By Carolyn Deere Birkbeck, Director, Forum on Trade, Environment and the SDGs; Associate Fellow, Chatham House; Senior Researcher, Global Economic Governance Programme Oxford

Across the UK, and around the world, a broadening array of businesses and governments are adopting circular economy strategies and policies. In the face of vast environmental challenges, the driver of circular economy efforts is the desire to move from a ‘take-make-waste’ economic model toward ‘reduce, reuse, recycle’ approaches.

A growing number of businesses – including a vast array of SMEs – is working to promote circularity in business operations and in global supply chains

A growing number of businesses – including a vast array of SMEs – is working to promote circularity in business operations and in global supply chains. Beyond any environmental motivation, they are doing so because it makes good commercial sense to maximise resource efficiency and reduce waste. At the same time, there is also a growing focus on ensuring that circular economy policies and business models focus on decarbonization as well as protecting, restoring and regenerating nature.

Critically, consumers are playing a leading role in pushing for this change, demanding goods that are better for the environment. Investors too are increasingly focused on the environmental credentials of their investment portfolios.

Much of the attention to the circular economy focuses on end-of-life waste issues, such as improved waste collection and recycling, but the business opportunities for SMEs are increasingly linked to two other key pillars of the circular economy approach – finding ways to reduce resource use and to re-use materials and products that otherwise become waste. Indeed, the good news for SMEs is that they are already often at the forefront of innovation, R&D, and piloting successful new products and business models.

In terms of research, development, for instance, SMEs are inventing and promoting substitutes to plastic, re-usable and recyclable products, and less resource-intensive materials. SMEs are also finding business opportunities in the eco-design of more durable, repairable goods and in the use of recycled materials. There are also tremendous opportunities for SMEs in services related to the repairing of products, as well as their disassembly and remanufacturing. It is also small businesses that are showing the possibilities for re-use and re-fill business models that seek to phase out unnecessary and environmentally-harmful packaging. A core area of business growth arising from the circular economy will be markets for the provision of services, such as for repair and maintenance, recycling, re-fill retail models, and the sharing and leasing of products.

To incentivize a more circular economy, businesses will need policy support national and international policy frameworks. SMEs also have a role to play in calling on governments to ensure that national policy frameworks, along with trade policy frameworks, support businesses – large and small – around the world keen to adapt their products and business models to circular economy principles.   Key policies in this regard will be ones that aim to phase-out unsustainable products (such as single use plastic packaging), end built-in obsolescence (which can reduce the scale of e-waste), support decarbonization and dematerialization in key sectors, design repairable products that can be upgraded rather than discarded (such as of household goods), promoting ‘refill’ retail models, and support the refurbishment and remanufacture of used products.

In pursuing these circular economy opportunities, many SMEs in the UK are already working with businesses and supply chain partners across the world. They may seek, for instance, to export their products or services to other markets or to import recycled materials as inputs into their products. The good news here is that many countries around the world are also adopting circular economy strategies, from China to Ghana, expanding the opportunities for green business.

On the ‘reduce’ dimension of the circular economy, trade policy can support efforts to phase out unsustainable production and consumption. Already, for instance, governments are taking action to reduce or phase out trade in environmentally sensitive and harmful goods, making way for greener products.

In terms of re-use, trade policy can play a role in promoting markets for repairable products and substitutes for wasteful products (such as single use plastics), as well as for waste management and recycling technologies. Trade policy makers can also support efforts to develop the international standards that a circular economy demands – including on products characteristics and design that make re-use and recycling easier. SMEs can call on trade policy makers to build cooperation that facilitates trade in services that support the circular economy as well as trade in goods destined for disassembly, reuse and recycling, as well as recycled and secondary materials that can be re-used as inputs in further production. They can call on government to promote access to international markets for the green goods, they produce, through tariff liberalization, trade rules, and customs classifications and procedures that favour green goods.

Critically, SMEs will also have a key role to play in ensuring that the ‘green’ products and services they propose – and international trade policy frameworks for a circular economy – are environmentally credible. Here a word of caution is vital.

Some businesses and governments promote the export of waste to developing countries on the grounds that ‘recycling’ of such products abroad is economically efficiency and is part of the circular economy vision. However, growing evidence of export of e-waste, plastic waste and textiles waste to developing countries with insufficient capacity to manage even their domestic waste streams in environmentally sound manner, and only a fraction of the recycling capacity requires, is not what the circular economy is about. Nor does off-shoring hazardous and contaminated waste to developing countries have a place in a circular economy vision. Similarly, the export of products that are not recyclable, reusable, or repairable, and that contain dangerous chemicals, is also not part of a circular economy vision. Such products eventually become part of the waste stream that few countries can manage, and provoke a range of environmental and health hazards for consumers and societies.

The public backlash and consumer skepticism is a risk that no SME can afford. On this point, SMEs have a self-interest in advocating for high ambition environmental laws, regulations and standards at home and across international supply chains that provide a clear and transparent framework for business and ensures that purported environmental benefits are real.

Consumers and governments alike are calling for less wasteful, more resource-efficient, low carbon and nature positive production and trade. The circular economy vision is a vital part of the picture and offers a myriad of business opportunities. Agile, flexible, entrepreneurial and innovative, SMEs are uniquely positioned to help lead the way.

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