This four-part blog series authored by Coke's director of sustainability for Western Europe, originally published on LinkedIn.

At a recent packaging innovation conference, I was asked to provide the keynote speech. What better topic to choose at this moment in time than to talk about two words that have become the subject of much debate and discussion in industry, politics as well as in the media: circular economy.

You could say they are the latest policy ‘buzzwords’, although I suspect they may mean different things to different people. So I tried to explore what I think that means and, particularly, what it means for the packaged goods industry, now and in the future.

I have three assumptions about how I believe we should think about the circular economy:

1.  Achieving a circular economy will require us to make some big changes to the way we are doing things. And clearly some of those changes may make us feel uncomfortable and may be met by resistance, but I think we can, and have to, overcome them.

2.  Despite the challenges change can bring, I genuinely believe the circular economy also represents an important opportunity for the packaged goods industry - an opportunity that makes sound business sense too.

3. The reason why I am excited about the circular economy is that I am confident that the key drivers to make it happen are in reach, namely: game-changing innovation and effective legislation.

But perhaps we should first take a step back and remind ourselves why any of this actually matters in the first place.

Whatever role people play - as business leaders, regulators, campaigners, citizens and consumers - we know that we cannot continue to use more resources than our planet has; we cannot emit more emissions than our atmosphere can absorb and we mustn’t leave a wasteland behind for the ones who come after us. We need to turn the steering wheel around. 

COP21 has been a great example of doing just that. It’s a sign that we are coming together to take action now, collectively, to reduce carbon emissions and the risks from dangerous climate change. That’s partly why I am excited and optimistic: I think we are headed in the right direction, including industry, and this convergence of interests is hugely encouraging.

We can make progress if we choose to. 20 years ago few people would have imagined it would be possible to move away from a carbon-based economy, but look where we are now: it now seems a realistic possibility. And I think there is even broad agreement on what mechanisms we need to make that happen: effective regulation; market-based instruments; more innovation and greater investment.

So, given what has changed on climate policy, I’m confident and very optimistic that the ‘circular economy’ can become a real game-changer for all of us. What’s important now is for business to ‘make sense of it all’ and to shape its understanding of what the circular economy means in practice.

There are five emerging business models for circular growth: the ‘circular supply chain’ (or maybe better: the ‘circular design’) model; the product life-extension model; the sharing-platform model; the ‘product as a service’ model; and the Recovery & Recycling model.

Any of these new business models may apply along a company’s value chain. At Coca-Cola, we are actually conducting some work at the moment to apply circular thinking to some of our most important material uses. However, for many reasons, product packaging has always been very much at the front and center of the circularity discussions with the ‘circular design’ and the ‘recycling model’ the most relevant options to look at.

And the closer we look, the more we will see:  these two models are not new. There is a lot happening already, especially in the packaging sector. New packaging design and material innovation, recyclable and/or plant-based packaging, used packaging collection, recycled material use etc. are the new standard in packaging.  But it needs to happen more widely, more deeply and more interconnected than ever before. And that, as I said at the outset, will require us to make some big changes. 

What changes are needed and by whom?


I want to look at change needed by some of the most important stakeholders in the packaging sector to move from a linear to a circular model. And I will do this for the European market specifically.

Public Policy plays a critical role for the circular economy as a stimulator and enabler. Policy needs to provide robust framework conditions and incentive structures, including for design choices, collection and recycling and the development of secondary material markets.

That does not mean creating a permanent artificial life support for certain sectors. It means putting the right economic instruments, investments and infrastructure for the economy in place, so that resource productivity moves from the fringe to the center of decision making.

Karl Falkenberg, the former General Secretary of DG Environment, rightly said: “The circular economy transformation needs to not only work for the environment; it is critical that it works for the economy too”. In other words – and forgive me for being so blunt – the circular economy cannot be a tree-hugger’s wish list, based on an economic La-La Land.

Local authorities are a key partner to work with packaging collection systems on the collection of post-consumer materials at home and in public spaces.  They are also an important link to the consumer and citizen and hence, they also have a prime role of addressing litter, which is probably the most visible sign of this debate for consumers.

Of course, littering and marine pollution are very important issues that we need to tackle urgently. But let me stress that littering is first and foremost a behavioral issue. There needs to be the right infrastructure in place, but only by systematically and jointly addressing behavior and litter practices in the communities will we have a chance to significantly reduce widespread pollution.  

