RESEARCH: 4 policy tools for more sustainable businesses and a circular economy

More and more companies want to reduce resource use, invest in recycling and develop circular business models. But the transition is complex and clear policy instruments are needed to drive progress. This is the view of two researchers who have studied sustainable innovations and measures to strengthen the circular economy.

Several researchers emphasize the importance of collaboration, regulation and economic incentives to create the right conditions.

Former KTH researcher Daniel Berlin, now a sustainability expert at the Swedish Environmental Protection Agency, studied in his doctoral thesis how companies can collaborate to strengthen their circular capacity.

– In a business-to-business context, relationships with other actors in the network are central to business model innovation. It is from the network that you get skills that are lacking in your own company and in the network that there is an opportunity to test circular solutions and take part in the expected transition, he says.

Uncertainty around return flows and the condition of the product when it is recycled is one of the major challenges for companies that want to become more circular.

– To address this, there is a growing trend towards servitization, where companies lease products instead of selling them. In the automotive industry, private leasing has become an example of this, continues Daniel Berlin.

Regulation and financial support crucial

Fanny Hermundsdottir, NTNU in Norway, studied in her doctoral thesis how companies can combine sustainability and profitability in innovations.

– We cannot take for granted that companies will invest in sustainable innovations if they are not competitive for the company. Regulation is needed – but it must promote competitiveness and value creation, she says.

She emphasizes that to achieve a real transition, a critical mass of companies needs to invest in sustainable innovations, creating economies of scale and more knowledge sharing. To encourage more companies to take the plunge, we need both financial support and instruments that reduce the risks for companies.

– Few companies can finance radical innovations themselves. Financial incentives are crucial for companies to develop and implement sustainable solutions, says Fanny Hermundsdottir.

Collaboration and long-term strategy key

Both Daniel Berlin and Fanny Hermundsdottir emphasize the importance of collaboration between businesses, recyclers and policy makers to understand how products can be designed for recycling and how resources can be reused more efficiently.

– No single company can solve sustainability challenges on its own. Collaboration and joint strategies are crucial, says Fanny Hermundsdottir.

The role of policy is to create the conditions for this through clear rules, financial incentives and collaborative platforms, the researchers say. Without this, there is a risk that the transition will be too slow to achieve the climate goals that have been set.