fundamental transformation calls for innovative collaborations and broad partnerships.^[iii]

The new TechnoServe report highlights five transformative opportunities for companies to collaborate with social entrepreneurs in the circularity sector.

According to the International Labour Organization, the broader shift to a circular economy could generate up to eight million jobs worldwide, spanning roles from engineering to manual labour.^[iv] However, realizing this potential demands significant reskilling and upskilling. Circular business models, which uphold social, environmental and financial goals, often need to recruit from marginalized communities. This recruitment requires thoughtful strategies and, frequently, supplementary on-the-job training, as many of these individuals may be stepping into formal employment for the first time.

A comprehensive approach to workforce development in the circular economy requires expanding technical training in sectors like waste management. Professionals, especially in roles like procurement, need to upskill in sustainability and circularity concepts.

Social entrepreneurship offers unique opportunities. For example, the SUEZ subsidiary “Rebond Insertion” focuses on professional integration and social support projects to help long-term job seekers, welfare recipients, seniors, disabled workers and young people to receive training on circular economy jobs. Programmes backed by government and non-governmental organizations (NGOs), such as the Circular Skills Programme by the Dutch Ministry of Infrastructure, are bridging gaps between education and industry needs.

Collaborations can also amplify the impact. For instance, the shoe company Veja partnered with social enterprises Ateliers Sans Frontières and Log’ins to employ vulnerable individuals in their supply chain. Strategic partnerships with NGOs and professional networks can be vital in aiding recruitment and skill development. Moreover, the growth of networks dedicated to circularity and social impact can bridge labour supply and demand, introducing professionals to opportunities within the circular realm, thus cultivating a more inclusive, skilled and circular economy.

Founded in 2018 in Argentina, Unplastify set out with a mission to address the looming plastic pollution crisis that has the potential to leave our oceans with more plastic than fish by 2050. To challenge this, Unplastify fundamentally alters how individuals and organizations perceive and interact with plastic. They employ a multi-pronged strategy encompassing exploration, education and actionable initiatives to counteract plastic pollution. By collaborating with diverse entities – schools, businesses, governments and individuals – Unplastify champions systemic alterations to reduce reliance on disposable plastics.

A key obstacle in the fight against plastic pollution is the prevalent mindset, prioritizing value creation, and sidelining environmental and societal implications. There’s an over-reliance on existing solutions like recycling and incineration without a genuine introspection into behaviours causing the issue. Businesses keen on “deplastification” grapple with effectively quantifying and communicating their impact. This gap in impact data hinders advocacy at both community and national levels.

Unplastify assists corporate teams in debunking myths about plastic, such as its cost-effectiveness, encouraging a holistic approach to solutions. By connecting companies with experienced advocates, Unplastify facilitates behavioural transformations in medium-sized enterprises. It helps them to develop analytical instruments and standardized impact assessment methods to embrace and express circularity more transparently.

Unplastify’s educational programmes support efforts to educate the upcoming generation of circular economy advocates. Beginning with teenagers, they emphasize that recycling isn’t the sole remedy. In collaboration with National Geographic Learning and Disney, Unplastify’s programmes have directly engaged 2,000 students and indirectly influenced 17,000 more. Over the past five years, they’ve collaborated with over 60 companies across 15 countries.

Circular business models often aim to provide services and products at feasible prices, struggling against scepticism surrounding reused or recycled goods. This scepticism intensifies when sustainable sourcing and hiring from marginalized communities, with their associated elevated costs, come into play. Common misperceptions include viewing reused products, such as second-hand clothing, as inferior. Similarly, misconceptions about biodegradable items persist, like assuming they’re more fragile than their conventional counterparts. Moreover, some consumers’ penchant for ownership dampens enthusiasm for sharing models.

Additionally, sustainable products tend to be more costly than conventional alternatives, often by a substantial margin of 75-85%, as pinpointed by a Kearney study.^[v] The linear economy often overlooks the pricing of adverse environmental and societal impacts. But circular business models sourcing from or investing in marginalized employees, inevitably transfer these costs to consumers. Despite their professed willingness to pay more for sustainable products, consumers are realistically only inclined to pay a slight premium of around 10%.^[vi]

Launched in 2017, Indonesia’s Greenhope spearheads sustainable material innovation, aspiring for an ecological shift in plastic consumption and production. Their biodegradable solutions emphasize three pillars: affordability, tangible environmental and societal impacts, and functionality. Transitioning to eco-friendly plastic alternatives brings added expenses, urging Greenhope to select use cases and carefully curate their product portfolio. Their bioplastic innovations, Ecoplas and Naturloop, are derived from cassava starch, abundant in South-East Asia. Meanwhile, their Oxium additive transforms standard plastics into biodegradable compounds.

