REVERTIA A Circular Economy Business Case

This report presents the results of the Revertia case study, selected in the framework of the R2PI project, among 17 other cases, because of its focus on an activity linked to priority areas of the Circular Economy, namely Plastics and Critical Raw Materials. The information contained in the report is based on the methodology designed within the framework of the R2PI project to understand the characteristics of the business model, evaluate its outcomes and identify the main barriers and enablers of the CEBM. Revertia is an authorised Waste Electrical and Electronic Equipment (WEEE) manager that combines e-waste management services with a circular value proposal consisting in the preparation of IT equipment for reuse. The company responsibly manages an e-waste flow and, by applying secure reconditioning processes, is able to extend the service life of IT equipment that has been discarded. Refurbished equipment, with a 1-year warranty, are sold in second-hand markets or donated. The activity of preparation for reuse also involves the utilization, to the extent possible, of used and recycled components. In addition, the business model is based on efficient logistics, avoiding e-waste transportation when reconditioning is not an option. The value proposition is based on the provision of high added value services to corporate IT equipment users, who need to manage their WEEE responsibly. The value network is thus formed by the origin-customer that generates e-waste and the EEE manufacturers represented through collective schemes. Downstream there are the destination-customers of second-hand and donated products, as well as the WEEE recycling companies to which Revertia's own waste is destined. Revertia's business model is clearly influenced at the context level by the WEEE Directive 2012/19/EU and the Spanish RD 110/2015, which regulate the industry and set targets for reuse and recycling of WEEE. In addition, the market context given by the rapid technological change in the EEE sector, the collective schemes derived from the implementation of the EPR obligation, the maturity of the WEEE recycling industry, the existence of illegal scrap metal agents, and some socio-cultural aspects such as the lack of awareness of WEEE's environmental costs are factors that strongly affect Revertia's activity. The report also presents an assessment of the circularity of the business model. The model corresponds to the Re-make pattern among the CEBM defined in the R2PI project. Its circularity lies in extending the useful life of a product, also integrating used and recycled components as far as possible. Current circularity is limited, since it is not based on services added to this second-hand product, nor is the organisation further able to act on the products manufacture or end of life. Therefore, Revertia takes opportunity of a gap left by other players in the sector (EEE manufacturers). Therefore the business model is dependent on the generation of an e-waste flow as well as on sales of refurbished computers. With regards to the outcomes assessment, the main advantages of the business model are found in the non-financial aspects: reuse of IT equipment for the same use demonstrates clear environmental benefits compared to recycling. In addition, it also allows for greater local employment generation linked to the management and preparation for reuse activity. In the socio-economic area, second-hand products provide access to quality equipment at very affordable prices. The SWOT analysis shows that the main strengths are the long-lasting and stable relationships with the origin-customers, the know-how and expertise of Revertia. The weaknesses point to its dependence on the linear model, therefore, to being able to capture waste streams, in competition with the mature recycling industry. The opportunities lie in the Spanish regulatory framework, which sets targets for the reuse of WEEE, as well as a state of opinion more favourable to responsible and sustainable consumption; however, there are also clear threats to the model, such as the possible entry of more competitors and the lack of sensitivity of EEE manufacturers towards reuse. Based on the analysis, it is concluded that the Re-make CEBM is replicable and transferable, especially as long as the linear economic paradigm is dominant. However, there are a number of business and policy recommendations that may support greater circularity: first, specific agreements with EEE manufacturers to extend circularity from the conception of EEE products until its final disposal after multiple lifetimes; second, at the policy level, tighter regulation, with inspection and sanction systems, incentives for eco-design and product life extension activities, transparent information and monitoring systems, as well as education and training measures are neededThis project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 73037

