The rise of the circular economy

VOICEOVER Welcome to the DNV Talks Energy podcast series. Electrification, rise of renewables and new technologies – supported by more data and IT systems, are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.

MATHIAS STECK Welcome to the next episode of DNV Talks Energy. Our guest today is Ynse de Boer, Managing Director of Accenture Strategy and Sustainability for Asia Pacific. Welcome Ynse.

YNSE DE BOER Thank you very much, Mathias. Good morning.

MATHIAS STECK Good morning. Ynse, what we want to discuss today is around decoupling of economic growth from resource consumption and what impact that has on business and society. But before we start with this, could I kindly request you to introduce yourself as well as what Accenture is doing?

YNSE DE BOER Yes, of course, Mathias. Thank you very much. So, my role with Accenture is to be a partner within our strategy practice, and specifically for a sustainability strategy here in Asia Pacific, to lead our teams and the work that we do with clients, which is really about helping our clients use sustainability and sustainable business as a lens for innovation, as a lens for growth, and a lens for, in general, the creation of business value.

MATHIAS STECK Right. So, I had already briefly said what we want to talk about and you brought a nice term up which is circular economy. I understand Accenture has done some research work around this topic. Maybe to get us going, you could just define what that actually is, and what are the important pillars this stands on.

YNSE DE BOER Yes absolutely. And especially because I think it’s very relevant for this topic of energy and digitalization. When we talk about circular economy at Accenture Strategy, we define it as decoupling economic growth from the consumption of natural resource. If you look at the world and the global economy for the past 100 to 200 years, there’s been a one-on-one correlation between economic growth, on one hand, and consumption of natural resources, on the other hand – whichever natural resources that was. And that is coming to a crunch. Climate change is one such example, but huge waste piles piling up is another. Another example, scarce precious metals and all sorts of geopolitical developments that are getting to a crunch, there is yet another example.

And the trick is – how can you continue with that economic growth without continuing to use that same amount of natural resources? And there’s a couple of exciting business models that we see businesses deploy to achieve exactly that. Some are more familiar and have been deployed for over decades already; some are actually emerging and fairly new. And especially those newer ones are typically - when you look at some of the common themes between those newer, emerging business models, almost without an exception, they are enabled by emerging digital technologies, which is one of those things that we talked about a lot. And I think, as relevant for the energy industry, specifically in the downstream of traditional oil and gas retail, and then moving to utilities, you see a lot of these emerging business models play out. And I can give you a couple of examples of that later on.

MATHIAS STECK Yes, that would be interesting. And it’s actually also interesting to see that there are parallels. When we talked earlier also in this podcast about how future business models, maybe, have to cut across the current silos we have in the industry, from what you just described, that seems to be the same case there as well. We can probably not be organized anymore as we are today to make that really going. So, for example, reusing material in the past has very often maybe been more expensive, for example, for furniture producers, than just, throwing the old furniture away and selling something new. So, what do you see – how are these companies getting prepared for that new future? Do we see already that they are going into this or is that still, kind of, a vision ahead?

YNSE DE BOER Yes, no, I think there are some great examples emerging of businesses innovating these new business models across all industries, and the other thing – you’re absolutely right – business models that actually cut across industries as well, where businesses start to realize that if they really want to solve for customer needs, they cannot stick in their traditional industry silos. One very good example is probably, that one of the developments that you see in many industries, is that companies are trying to get closer to the end consumers. And digital technology is a great enabler for that because, you know, in developed economies, virtually everyone has a smartphone, so that’s an easy means to connect with the end customer.

If you, as, for example, an oil and gas company want to solve for mobility needs, for example, of end customers because, for example, you foresee that the model to have retail stations out there and sell fuel, is a finite model that may not be sustained over the next 20 or 30 years, you need to find other ways to be relevant for the end customer. Well, an end customer in the end is, most times, not interested in fuel – he’s interested in fuel because it goes into the car, and it’s an internal combustion car and then it makes the car drive and it then allows the car to move you from A to B. But in the end, you’re only interested to move from A to B. So, what in a future where there’s electrical vehicles, or what in a future where there’s autonomous vehicles, right?

So, as an oil and gas company, you think about a future like that, clearly there’s, in the end, only one way – that is establishing your relationship with that end consumer. But if you want to do that, you need to solve for mobility. So, what do you need for mobility? You’ll need relationships with automotive OEMs. It’s electricity, most likely, driving these cars, so you’ll need to strike deals with utility companies, for example. You may need to strike deals with infrastructure and real estate companies because they may well be the places where charging infrastructure, for example, needs to be located. So, you can easily see how, from a traditional oil and gas, retail, downstream point of view, if you look ten, twenty years ahead, all of a sudden, you need to work with four or five different industries, whereas, in the past, you could probably do it all yourself.

MATHIAS STECK Yes. I remember an example from Coca-Cola actually – where they are now already looking into what does the change to electric vehicles do to our sales strategy on the roads.

YNSE DE BOER Yes. Yes.

