Inspired by the World Economic Forum’s ‘The Great Reset’ theme for their next annual meeting, Everledger CEO Leanne Kemp adds a third column to the income statement.
The Covid-19 crisis, and the political, economic and social disruptions it has caused, is fundamentally changing the traditional context for decision-making. The World Economic Forum’s new initiative, ‘The Great Reset,’ seeks to offer a “unique window of opportunity to shape the recovery,” by reconsidering the direction of national economies and prioritizing the management of a global commons.
The establishment of national and global circular economies can play a role in fulfilling the Forum’s vision for “a new social contract that honours the dignity of every human being.” This is a vision that I share, and it has been heartening over the last few months to see major brands pushing this cause.
For example, the Swedish furniture giant IKEA has set their vision to become a fully circular business by 2030. This summer, they have made a number of sure steps towards that, such as launching a new partnership with the Ellen MacArthur Foundation to lead the industry forward. The firm has also opened its first second-hand store in Sweden, which will sell repaired items, while removing all single use plastic from its range.
This is good for their environmental footprint, but also smart for their bottom line. The flatpack industry has come under fire in recent years for causing overconsumption and waste. Sweden has vowed to become carbon neutral by 2045, while IKEA’s customers of the future relate with young activists such as Greta Thunberg. IKEA could either fight the wave, or ride it.
In the fashion and clothing industry, leading brands are also taking steps to manage the full life cycle of the materials they use. For example, the sports brand ASICS surpassed its targets for reduction in CO2, by reviewing the production, recycling and disposal of its products. Iconic jeans brand Levi Strauss has made ambitious targets to reduce the amount of water it uses to manufacture its products across the world by 2025.
As the global economy strains to recover from the Covid-19 pandemic, will others follow their lead? Is this the moment when the vision for stakeholder capitalism takes form? Consumers, businesses and governments need a clearer idea of where goods come from – and where they are headed next. This crisis offers an opportunity to move away from a purely transactional decision making process around supply chains, based solely on cost and availability.
Know your asset
The alternative is value chains, whereby industries grow the worth of their products and brand equity by creating digital twins of their products, offering provenance information that creates a more transparent experience for all parties in the supply chain. Transparency can be elevated into a competitive advantage. Social, ethical and environmental provenance can be captured and shared as a point of differentiation in the market.
For example, MCQ – a new fashion label from Alexander McQueen – improves the customer experience of their garments by offering a blockchain-powered platform that guarantees authenticity and encourages reselling. In the jewelry industry, ethical and sustainable sourcing of diamonds and precious stones is becoming a commercial imperative, as demand for consumer knowledge increases. This summer, JD.com, China’s largest online and offline retailer ecosystem, with more than 417 million active users, and the Gemological Institute of America (GIA), the world’s foremost authority on certification of diamonds, partnered to help increase trust and transparency in diamond provenance and further confidence in online diamond purchases.
Making visible the impact of a product through transparent and evidenced claims can enable accurate assessments of life cycle analysis in a fair and equitable way. If we are able to choose products on the basis of impact, we can support the circular transition.
Recycling of batteries is now a hot topic in the circular conversation. With an estimated 18 million electric vehicles on the road by 2030, battery technology could enable the transport and power sectors to reduce emissions by 30%, in line with the 2°C target of the Paris Agreement. However, these gains risk being undermined unless battery supply chains can become more circular by maximizing product life cycles through repurposing and subsequently ensuring recycling of the metals and minerals they contain.
From COGS to COGRs
What if the industry could widen their ledger from simply COGS (Cost of Goods Sold) to COGRs (Cost of Goods Recovered)? This offers an entirely new value stream. The COGRs could be banked as part of a closed-loop value chain. For example, IKEA sells a product in-store, it is returned, repaired, and then re-sold in-store. Or, there is an incentivization partner that pays back a share of the profits from reuse. The Department of Energy in the US is assessing exactly that with Ford, Everledger, and several partners in the Electric Vehicle and portable electronics battery supply chain.
Corporations that build their products to support provenance-sharing technology could receive a circular dividend down the line. This might widen the company’s income statement: profit, loss and a third column for impact, demonstrating the financial implications of any social and environmental actions. COGRs are just one way of giving that third column a monetary value.
If last decade was about the Uberfication of services, then the 2020s will see the rise of a more transparent, sustainable and equitable circular economy. That would give a welcome silver lining to the global pandemic.