BiGS Actionable intelligence: There is money to be made in embracing circularity, but it isn’t certain or easy. It requires commitment, investment and an interest in creating new business models. It also requires collaboration among an expanded set of stakeholders such as brands, suppliers, technology providers, investors and governments.
BOSTON
– May 12, 2023 – Why
is the
CEO of Norway’s largest waste management company preparing for a
world with less trash, the very product from which the company
profits?
Simple: The old model isn’t sustainable.
“You
can’t live as a waste management company selling waste anymore,”
NG
Group CEO Bjørn Arve Ofstad
told a group of about 250 business leaders, entrepreneurs, and
financiers during a Harvard Business School (HBS) circularity
conference last month. “We are creating a new business model out of
our past position because our original one is dying.”
The
waste management industry isn’t alone. From fashion to healthcare
to vehicle manufacturing, legacy industries across sectors have for
years embraced circularity
as a way to recycle resources used to create products and return them
to the market as either a product or raw material. And now, the
concept is making fresh headlines as a mix of legacy and startup
companies find new value and new ways to collect, sort, sell or
leverage discarded items to reduce waste or extent materials in short
supply.
Apple,
for instance, last month announced a goal to use more recycled
materials in Apple-designed
products by 2025,
such as the future use of 100% recycled cobalt in iPhone batteries
and 100% recycled tin soldering in circuit boards. And this month,
luxury
retailer Bergdorf
Goodman
announced
the debut of a repair and alteration service aimed at helping its
tony customers extend the life of their fashionable possessions, be
it a Prada
leather clutch that needs a little refurbishing or tailoring a
Versace
gown.
HBS
Professor George Serafeim,
who led the April 14-15 event on HBS campus as part of HBS’s
Digital,
Data, and
Design
(D^3) Institute,
estimates the
transition to a circular economy as a multi-trillion-dollar market
opportunity.
The circularity journey, however, is by no means an easy or certain
one. (Read Serafeim’s report highlighting lessons from the event
here.)
Circularity
is hard work
“Circularity
means changing business models,” said Ofstad, who gave HBS’s
The BiGS Fix an exclusive look inside the privately held company.
“You can’t work the way you did before.”
Owned
by Stockholm-based Summa
Equity,
NG Group is reinventing its entire business model. It’s identifying
new investment opportunities, pioneering new reprocessing methods,
developing new strategies and identifying new types of partnerships.
“We’re
on a journey to turn a growing proportion of the waste we handle,
including construction waste, into recovered raw materials and new
products,” he said. “Recycling materials ranging from glass to
gypsum is key to solving the challenge of resource scarcity for
certain critical materials and it’s also a key part of the solution
to decarbonize big corporations’ carbon footprint.”
NG
Group takes
in about 2.5 million tons of waste annually and recycles about 1.5
million tons of it each year. Because the waste doesn’t arrive
clean, NG is investing in entirely new methods to treat it, such as
acquiring facilities or identifying and collaborating with a niche
partner in North America.
Private
equity sees benefits: Doubling profits, saving the planet
From
both the investor’s lens and a societal lens, this transition makes
complete sense.
That’s
according to Reynir
Indahl,
the founder and managing partner of Summa Equity, which bought NG
Group in 2018.
“Moving
waste from one place to a landfill is a low-margin business,”
Indahl told The BiGS Fix during an interview from his office in
Stockholm. “The more interesting play is if you can create some
significant value-add to the waste and you turn that into revenue. If
we do, we can both increase our growth and margins as well as the
valuation of the company. So instead of making all the money upstream
in collection, you make it downstream. That’s a much better
business model.”
Indahl
is on a mission to achieve a waste-free and circular economy in
Europe – and a future where waste is minimized, and resources are
conserved. Currently,
the company spends roughly EUR 70 million to burn the 1 million ton
of waste that it can’t recycle, Indahl said.
“So,
we have the opportunity to double the profit if that was made into
zero cost. We can even make a revenue stream out of it that could
more than double the profits if we are able to do something valuable
with it instead of getting rid of it,” he said.
The
transition to a circular European economy is expected to require an
investment of roughly
EUR 230 billion by 2040, which Indahl estimates will translate into a
financial value creation opportunity of about EUR 1.5 trillion. The
return on investment, however, will be “massive for investors, our
society and our planet,” he added.
In Europe, an estimated 22% of Europe’s total greenhouse gas emissions stems from material production and waste management alone, according to Summa Equity research.
Construction
industry waste: A big opportunity
Currently,
the NG Group is focusing its efforts on Norway’s construction
industry waste, which globally is known as “the 40% industry” —
responsible for 40% greenhouse gas emissions, 40% waste production
and 40% material consumption. Specifically, the company’s tackling
ways to recycle and repurpose concrete, gypsum, steel, glass and
wood.
Window
glass, for instance, can be repurposed from hazardous waste (due to
gases trapped inside the lining of the windowpane) into insulation
for buildings. And thrown-away electricity cables can be converted
into low-carbon copper and aluminum for future use, reducing demand
to pull them from the earth. And gypsum waste can be re-used and
turned into new plaster board, a staple construction product.
The process of re-using gypsum, however, is a difficult one. It requires special technical expertise and processing so it can be used downstream, and a company like NG Group needs to do it at scale to sell the material “at right time, right quality and right price,” according to Ofstad. To make this happen, NG Group co-invested in a processing plant in Norway with a Canadian partner and found downstream partners to commit to buy the material.
To apply a similar formula for recycling hard-to-handle glass windows, the company invented a process to remove the glass from the lining, avoiding the hazard gas trapped inside. Ofstad said it’s important for leaders considering circularity to avoid underestimating practical issues associated with handling used materials.
“There is no material that you can quickly shift into a new raw material,” he said. “You need to process it. And each material needs specialized solutions to become valuable inputs into new production.”
We want to hear from you!
Do you have questions about the intersection of business and global society that you’d like to see HBS address or ideas for mini-case studies? Reach out to HBS BiGS Fix Editor Barbara DeLollis at bdelollis@hbs.edu or on LinkedIn.