MATHIAS STECK Because obviously, that will change. But talking about maybe somebody who is supplying something in big, mass volume, not only drinks, but I remember you also talked a little earlier about manufacturing.

YNSE DE BOER Yes.

MATHIAS STECK Because obviously, that will change. But talking about maybe somebody who is supplying something in big, mass volume, not only drinks, but I remember you also talked a little earlier about manufacturing.

YNSE DE BOER Yes.

MATHIAS STECK And, very clever ways maybe, of being more efficient to arrange this decoupling you were talking about.

YNSE DE BOER Yes.

MATHIAS STECK So, can you talk a little bit more about this?

YNSE DE BOER Yes, absolutely. To tie it back to circular economy, we define five business models that we see businesses deploy in the circular economy space. The first one is circular supplies, which is really about making sure that you use infinite supplies, right? Whereas fossil fuels, they are finite by definition – sun, solar, and all sorts of photosynthesis processes, for example, for the chemical industries – they’re infinite.

The second one is resource recovery. So, that’s really all about the embedded value that sits in the products that we make, and the materials that we use and utilize those better. Third one would be product life extension, which is getting more value out of the products once we’ve actually manufactured them, and not tossing things away too soon. The fourth one would be sharing platforms, which is, for example, things like Airbnb or Uber. And that’s really all about better utilizing the capacity that’s out there available in the economy.

And then the fifth one is pulling a couple of these things together, and it’s really moving from a product to a service. And I think, Mathias, you are hinting at that fifth business model. So, what is it that businesses do as they move away from selling a product to a service? And I think it’s a particularly exciting one because we see it across many industries – that’s one. But also because it has a couple of really interesting aspects to it when you really think about it a little bit deeper.

For example, one of the things that a company in the tyre industry has done, Michelin – they have come up with what they call a product Effifuel. And Effifuel was initially a product really tailored to fleet managers, to provide them with insights in the fuel efficiency of the various trucks and cars and drivers in their fleet. Now, interestingly, when you think about that, when you have telematics in cars to allow you to do all those things, without too much imagination, you can actually also think of how you could then, rather than selling that tyre and providing some adjacent services like fuel efficiency instead, you could also move towards not selling the tyre but selling tyre kilometres, for example, in the same way that Rolls Royce has been selling….

MATHIAS STECK Jet engines.

YNSE DE BOER …jet engines by the hour, right. They sell propulsion by the hour. So, product as a service – tyre miles rather than a set of four tyres. And a couple of interesting things happen when you do that. Because, first off, clearly, the onus is on the manufacturer to provide top-notch quality that doesn’t wear and tear too soon, that doesn’t break down, and all those things. And when it does, to provide a seamless experience for the customer, so that you can take it back. And you can do those things with digital technology, because you know exactly where the car is, you know where the nearest service station is, you know exactly what the driving patterns are and you know that if it’s a Tuesday 8:00 am, that the driver will at 8:30 am, per the typical pattern, will drive by a service station. So, you can make all those things seamless. So, that’s one thing on the customer side and on the product quality side.

But another thing that will happen is the relationship between the manufacturer and the customer. Because in the past, it was all dependent on these once-off sales transactions, where manufacturers sell something to the customer, customer buys it, walks away, and then it’s hoping for the manufacturer, that the customer returns once the product breaks down. And in order to do that, these manufacturers spend billions of dollars on marketing and branding and sales, to make sure that that happens. Now, if you move away from that and provide that product as a service, there, all of a sudden, is a relationship with that end customer. And because there’s that relationship, there’s a lot less dependency on these billions of dollars of marketing and branding expenditure, and which you can then use to invest in other means – for growth, for business innovation, whatever it might be.

So, there’s all sorts of interesting intended consequences to some of these, what we call, circular economy business models. So, they solve for providing economic growth with less use of natural resources, but at the same time, they also seriously change the way in which businesses interact with end customers, and really drive them to focus on meeting the customer needs and the utility – which is not a car, it’s mobility; it’s not necessarily a tyre, it is a seamless ability for a car to move over the road, and so forth.

MATHIAS STECK Ynse, you have talked a lot about the different pillars the circular economy is standing on. What kind of impact does it have, for example, on business in terms of numbers?

YNSE DE BOER Yes. The impact is huge. Accenture has invested a lot over the past years in research about the circular economy. And according to Accenture’s research, there’s about US$3.5 trillion of economic impact by 2030 of the circular economy. And that breaks down into four main buckets. The first one is that it addresses wasted lifecycles of products mainly. Second, it addresses wasted embedded values. The third one would be that there’s a lot of capacity out there in the economy today that is being wasted or under-utilized, the circular economy taps. And then fourth, there is wasted resources such as the sun, you know, the wind, you know, water, you name it, that once, better utilized, you make a huge economic impact. So, according to Accenture, US$3.5 trillion by 2030.