INDITEX A Circular Economy Business Model Case

This report presents the case study corresponding to the textile company Inditex, which has been selected by the R2PI project given its importance in the world fashion market. The adoption of a circular model by fashion companies is extremely important, given the relevant environmental impact of this industry. Based on the common methodology of the R2PI project, this report presents the analysis of the “Circular Sourcing" CEBM, although it also highlights other activities of circularity that complement the aforementioned and that the Inditex Group is partly implementing, such as "Co-product recovery" and "Resource-recovery", the latter in collaboration with non-profit organisations in Spain and other markets. The objective of the report is, therefore, to offer a general view of how Inditex is facing the challenge of circularity, taking into account both contextual and internal factors, as well as to assess the level of circularity, the outcomes obtained and the SWOT. Finally, the report tries to offer key insights with regards to the “Circular Sourcing” CEBM pattern. The analysis of the context indicates that there are certain factors in the policy framework that are conditioning the development of circularity in fashion, especially the regulations that affect garments trade, its labelling, and textile waste trade –and will do so even more in the future. The market situation and competition reveal important elements of influence, such as the general race among leading fashion companies towards more sustainable and circular business models. In addition, still uncertain economic factors, such as the evolution of raw materials, water and energy prices and wages, are pointing to the need to adopt measures towards a circular change. As far as the factors of the technological framework are concerned, there is a clear commitment to developing new raw materials and more environmentally friendly processes; likewise, developments in recycling technologies and other advances may change the face of the textile industry in a few years. Finally, while the fast-fashion consumer model continues to be very successful, there is already an increasing demand for healthier and environmentally friendly clothing. The characteristics of Inditex's business model centred on circular sourcing are analysed in detail. This model is based on the group power along the value chain. Thus, a value network is formed in which some suppliers are key partners, because they share Inditex vision and are doing strong efforts towards a more circular sourcing, while also supporting the development of the local textile recycling industry. At the heart of the business model, Inditex continues offering fashion at competitive prices, but the group is increasingly searching for the environmentally friendliness attribute. The analysis of the circularity of Inditex Group indicates that it is currently limited in the sense that it is still focused on the sale of a product, and the revenues and costs are clearly linked to the sale and manufacture of that product, not to added services, for example. Although garments are manufactured with more sustainable raw materials, the industry might become more circular yet if fashion companies decide to innovate the business model in more radical ways. With regard to the financial outcomes, the available data allows to indicate that the manufacturing costs of more sustainable garments are generally higher than those of conventional garments. It is important to remark that Inditex does not pass this higher cost on to end consumers through a price premium. Moreover, sustainable garments are increasing greatly in Inditex's fashion sales. Existing information points to important non-financial outcomes linked to circular sourcing: the reduction of environmental impacts, greater employment generated through social initiatives by means of projects linked to donated garments; and possibilities for the creation of a stronger industry and employment associated with textile recycling. In addition, technological innovation is very important to support this business model, with investments in R&D aimed at the development of new products (fibres) and processes (design, traceability, recycling). Using a SWOT tool, Inditex business model is assessed and put in relation to potential circularity. Weaknesses are identified, such as the dependence of the Inditex circular business model on its ability to influence suppliers and the success of the current dominant business model based on continuous and quick sales. There are also strengths, such as the design skills and the ability to anticipate the market, the power to influence suppliers and to play an intermediary role in the fashion industry. As far as external aspects are concerned, the greatest opportunity lies in taking advantage of the favourable state of opinion and the general movement of the fashion industry towards the Circular Economy. The threats may also be high competition, but they rely mainly in the challenges of regulation for the clothing and waste trade and in the current low cost scenario (raw materials, energy and water, and labour), which make sustainable manufacturing more expensive. Inditex's route towards the Circular Economy will be based on going deeper into the circular sourcing CEBM pattern, especially in the sense of trying to close the loops for some fibres; moreover, in the longer term, it is also part of its plans to explore other business models in which the services added to the product will take on greater relevance. The business model analysed is replicable and transferable. In fact, a large number of leading companies in the sector are already taking action in the same direction. However, there is a need for greater commitment from industry and consumers. Based on this research, some policy measures are highly recommended to further promote the uptake of the circular business model, including: the establishment of clear objectives for garments reuse and recycling; regulation for favouring the implementation of eco-design, durability and quality of garments; and incentives and education for consumers to change towards more responsible and sustainable patterns of fashion consumptionThis project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 73037