Welcome to the Wednesday interview from the Sustainable Futures Report. Today I’m talking to Mattias Axelson of the Stockholm School of Economics about his concept of the Oval Economy.
The Circular Economy optimises the use of global resources and minimises pollution, but the success of the concept depends on how much use is obtained from each product and how rapidly each product is returned for recycling.
Anthony
The Sustainable Futures Report addresses three key issues: the climate emergency resource shortage and pollution. The climate emergency is no secret to anybody these days, not at the moment, with COP26 going on in Glasgow and all sorts of reports across the papers. As far as resources are concerned, it's a question of what we need, what we need to take from nature for everything we eat, use or wear. And as far as pollution is concerned, well, we're well aware of litter and plastic. But there are the more subtle pollutants which leach into our watercourses, affect wildlife and habitats and of course, things, gases, which escape into the atmosphere. Bound up with all that is the idea of the circular economy. But let's start off by talking about where most of us are at the moment, which is the linear economy, which means we take, make and dispose. We take resources that we need from the Earth to produce what we need to eat, use or wear. And then we just throw it away when we’ve finished with it. And then we start again by taking more from nature and manufacturing. Now the idea of the circular economy we all know about reduce, reuse, recycle, but the circular economy goes further, it says reduce, reuse, refurbish, remanufacture, repair. And finally, if you can't repurpose it as the thing falls to pieces, you then take it down into its component parts and you put them back into the process. So ultimately, if you got a perfect circular economy, you've got no waste. And then there's the oval economy. My guest today is Mattias Axelson, who is a doctor of business and a researcher at the Stockholm School of Economics in Sweden. Mattias, welcome!
Mattias:
Thank you very much.
Anthony:
Your idea, that is, the oval economy. Can you explain a bit more about how that works and what is?
Mattias:
Thank you for your introduction. The idea of the oval economy that I developed together with Erik Huss, who is a glaciologist. We were talking about the time problem with the circular economy. Conceptually, you could have a circular economy and run it quite fast. So you could recycle in the different steps that you mentioned in quite a short time, if you like. And that's conceptually a problem because we're really going to address what you mentioned, with the resource problems. If we're going to really reduce the CO2 emissions, et cetera, we need to slow down the usage of materials and thereby products. And based on that, we developed the concept of oval business models instead, basically arguing the same things as in the circular model, but putting emphasis on the time slowing down the use. And that has quite fundamental business implications because it means that we need to better focus on the design of the products, making sure that they can last for a very long time. That means that you use them, and then off to repair, et cetera and in accordance with the concept of circle business models and but focussing on also keeping the products in use for a longer time. I have fundamental implications for the current business models of companies. So what we would like to achieve with this concept is to make companies realise that if they're going to be really serious and go green for real, they cannot really say that, you know, we have a circular business model and they've been running it at a high speed. It means that you need to actually sell, down the road, sell less products because the customers will not demand new to the extent that they do, if you're going to have a faster circle, so to speak.
Anthony:
OK, well, this sounds a bit like an ideal, but I think if you have a totally integrated, vertically integrated organisation which is in control of every stage from actually obtaining the raw materials and processing it and taking it through to market, that's fine. But surely the majority of organisations are just one link in the chain and they cannot insist on a circular economy because they don't control enough of the economy. So how are we going to bring these changes about?
Mattias:
I think that what you're addressing is absolutely correct, and that goes for most companies, that they can either go for a circular or overall economy. It is the end manufacturer and producer or the one selling to the consumer that can do it. Automotive manufacturers, fashion companies selling to consumers. Those are the ones who can start implementing this. And yes, it might sound like an ideal. But what we would like to provoke seriously is the realisation that if we are going to deal with the environmental challenges, not the least the climate crisis, seriously, business models will have to change fundamentally. And we could argue conceptually that a business model of the future will be in some ways, timeless. Conceptually, you would produce products for eternity. Of course not in practise, but with that idea. Your refrigerator should not be renewed in five years, 10 years. You should keep it for 20, 30 years, perhaps. And I do understand that that means that we, as consumers, need to change our ideals, too.
