Are you ready to capitalize on this €1.8 trillion market opportunity?

Linear thinking and economics are burning life's foundations: A new economic paradigm is required. This is creating a historic market opportunity. In which direction to take your company to secure yourself a pioneering position?

5

Minutes reading time

Published:

23.11.2021

Updated:

21.4.2022

Published by

Stefan Endlweber

CEO of the Baukom Group

Can we manage to move materials in infinite cycles? Welcome to the paradigm of the Circular Economy.

Wrong direction

There were a lot of new things in 2020.

So, too, for the first time in history, 100 billion tonnes of material1 moved through the global economy. What remained the same was that used materials overwhelmingly saw their end of life

In 2021, the authors of the Circularity Gap Report (CGR) noted that the share of closed-loop materials in the global economy has shrunk since their first report in 2018, from 9.1% to 8.6%2.

As if nothing were at stake, we are currently moving away from a circular economy. At the same time, climate change, climate protection and a (deceptive) Net Zero are the keywords that open doors, inspire regulations and make funding flow.

No climate protection without a genuine circular economy

The handling and use of industrial materials cause 70% of global greenhouse gas emissions3.

What does that mean? The lion's share of our emissions lies in processes in which matter and energy cannot be thought of separately – where materials are inefficiently transported over long distances instead of being kept in local cycles.

By changing these processes, we would change our energy balance and our ecological footprint.

In short: No climate protection without a genuine circular economy.

So, what to do?

In a linear economy, we run the risk of irreparably damaging ecosystems and thus blocking our own path to a healthy future. We turn economy and ecology into adversaries that both lose in the end.

So will we continue to mine ton after ton of ever poorer ores at exponentially increasing expense and trade them at increasingly unaffordable prices? Where exactly will this end?

Constant hunger for: Iron, iron, iron.
Constant hunger for: Iron, iron, iron.

Or do we rethink economics, with a take-back and recycling infrastructure that values and protects valuable raw materials, requires only a fraction of the energy used and drastically reduces the amount of waste we produce?

Connecting open ends

Half-baked climate action commitments within a linear economy only produce a fraction of the results we need to see: According to an estimate by the authors of the CGR, current regulations go about 15% of the way4 toward true sustainability and climate action. Even COP26 as the last international climate conference seemed to not change anything about this.

And the remaining 85%?

To a large extent, these are to be found in closed loops: Shortened transport routes for industrial goods, reduced emissions on the way to a climate-positive standard and the goal of eliminating waste ... in exchange for an abundance of recovered raw materials.

Different from how we thought: True sustainability as a cost factor

That sustainability costs too much is an argument that loses further momemtum with every price increase for increasingly scarce raw materials.

For cost optimization, look the other way: Consulting firm Roland Berger estimates that innovative circular business models will create an additional global market opportunity of €600 billion5 by 2025 in the construction sector alone, with a double-digit annual growth rate.

And Roland Berger is not the only agency announcing immense circular potential. McKinsey also estimates:

A Circular Economy could generate a net economic gain of €1.8 trillion by 2030.

- The circular economy: Moving from theory to practice, McKinsey Report 20166

And these estimates are still incomplete: The hidden collective gain from avoiding consequential ecological costs is not yet included and the costs of circular solutions will fall again in the maturity phase of mass application.

Growing trends are therefore already on the side of all the players connecting open ends to closed loops.

Trend analysis with a blind spot

It is possible that the estimates so far are still too conservative. The absolute inevitability of a true circular economy could draw an exponential pattern into stock market letters of years to come.

We keep guessing wrong when we try to anticipate exponential trends. Judging by the CGR results and the prelimiary decline in closed loops, Roland Berger may be overestimating the construction sector's progress by 2025. But is McKinsey perhaps underestimating the overall economic gain we could see by 2030?

The pressure from our environment will continue to increase. Those who only move when there is no other way will have missed their chance to be pioneers.

The window of opportunity for a circular first mover advantage is closing

Closed loops serve the environment, future generations and sales figures at the same time. Some pioneers have already understood.

The Bavarian Chamber of Civil Engineers defined 12 requirements for sustainable construction7 and called for Cradle to Cradle (C2C) as the guiding principle of every construction project.

Pioneering projects such as FCRBE8 have set the goal of increasing the return rate of used building components in the area of France, Belgium and the UK by 50% by 2032.

Madaster9 and other players are already establishing material cadastres for buildings as resource storage and universal material passes in construction.

Among other pioneers, these players in the construction sector are already on their way:

  • Derix10 makes the return of used wooden components a company standard
  • Schüco11 has already certified several product systems for C2C silver
  • Würth12 has an entire mounting rail range fully certified for C2C silver
  • Godelmann13 has certified its entire product range to C2C gold and even achieved platinum in water management
  • Baukom14 has completed the first C2C-inspired product developments and is developing efficient delivery methods

And there is support from the very top:

  • BMW15 has started to close loops
  • Amazon16 cooperates with McDonough & Partners
  • BlackRock17 cooperates with the Ellen MacArthur Foundation

It seems that even market leaders and big investors have understood that the next three months of maximum profits are of no use if inevitable trends towards a future-proof economy are missed.

Evolutionary pressure and the inevitability of change

The construction sector is already under tangible pressure, which fosters disruption and can quickly give market share to circular solutions.

Either we manage the economic transformation towards real cycles or we endanger our survival as a species. We are faced with a real lack of alternatives that will increasingly influence economic and political decisions.

While for a long time disruption took place primarily where matter could become information, older, capital-intensive and previously less digital industries are now also increasingly at risk of disruption.

How much longer?

The odds to reach a truly sustainable paradigm grow with the economic benefits of circular solutions.

How long will it be before a linear economy becomes unaffordable and the potential of circular models becomes incalculable?

How long will it take before circular principles are recognised as the way to real climate protection and suddenly become applicable law through international regulation?

And how long until smart entrepreneurs and investors start to actively anticipate such regulations in order to be safely positioned for the future?

That's what the next article in the series is about.

Sources

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Eric Bola, CMO of Growintoflow
Published by

Stefan Endlweber

CEO of the Baukom Group

Stefan Endlweber is the CEO of the Baukom Group and the initiator of Bauwende.com.

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