To support market development, Greenhope collaborates with corporate networks. Producing proprietary bio-resins and additives, they partner with downstream product manufacturers, crafting a diverse eco-product portfolio, such as eco-friendly gloves, aprons, agricultural films, hair colouring wraps, seedlings bags and more. The expansive reach of over 150 global partners, including prominent brands, helps Greenhope to enhance consumer awareness.

Circular economy models often grapple with the issue of securing consistent volumes of quality inputs. For non-virgin or regeneratively produced inputs, the challenge is twofold: these materials, already having undergone at least one life cycle, must be both consistent and of quality. Whether it’s textiles, plastics, paper, e-waste or other recyclables, the challenge becomes even more intricate when businesses source ethically, procure from marginalized groups or hire such groups for material procurement.

Sourcing becomes fragmented and costly when depending on individual waste collectors or small-scale suppliers. This dynamic holds for models procuring from, for example, waste pickers as well as those which prioritize regeneratively produced inputs, often sourced from, for example, smallholder farmers.

Founded in 1999, Goonj stands as a testament to the power of circularity in addressing urban-rural divides and economic disparity. The social enterprise collects under-used materials from households and businesses to breathe new life into these items, extending their lifespan. These revitalized materials then serve as a unique form of currency, used to fund grassroots development initiatives in rural communities, enabling those with financial constraints to spearhead community-led solutions.

Goonj’s principles revolve around key elements such as reverse logistics, reuse and recycling. The enterprise has intertwined the loop of material circularity with community development. Goonj has facilitated the reuse of 4,900 tonnes of urban surplus and the circulation of 14,200 tonnes of materials. Materials donated to Goonj first land in one of their eight processing centres, employing around 1,700 staff, primarily women who have faced barriers in accessing the labour market.

As the enterprise sought to broaden its impact, it forged strategic collaborations with retailers to access unused materials from various points in the retail supply chain – be it unsold clothes, excess stock or textile waste. Coupled with nationwide programmes, wherein customers were encouraged to return unused clothes to stores, Goonj professionalized material collection and enabled circular supply chains for its partners.

Another such collaboration is an alliance between an electric vehicle manufacturer and an off-grid energy provider. While batteries from electric vehicles may decline in vehicular efficiency after reaching 80% of their charge capacity, they find a new lease of life as power sources for smaller devices, machinery or mini-grids. By forging a partnership with a social enterprise focused on energy provision in Africa, a major vehicle manufacturer helped to electrify remote areas and reinforced its circular business model.^[vii]

Circular business models encounter significant financial challenges. A vast portion of financing is concentrated in high-income nations and corporations. Only 7% of global impact investment assets are from investors headquartered in medium- and low-income countries. Financial decision-makers often lack the necessary familiarity and understanding regarding dual or triple-bottom-line models, although they offer unique value propositions. They often serve conventional businesses through complementary value or provide path-breaking solutions to tap into new or underserved market segments.

As highlighted by the International Finance Corporation (IFC), small and medium enterprises in impoverished nations confront a $930 billion financing shortfall. These enterprises are deemed high-risk by conventional lenders and not lucrative enough for venture capitalists. Initiatives like Take-a-Stake, formed by a consortium including the WASTE Foundation, Sida, IKEA Social Entrepreneurship and Yunus Social Business, strive to address this gap, targeting sectors like water, sanitation and waste in countries such as India. Blended finance mechanisms and philanthropic capital can be potent tools. Government interventions, as seen in Chile’s circular economy programme, can significantly augment the financial landscape.

Additionally, business-to-business finance solutions present promising avenues, especially in sectors like agribusiness. Large businesses can benefit through partnerships by supporting smaller enterprises in their supply chain, both financially and operationally. According to a study of over 150 social enterprises engaging in supplier partnerships with corporations, 30% responded that they would seek an advance from their corporate partner to invest in resources needed to meet increased demand and execute the partnership.^[viii]

Ultimately, quantifying and conveying the tangible impact of circular businesses is key to unlocking further funding. This includes data capture and report metrics such as jobs created, waste diverted or pollution mitigated. This not only necessitates an overhaul of financial institutions’ evaluation parameters but also aligns with the goals of developmental finance institutions focusing on the Sustainable Development Goals.

RLabs, originating from Bridgetown, Cape Town, is a South African non-profit with a footprint extending to 24 countries across five continents. RLabs has provided access to skills training and economic empowerment to over 20 million individuals. One of its ventures, ReCha is a recycling, waste management and commodity trading hub, providing employment for over 60 individuals and $2 million in revenue.