Anthony:
But that surely is the most important point. It's changing consumer attitudes because consumers want a new car every three years. They want a new kitchen. They want a new television. A new phone. How are we going to change that? Because that's become the norm, probably relatively recently. But everybody is a consumer.
Mattias:
Absolutely. That's correct. It has become the norm. But I think responsible companies need at least to start innovating the business models that are alternatives. So we, as consumers, can at least choose. They'll go for the overall solution. Buying a refrigerator that is designed to last. Having the service package that you can repair it once it's broken. Today, that is not an option for many products. You just have to get rid of it and buy a new one. So you need to start, if you're a responsible company. If you are taking these things seriously about climate change, you need to start having the alternatives and then hopefully we as consumers will follow those. And I think the younger generation is the hope when it comes to that. And we can also obviously work with incentives like taxes. It's the politics, or policies that influence how the markets are functioning can also play a role here, but we need to start to think differently and then start acting differently. And that is why we introduced this concept of oval business models. So we had to push the thinking in there by the actions just to say there is no way we can stay in the models because we see too much of like incremental efforts to deal with the climate crisis, trying to stick to the old business models and doing some adjustments instead of realising that we fundamentally need to change.
Anthony:
Right. Now, you're talking about this as an element in addressing the climate crisis. When I started off, I said, look, we've got to look at resources, we've got a collision. Of course, thinking about it, if you recycle in general, the only thing that you can recycle is the material which was embodied in the original product. But you can't recover and recycle the energy that went into the manufacture. Nor can you recover and recycle the human effort that went into this. So from that point of view, if you are slowing down the recycling cycle, if you like, then you are using less energy and you are creating less emissions. Is that the way you see it?
Mattias:
Yeah. Correct.
Anthony:
Right. Well, the question goes back, who's driving this? Is it business? Is it government? Is it the consumer? But the thing is that businesses really, well, some would say they exist for the benefit of their shareholders. Others would say that they should, or maybe do, exist for the benefit of consumers. Governments do what consumers will vote for, which may not be a good thing for the planet or anything else. So how do we change these attitudes? Where do we start? Do we start with government, do we start with business? Well, but if we start with consumers, how do we do it as a great big industry, advertising industry, which is reinforcing existing expectations? What are you going to do?
Mattias:
Yeah, that's the question, right? What are we going to do? I think we need to address it from a range of different perspectives. Obviously, I think there are some companies that have started becoming serious about this. So I am hopeful that we will see more experimentation with these oval business models in the forthcoming years. I do hope and there is hope for policy going in the right direction, although it's too little, too late and too slow. Sure, for sure. But I think it's better to be hopeful here than just giving up. On the individual level, I think there is, as I mentioned in particular amongst the young consumers, a demand for actually taking responsibility with your wallet. What you buy makes a difference and you need to start somewhere. So I think there are positive signs on all of this, both on the policy level, the company level and the individual level. And what I hear when I meet business leaders is that they see that this is about competition. You don't want to bet on a business model that would be more of the same as what you have today. You need to find the new solutions, whatever they are. But they are struggling, obviously, and there is not an easy journey ahead. But I do believe that there are positive signs going in the right direction. And is it fast enough? Well. We'll see.
Anthony:
Well, we'll say yes, if it's not fast enough, I'm not looking forward to seeing. There is the start of some sort of regulation insofar as we have things like the emissions trading schemes. So organisations do have an obligation to cut their carbon emissions because they suffer financial penalties if they don't. You could argue that the price is not high enough and it doesn't really work. But it is. It is a start. It's a start, I think ,of what we talked about as the transition, the transition from business as usual towards the low carbon economy. Now, you've identified a number of challenges that a number of different sorts of businesses actually face in facing up to the transition. Tell us a bit more about that.
