This paper explores various institutional drivers and barriers of the circular economy. Using a cross-regional comparison of China, the US, and Europe to provide insights into the key global sustainability concerns, the author applied a qualitative approach. Methodology for the critique essay was exploratory and narrative in nature. Theories ad concepts discussed in the analysis include the Institutional Theory, Triple Bottom Line (TBL), Corporate Social Responsibility (CSR), Ethics etc. Findings show that companies are more focused on climate change than other equally important sustainability issues such as investing in programs to educate business owners and customers. The author suggests stakeholder collaboration to improve the economic, social and governance (ESG) impact of business.
Modern-day business corporations face complex and unprecedented challenges from the political, economic, social, technological, environmental and legal systems. These systemic setbacks to sustainable business require innovative and strategic management approaches. Yet, many executives are reluctant to align sustainability to their organizational culture and business strategies in the mistaken belief that the costs outweigh the benefits (Acerbi & Taisch, 2020). On the contrary, academic research and business experience point toward the opposite direction. Even so, embedded sustainability efforts result in a positive impact on business performance. In fact, sustainability in business refers to its effects on the economy, society and environment. A sustainable business strategy aims at positively impacting one or more of these three key areas, thereby helping to address some of the world’s most pressing problems vis-à-vis: (a) climate change (b) depletion of natural resources (c) income inequality (d) human rights issues (e) pollution (f) fair working conditions, and (h) racial injustice (Baxter & Childs, 2017).
Circular Economy (CE) emerged in the 1970S, and in recent years, it has been touted as a reliable tool for promoting a sustainable development process. It is also considered a guiding principle for corporate organizations and governments, particularly in the formulation and implementation of industrial and environmental policies. However, opinions on the relevance of CE differ among stakeholders in different sectors—including academicians. This is more so because CE as a concept has contradicting definitions and lacks substance. Thus, CE faces a risk of becoming counterproductive unless users — in theory and practice — stop referring to it as a solution to all kinds of environmental concerns (Julian & Ralf, 2019). This paper is a critique of “Exploring institutional drivers and barriers of the circular economy: A cross-regional comparison of China, the US, and Europe,” a study conducted by Valtteri et al (2018) which explored the facilitators and barriers to CE in the three continents.
Valtteri et al (2018) applied the institutional theory to identify and compare various factors impeding or facilitating implementation of the circular economy in China, U.S. and Europe. Then the scholars used a qualitative research method, which includes purposive, theory-based, maximum variation and case sampling methodologies to collate and analyse secondary data collated from books, journals, websites of multinational corporations etc. They also applied replication logic to increase the validity and reliability of research results.
The study by Valtteri et al (2018) is flawed for many reasons, particularly its theoretical leaning and methodology. The institutional theory provides a strong footing for comparative case studies, but it lacks the analytic framework required to make practical conclusions due to some inherent problems. For example, the theory dos not provide coherent explanations of political phenomena, and this limits its acceptance as a key model for sustainability-related global management practices. Moreover, it is difficult to measure institutions due to their complexity. The institutional theory, as proven in various literatures, does not represent a critique of historical evidence in corporate governance. Thus, criteria used in the analysis of institutions are static and ineffective in a dynamic contemporary business and/or political environments (Alston et al, 1996).
Further, the study of selected companies across three continents is totally unrealistic, mainly because results from analysing few companies cannot be validated to have common implications for global businesses. Additionally, it is hard to examine the causality and results of a qualitative research. Therefore, the scholars should have limited the study area to a country (instead of continents) and used some common approaches such as:
- Action research—which allows collaboration between researchers and participants that align theory and practice to achieve social change.
- Narrative research—that promotes critical analysis of stories/experiences shared by participants in order to understand how they perceive a phenomenon. This involves focus groups and use of interviews.
The Triple Bottom Line (TBL)
John Elkington designed the Triple Bottom Line (TBL) theory in 1994 to link sustainable business with the three “Ps” (i.e. people, planet and profit). In a volatile business world where inequality, poverty and climate change have taken the lead, Elkington made an attempt at encouraging frontline stakeholders in our current financial accounting-based business ecosystem to embrace a more comprehensive approach in analysing the environment, social and governance (ESG) impact of business (Acerbi & Taisch, 2020).