Producers, including packaged goods producers like my own company Coca-Cola, need to build the ‘circular design’ and the ‘recovery and recycling’ models into their business strategies. We already have come a long way, but we need to really work out how to use less (and eventually no) virgin material and more recycled or renewable materials. And we have a leading role to play to design recyclability of packaging materials into our products, wherever feasible and economically sensible – and with ‘sensible’ I mean, looking into the future, not the past. In other words, we really need to stretch ourselves.

Producers also have to understand packaging recovery as a strategic opportunity to generate value out of high quality resources. This is probably one of the hardest things to achieve because it’s complex and costly and needs collaboration with many stakeholders. But let’s start by taking the obligation we already have seriously: In the EU, that means all packaging producers need to meet their responsibilities for collection and recycling targets of post-consumer packaging under the obligations of Extended Producer Responsibility. There must not be any ‘freeriding’ of the system by some producers.

Finally, consumers will have to change the way they behave, too. For packaging to keep its value and be recycled or even upcycled, we need to preserve the quality of the material. That will require more consumers to separate and store packaging materials at home, or face hiking to the bottle bank or the supermarket with their empties on a regular basis. Many sectors – packaging users, retailers, service providers, home appliance producers, building developers - can help to make this transition as seamless and painless as possible.

But I truly believe that over time, the investment, time and care that goes into ‘buying new’ will have to be replicated by the effort we put into disposing of goods.  In other words, “getting rid of stuff” will no longer be a two-minute, carefree, quick-goodbye act that we don’t give a second thought about. The reward is that - for the next generation - it will be a normal way of life. 

Those then are some of the examples of the changes I believe we will need to make.  I am sure there are many more stakeholders that will play a role as we move towards a circular model and we will need ever greater collaboration to make it happen.

The Circular Economy as a business opportunity


Why does the circular economy offer the packaged good industry not only an opportunity that is inspiring – but one that makes sound business sense, too? Let me explain as I see it.

The packaging sector, including Coca-Cola, is already familiar with recycling, upcycling, resource efficiency and the use of recycled material. These aren’t new concepts to us. Many manufacturers, achieve ‘zero waste’ at plant level. At Coke, all our bottles and cans are recyclable and we use recycled material in new packs. We found that about 71% of our plastic beverage bottles already are collected and recycled in Europe.

What I am saying is this: We are not starting from scratch. Let’s see the circular economy as a genuine opportunity for further scaling up the sustainability of packaged goods, and a great business opportunity as well. Because the reality is: it offers both.

Today, when we dispose of used packaging, we not only create waste – or litter – we also throw away value. A recent research study by Accenture calculated that wasted value to be $1 trillion per year globally. The Ellen McArthur Foundation and McKinsey estimate that the FMCG sector could save €700 million in material costs.

It’s not so hard to imagine this if we trace the costs inherent in packaging alone: for example in Europe, manufacturers procure new or recycled packaging raw materials for billions of euros every year. In many markets, we pay taxes to put these packages on the market and EPR fees to have these packages collected and recycled, and on top, we contribute to anti-litter measures. In total, the European association for packaging in the environment (Europen) estimated that the European industry pays €3,1billion every year in EPR fees alone.

As we are thinking how to make the circular model work, we need to start looking at the entire lifecycle cost of packaging and see how to capture value along the packaging value chain: How about considering collection as a new way of sourcing quality materials? How about not only making our packaging material lighter, but also purer and simpler, to reduce cost at the beginning and the end of life? How about working together to enable technology advancement and innovation along the value chain?

Admittedly, making these disruptive changes is very hard in financial terms in times where oil prices at a record low and virgin material is offered at a fraction of the price of recyclates. As we speak, Recyclers across Europe are going bankrupt and closing shop. We risk losing the bedrock of the circular economy just when we want to ramp up.

It is a challenge for business and for policy-makers and regulators alike to balance these market failures and set the right incentives and framework conditions now. Internalization of externalities, valuing natural capital use etc. are strategic concepts to will help to bring circular thinking into the language of finance and economics. However, it is also not inconceivable that, in a year’s time, we will look at an entirely different oil price and a turned financial situation for the recycling market.

This transformation is a long-term economic strategy, not a quick-fix solution. Or in the words of Warren Buffet: ‘Price is what you pay; value is what you get.’ Let’s keep hold of that value even if the price is not right, yet.