Mattias:
What I think, there are different challenges and you can start addressing them on different levels. But first of all, they have a cognitive challenge, and that is that we are locked in our thinking and in the way we are acting based on what was relevant in the past. And that's the limitation. So you need to be humble and recognise that we probably don't have the thinking that will take us to the future. So you need to start to address that and get the help from other external perspectives, to listen to the young ones, et cetera, to start to really open up. And just by assuming that what we are doing today and the business models that we have today will not be the ones that will make us competitive and successful tomorrow. It's a good starting point, that is the way I think you need to start, but then you obviously have the whole challenges of the KPIs, what you're measuring today and your financial targets, how you allocate capital, all of those things. You need to assume that that might not be the story of tomorrow, either. And that means that you need to, in parallel with going for, as of today, still being there and trying to moderate and improve your existing model, you need to start exploring the new ones and being open for different ways of measuring different ways of financing and perhaps ultimately for other financial metrics and different ways of leading to. And that's a huge challenge, and many companies are obviously not equipped for that. But that is not the same as saying that they cannot be equipped for that. When they start realising that the name of the game is changing. So that's where we are. This is a transition period. I think some companies will take that leap to the future and make the necessary transitions or this will go out of business.
Anthony:
Does that mean also that we need to involve the educational system so that people come out of education with a broader understanding of the challenges and changes which need to be made?
Mattias:
Yeah, but that would be probably a bit too slow. Right? Yes, we need to educate the young ones, but they would be in positions to make strategic decisions in some decades from now and then it would be too late. So we need to start educating the top executives today, the ones that said, Oh, it's just like if we are in a crisis, you can also go looking for, I wish I had another crew. You have the crew that you have. You need to start, you know, cultivating them and helping them because I mean, most people would prefer having a positive impact and doing a good job, also for society, if you really ask them. I mean, we are all humans, but they don't have the recipes and the necessary tools for thinking and acting. But education, as a wide term, I'll say I think that that is necessary and it's also helpful because it can help us find new ways.
Anthony:
So do we need the governments to take a lead? Do we need them to bring in regulations, for example, to strengthen the audit regulations? The audit regulations at the moment are basically looking at financial probity. Do we need to say that? Do you have a statutory duty for your organisation to be tested on its environmental probity, if you like?
Mattias:
It's easy to say yes to that the way you phrase it, but I know that it's super difficult in practise, that when the higher level, but your government has a critical role there and not the least in the European Union, on the EU level. The EU taxonomy, et cetera is probably an important step in that direction because if you have a cost on, the capital costs, the financing your business, if that is related to the negative or positive impact on the external environment. And that will start driving things in the directions that are hopefully hopeful.
Anthony:
Good. Good. Well, as we draw this conversation to a close, COP26, the Big Environmental Conference in Glasgow is also coming to the end of its second week. From what you've learnt so far, are you optimistic? Have you heard of any things coming out of it which are useful, which allow you to take an optimistic view?
Mattias:
I mean, there was this discussion about the coal... what was presented last week regarding forests in the world, that was a positive sign, for sure. And so yes, there are signs, indications that we could be hopeful, but I don't know. I would rather wait and see. But to see what comes out of it when it closes. I do hope, of course, as most people do, that the politics will step up and make the tough, necessary decisions. Because if you take it from a business perspective, business leaders prefer to have the rules just set. So, you know, the rules for competition, basically, and then you can start acting on that. And also it will stimulate innovation and that innovation is the key if we're going to solve this. So, yes, I'm hopeful, but you know, let's see.
Anthony:
Right. Well, Greta Thunberg has already said that COP26 has failed. Let's hope that on this occasion, she's wrong.
Mattias:
Yes, definitely.
Anthony:
Mattias Axelsson, thank you very much for your ideas and for sharing them with the Sustainable Futures Report. That's been very interesting.
Mattias:
Thank you for having me.
Mattias Axelson of the Stockholm School of Economics. You can contact Mattias here:
There will be another interview next Wednesday and another episode of the Sustainable Futures Report on Friday. Contents unknown at this stage, but probably something about COP26 as the dust settles and everyone argues about whether it was a triumph or another failure.
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That was the Wednesday Interview from the Sustainable Futures Report.
I’m Anthony Day.
Until next time.