Figure 1: The Triple Bottom Line (TBL) Concept
Source: Liang et al (2018)
Global economies have thrived on profit-oriented services or a financial bottom line. But with Elkington’s theory, and its application by many companies, a large number of businesses have shown commitment to CSR, environmental sustainability and social well-being to achieve financial success and resilience. The theory is measured with three indexes: economic (e.g. job growth, employment distribution by sector and personal income); environmental (e.g. solid waste management, electricity/fossil fuel consumption, land use, hazardous waste management, and excessive nutrients); and social (violent crimes per capita, gender equality, unemployment rate, median household income etc) (Andrew, 2006).
Basically, TBL as a business concept encourages organizations to consistently measure their social and environmental impact—in addition to financial performance—instead of focusing on profits only. Although idealistic in nature, TBL places purpose over profit and large corporations have proved the practicability of Elkington’s theory by adhering to sustainable business practices while making profits. Therefore, it is possible for a brand in local and international markets to “do well by doing good.”
The world’s sustainability issues present opportunities for businesses. For example, organizations can leverage the ESG challenge to make billions by providing safe, affordable and eco-friendly products for the existing and new market segments. But to achieve competitiveness and survive in volatile market environments, companies should not only embrace sustainable business strategies but adhere to ethical practices that make them attractive to investors and strengthen affiliation with governments, customers as well as host communities (Julian & Ralf, 2019).
Business ethics refer to a mix of moral principles that serve as guide to business activities. Therefore, an ethical business practice means distinguishing between what is “right” or “wrong”. Some examples of unethical practices are: tax evasion, child labour, unsafe work conditions, discrimination at the workplace, poor waste management policies, bribery and corruption etc. Similar to CSR, which involves investing in social welfare and community development, ethical business practices help to keep the workforce and environment safe, as well as improve organizational culture, business strategy, and trade interactions with customers and stakeholders. Integration of ethics in business also strengthens accountability, fairness and transparency, thereby resulting in delivery of better goods and services (Acerbi & Taisch, 2020).
Over 70% of ESG controversies across the world are due to business ethics. According to the utilitarian theory of business ethics propounded by propagated by many philosophers, including Jeremy Bentham, James Mill, and Mill’s son John Stuart Mill, organizations should focus on limiting the negative impact of its business to the lowest number of people. This increases business outcomes and the number of stakeholders benefitting from the business. The utilitarian approach is based on the moral value that everyone has a right to life and should be treated with respect and dignity. Companies analysed by Valtteri et al (2018) have low in ESG indicators in varying degrees. For example, Ekokem, UPM and Republic Services have low investment in waste management. Suzhou produces products that are difficult to waste, and Huawei lacks the accreditation required to improve recycling activities whereas Dell has a robust mechanism for recycling waste. But the American brand is widely criticized for exploiting its sustainability rating to hike prices, thereby scoring low on the economic indicator.
Key Sustainability Concerns and Impact on Business
The implementation of sustainable business practices enables organizations to reduce various negative impacts on the environment, economy and society. Some of the critical sustainability issues are: biodiversity, deforestation, forced labour, water use, poverty, and Greenhouse Gas (GHG) emissions (Julian & Ralf, 2019). Based on these findings, the major sustainability concerns are how to:
- Advance the Circular Economy—There are limited resources in the world. Thus, companies rely on collaboration to maintain steady supply of raw materials and achieve competitiveness as well as profitability. But waste disposal via land, water and air as seen in the activities of Huawei, Dell, Suzhou and other companies significantly depletes the scarce natural resources, thereby posing a huge risk to global supplies.
- Increase governmental support—Notwithstanding the relevance of sustainable businesses and importance of globalization, governments are protective of their indigenous companies and this makes it difficult to implement policies that strengthen partnership between private- and public-sector companies. Thus, there’s no level playing ground for multinational corporations as country-level rules and regulations often impose strict, exploitative conditions that limit global expansion of sustainable businesses (Acerbi & Taisch, 2020).
Importance of Creating Sustainable Businesses
Increased investment in sustainable business practices can boost a company’s profitability. According to Liang et al (2018), evidenced-based studies show that the most sustainable companies are also the most popular, competitive and profitable brands. But there are numerous examples of companies competing at the top despite their historical records of unethical practices such as Volkswagen (gas emission), Toyota (faulty Takata airbags), Shell BP (pollution from gas flaring and illegal waste disposal) etc. Huawei has been criticized for sponsoring theft of copyrighted materials and violating customers’ privacy, too. Yet, organizations and stakeholders need to understand sustainability as an essential element of a healthy society and an effective tool for driving innovative change—not compromising human lives. Doing well and doing good are linked; and successful implementation of business strategies require proper maximization of opportunities for shared value results.