I am confident we can make the business case for the circular economy and, over time, make the big changes I’ve mentioned a reality.  And the reason for that optimism leads me to two of the key drivers that I think will help us achieve a truly circular economy: game-changing innovation and effective legislation.

 

Innovation and effective regulation as key drivers


Innovation is happening constantly in the packaging sector. Often innovation comes in many little steps and improvements – lighter plastic bottles, the sleek new cans and ultralight glass materials can tell a whole story of resource productivity and cost saving.

Sometimes, however, innovation comes as a real exciting game-changer. For Coca-Cola, one example of inspiring innovation is PlantBottle packaging – a plastic bottle that is made partly from renewable, plant-based material. What makes it different to other kinds of bio-plastics is, that is also 100% recyclable. 

We brought PlantBottle to the global market back in 2009, starting in Europe and have by now used more than 35 billion bottles across water, sparkling, juice and tea beverage brands worldwide. We have also shared PlantBottle material with other companies for application in the apparel, automotive and the wider food sector. In May last year, we took the next step in manufacturing the first PET bottle made entirely from plant-material.

As we are combining the benefits of lighter pack designs with renewable Plantbottle material and with recycled PET, we are effectively combining the ‘circular design’ and the ‘recycling’ model. Let me say this: we are actually very close to a ‘circular bottle’. 

So, if we look at it, the innovation and experience for transitioning to a circular model are there. Let’s focus on the HOW instead of the WHY: What we need is scale; and for scale, we need to set the right economic conditions. We need to ask ourselves:  Do we have the right incentives and the right price signals in the market; is there sufficient investment and do we have the right regulatory environment?

And getting that regulatory environment right is critical. Effective regulation will need to help shape the Circular Economy concept into an equitable economic model that creates a win-win situation for all partners, as well as for the environment.

There are many examples globally, where regulation has played a pivotal role in driving circular material use. The 1990’s introduction of Extended Producer Responsibility (EPR) in European law has been a turning point in the post-consumer packaging collection and recycling in this region. With hindsight, we can probably say this was the genesis of circular economy in the EU because it put the responsibility and the ownership of how we deal with packaging into the hands of the producers.

Legally speaking, EPR gives the packaging producers a legal obligation to achieve defined levels of material recycling - and industry achieved increasing levels of packaging recycling to 65% today. It is no secret that the Coca-Cola system in Europe has been at the forefront of setting up, investing in and managing industry-led packaging collection systems in many European countries. We believe that, also in the future, these systems have to play a key role for a more circular packaging model in Europe.

After 20 years in action, EPR legislation has passed its practice test, but the regulatory framework needs to evolve to ensure its proper functioning and to make it fit for the future.

EPR, nowadays, is not only an obligation – it’s also a business. That is a great achievement of good regulation and a sign of maturity of the market. But now European regulation needs to ensure fair competition and greater transparency in the sector.

For a circular model to work as part of the economy, EPR needs to be seen as a responsibility, not merely as a tax. That means producers need to be empowered to fulfil their obligations operationally, not only to contribute financially. At Coca-Cola, we believe in the principle: who pays for EPR should be enabled to take responsibility in the management of the system, to contribute to its efficiency and its effectiveness.

And we need to make the economics work, for example by ensuring that the costs of collection and sorting, and the benefits of selling collected material, end up on the same balance sheet. That means: whoever pays for the collection of material also needs to own the material value.

And – very importantly – we need to keep the internal market functioning properly. The Commission’s proposal has made that very clear: The Circular Economy cannot be a shoe-in for protectionism and barriers to trade.

Let me close this series with a brief word about consumers, who are all too often absent from this conversation.

Naturally, as a major consumer brand, we see a huge opportunity for innovation involving the consumer. For example, the work we have done to build a new brand of recycled material products called EKOCYCLE brings to life our vision that packaging is a valuable resource and sustainable living can be desirable.

Ulrike Sapiro

Ulrike Sapiro

We should never forget that, although we will have to make changes, strengthen regulations, keep our foot on the innovation pedal and make a sound business case for moving towards a circular economy – consumers can be our biggest ally on that journey. Or to quote our Ekocycle partner will.i.am – which I have to say, is an unusual way to wrap up any speech: “all good things must end, but an end can be a new start”.

Ulrike Sapiro is director of sustainability for Coca-Cola Western Europe.