MATHIAS STECK Right. So, when we talk about these big gamechangers, I have talked about digitalization in this podcast. We have now talked about the circular economy. And we said earlier already, that means that we probably need to cut across industry silos. We have to venture into a future where we do not 100% know yet how that will look like. So, how do you consult and advise your clients to get prepared for such a future?

YNSE DE BOER Yes. So, let me first tell you about the conversations that I, and we here at Accenture, have with some of these business leaders, and the challenges that they have; because that will also help you understand the work that Accenture does. In many of my conversations with business leaders, we see this convergence between industries. Like, for example, when you think about circular economy, it has implications on infrastructure and real estate companies.

So, in my conversations with some of the leaders of real estate businesses here in Singapore, they are struggling and they’re telling me about, for example, the decrease in demand for parking space in their commercial real estate. Now, I mean, that’s immediately related to megatrends like sharing platforms and a product as a service, as part of the circular economy. While it’s a challenge, it’s, at the same time, an opportunity. So, Accenture’s work in those types of situations quite often is to open up the eyes for the intricacies and the interlinkages between what they are seeing in terms of reduced demand for parking space and some of the underlying root causes. And then from there, you’ll open up for opportunities. That’s one example.

That same trend of better utilizing the available capacity – car sharing, for example – has also implications for oil and gas companies. So, our clients in energy, for example, we help identify the opportunities or maybe sometimes even the changes in focus on customers that they need to have. Because, for example, there will be big changes if you’re moving from a society and an economy where every car is individually owned by a customer versus a future where car sharing programmes, for example, may be managed as a platform by a smaller number of larger organizations, who will then likely also make the decisions about consumption of fuel and consumption of lubricants. So, that’s relevant for oil and gas companies.

But that same relevance also applies to the customers that Accenture has in automotive, for example. So, there is the conversations with automotive. And then, at the same time, because Accenture serves all these companies across all these businesses and all these industries, there’s also interesting linkages that Accenture makes between, for example, utility companies that typically have a need to balance the grid, on the one hand, and on the other hand, automotive companies that are starting to invest more and more in electric vehicles and start to open their eyes for the opportunities in creating a platform of battery storage capacities, if you combine all these electrical vehicles, and then team up with utility companies. And they’re both Accenture’s customers. So, there’s all sorts of opportunities if you move from one adjacency to the next and cut through all those industry silos.

MATHIAS STECK Yes, that’s an interesting model. And actually, I would like to come to the end of this episode, I would like to look into maybe the social aspect of this as well. What do you think there? I mean, today, I think we at least still think we are individualists. Of course, we all have the same smartphone and all the same gadgets, but still, we think we are, kind of, special; we live in our own flat, we have our own decoration, whatever. When we come to this kind of shared economy model, maybe that needs us to change. I’d be happy to share a flat, move around, other people going in. I don’t have my own car anymore. I do not even have the joy, maybe, to drive very fast in a loud car on the highway or something like this. Is that… do you think that society will adapt to this? Is that something they find exciting? Or is that something where maybe work is required to get people to commit to this understanding, that this is a requirement for a sustainable future?

YNSE DE BOER Yes, that’s an important question. Like, to start with, I would say that making efforts to change behaviour of individuals, of groups of individuals, or even an entire society – it’s incredibly hard to do. And I don’t think that’s the way in which things will develop. I’m absolutely positive that things will change. In fact, we see things already changing. But it will likely move across, for example, generations. One of the things that, at least in my business, I see quite a lot is that the millennials or pretty much everyone, you know, below 35 years old has a disproportionately strong interest in this topic of sustainability, sustainable business, a responsible business, purpose-driven business. And it is that generation that will drive many of these developments.

It’s that generation, depending a little bit on the geography, but it’s that generation that has a lot less interest in owning a car and puts a lot more emphasis on the utility of a car, to move from A to B. In general, a lot less interest in owning things, is a lot more open to things like Airbnb, like Uber. But also, more social versions of that, right, where people are joining together, using virtual platforms, to cook together, to eat meals that have been cooked centrally with a larger group of individuals. I mean, there’s all sorts of concepts in that spirit that are popping up and that are adopted, typically, by the younger generations. And I think that is one of the ways in which change will happen. And definitely, much faster and at much bigger scale than through something like businesses or people trying to achieve behavioural change of groups of people that may not even be willing to change, right?

MATHIAS STECK Yes.

YNSE DE BOER So, yes, so I think it’s the younger generation that’s going to drive this.

MATHIAS STECK That’s really good news and a very positive outlook because the millennials will probably be the ones who shape the future.

YNSE DE BOER Yes.

MATHIAS STECK At least this is what we all believe. Unfortunately, we have come to the end of this podcast. Ynse, thank you very much for these highly interesting insights. And thank you, everyone listening. That was Ynse de Boer, the Managing Director of Accenture Strategy and Sustainability for Asia Pacific, on circular economy – basically decoupling of economic growth from resource consumption, as well as the influence of customer experience. Thanks for listening in.

VOICEOVER Thank you for listening to this DNV Talks Energy podcast. To hear more podcasts in the series, please visit dnv.com/talksenergy.