Is the circular economy relevant in contemporary business world?
The answer is yes and no. There are arguments that a circular economy does not necessarily promote sustainable business and ethical practices for the following reasons:
- The circular economy concept is so diffuse and sprawling that it is impossible to measure its impact. It includes everything from recycling systems, renting, replacing products with services, developing apps for the sharing economy, and so on.
- Circular economies tend to ignore the vast amount of materials and products that people have already accumulated. The concept is reduced to a question of choosing between linear and circular products while disregarding physical laws about the physical limitations of materials as well as the complexity of the waste. These issues are crucial if a circular economy is to become a reality.
- Some businesses only develop circular activities for parts of their operations. This may be due to the difficulty of scaling up pilot projects. In most cases, only a tiny part of the operation characterizes a circular economy while the core activities continue as usual.
- Contrary to what researchers claim, there is limited awareness about how a circular economy can transform utilization of resources and growth. This makes it difficult to measure the environmental impact, especially in the long term and over larger geographical scales. Some scholars claim that a circular economy only delays, rather than eliminates the adverse ecological effects of the linear economy (Julian & Ralf, 2019).
- Although proponents of the circular economy claim to contribute to a socially sustainable future for all, the concept tends to be source of controversies and arguments about resource consumption and distribution. There is no connection to how the idea would lead to more significant social equity.
Role of the Market
Researchers do not agree on the relevance of a circular economy. It has been argued that CE depoliticizes industrial and environmental policies while advancing the power of the market and businesses. The concept suggests that everyone will benefit from the implementation of a circular economy because its proponents envisage synergies, win-wins and possibilities rather than compromises, problems, and limitations.
However, it is pertinent to note that widespread criticisms of the circular economy will never challenge relevance of the circularity concept. The main issue is how to identify the most effective framework for distributing its supposed benefits. But based on the conceptual and practical inconsistencies, the questions we need to ask are: (a) How do we know that a circular solution is good for the environment? (b) Who benefits from it, and who does not?
Issues related to the ESG impact of business have attracted global attention in the last decade, with highlight on the huge benefits of sustainable business. Also, circular economy has both theoretical and practical support from multinational corporations and policymakers who are integral to its recognition as a model for material and sustainable policies. However, it has been criticized by professions in various domains for the following reasons:
- CE literature is biased due to focus on developed countries.
- CE indicator analysis is mainly on the manufacturing sector.
- Lack of empirical analysis on the CE theory and practice.
- Academic works on CE lack advice (Julian & Ralf, 2019).
- There are no clear contributions to social and economic sustainability.
There is no one-fits-all solution to profit maximization. But everyone has a role to play toward developing and protecting the world around us. The agenda for global sustainability demands focus, collaboration and investments, not just from the government and corporate organization, but the society at large. According to Ali et al (2019), the world needs a holistic institutional approach for advancing the circular economy.
- There are many challenging issues in global business. But the focus on climate and disregard for the complexity and interaction between different sustainability issues has to change—starting with corporate governance and societal structures.
- To attain the United Nation’s 2030 Agenda for Sustainable Development Goals (SDGs), policymakers and organizations should recognize the interactions, trade-offs and mutual benefits between goals. This highlights the importance of information sharing and calls for a more holistic ‘integrated thinking.’
- Companies can leverage innovation to produce eco-friendly products while individuals, groups and governments should provide financial support for global sustainability as well as participate in global campaigns for using safe, recyclable eco-friendly products.
- Governments should also implement policies that encourage innovation, reduce poverty and youth unemployment, as well as institutionalize frameworks that empowers businesses to align with system-wide changes.
- The world needs valid and reliable data on efforts being made by companies to reduce GHG emissions and negative ESG impact, not only climate change. Access to monthly reports presented in a standardized way that will provide more insights on priority areas—for governments, organizations and key stakeholders.
- Combating global sustainability issues is not limited to greening operations. Lasting transformation can be achieved by establishing a social movement and pressuring politicians to implement change at scale. At the moment, organizations are committed to climate change while neglecting a more important action—advocacy and investments toward educating both customers and employees.
FUTURE STUDY PLAN
I look forward to studying Business Sustainability Management because a comprehensive understanding of global ESG impact will empower me to argue business case for circular economy and sustainability. The skills and knowledge will be utilized to apply design, innovation and leadership competencies such as creating and implementing effective action plans for integrating sustainability across my organization’s value chain, thereby enabling consistent value creation for all stakeholders.
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