RLabs uses local micro-businesses to establish aggregation points to supply their waste to the primary buy-back centre at a negotiated price. A challenge for these micro-businesses is working capital. Operating between the informal economy and formal businesses, these entities need to make cash payments to waste pickers. Yet, at the same time, they rely on payments from formal businesses, which are infrequent and based on delayed payment terms. This mismatch creates palpable strain on cash flow, working capital and ultimately intensifies with scale.

RLabs has overcome the challenge by weaving together the strengths of social enterprises, well-established businesses and microfinance institutions. It uses contractual off-take agreements with established recycling entities to secure financing. It then extends micro-loans to waste collection entrepreneurs to address their acute working capital needs.

Our traditional, linear mindset presents challenges to circular models. These difficulties are amplified for “slow loop” models, which emphasize reuse, repair and refurbish. Prevalent policies often inadvertently promote low-quality, disposable goods. Similarly, “sharing economy” models necessitate close collaboration with local governments for the effective distribution of goods and services, particularly to underserved communities. Additional challenges stem from import and export policies, which can cause delays and raise costs.

While these pose challenges for public sector actors, companies can support the emergence of circular business models through circular-friendly policies. For example, technology and hardware repair enterprises are constrained by corporations’ proprietary designs. Repairs are often limited to the corporations themselves, limiting local repair ventures. Supportive policies like “right to repair” acts are essential in democratizing repair services and creating space for social enterprise. To address the policy question, social enterprises must have a space in the policy-making process.

One example is RREUSE, a network for European social enterprises engaged in the circular economy. Its membership, primarily from Western Europe, consists of enterprises involved in collecting, sorting and reselling used products. RREUSE’s main objective is to protect and champion social enterprises active in the circular economy. To do this, it:

The above case studies showcase the potential social impact of circular business models, based on the example of social entrepreneurs. Through interviews with 40 such social entrepreneurs, the TechnoServe report outlines distinct pathways to maximize social contributions to the circular economy:

The report furthermore combines these pathways with the 9R framework (refuse, rethink, reduce, reuse, repair, refurbish, remanufacture, repurpose and recycle), which can be summarized into three primary “loops”:

The research combines both models – the 9R model and the social impact model – to surface the “inclusive loop framework”. It guides companies and entrepreneurs in their efforts to combine social value creation with circular business models. Currently, the most dominant impact approach blends the closed loop circular model with the employer-based social model (e.g. employing waste pickers for material sourcing) – “close employer”. But social impact can be created in several ways:

The melding of the circular economy with social impact is not just a conceptual idea but a tangible business strategy with demonstrated benefits – spearheaded by social entrepreneurs around the world. When circular economy loops intersect with social impact pathways, a blueprint emerges for a business model that is both environmentally efficient and socially impactful – the inclusive loop framework.

Businesses adopting this integrated approach are not only reducing environmental footprint but also directly benefiting communities. The model offers flexibility and selective approaches to impact creation through, for example, employing marginalized communities, sustainably sourcing materials or providing affordable products.

Companies have an opportunity to engage in several ways:

The integration of the circular economy and social entrepreneurship offers businesses a practical roadmap to enhance their sustainability and societal contribution.

^[i] International Labour Organization (ILO), Decent Work in the Circular Economy: An Overview of the Existing Evidence Base, 2023, https://www.ilo.org/sector/Resources/publications/WCMS_881337/lang--en/index.htm.

^[ii] Lacy, Peter, Wesley Spindlier and Jessica Long, Waste to Wealth, Accenture, 2015, https://www.accenture.com/ch-en/about/events/the-circular-economy-handbook.

^[iii] World Economic Forum Circular Transformation of Industries: Unlocking New Value in a Resource-Constrained World, https://www3.weforum.org/docs/WEF_Circular_Transformation_of_Industries_2022.pdf.

^[iv] ILO, Decent Work in the Circular Economy: An Overview of the Existing Evidence Base, 2023, https://www.ilo.org/sector/Resources/publications/WCMS_881337/lang--en/index.htm.

^[v] “Why today’s pricing is sabotaging sustainability”, Kearney, 2020, https://www.kearney.com/industry/consumer-retail/article/-/insights/why-todays-pricing-is-sabotaging-sustainability.

^[vi] Ibid.

^[vii] Grett, Peter, “Audi supplies “second-life” e-car batteries for African villages”, Touremo, 5 November 2021, https://www.touremo.de/en/audi-supplies-second-life-e-car-batteries-for-african-villages/.

^[viii] Acumen and IKEA Social Entrepreneurship, Corporate Ready: How Corporations and Social Enterprises do Business Together to Drive Impact, 2021.