A commitment to the environmental, social and governance (ESG) field is now an expectation of Australian listed companies and many are pushing further to develop sustainability models and carbon emission reduction programs.

In a fundamental sense, this commitment is driven by the identification of environmental and social risks associated with businesses which, if not addressed, will threaten the ongoing sustainability of the business (ASX Corporate Governance Principle 7). Climate change is now clearly identified as one of the environmental risks to be addressed. However, new dimensions to corporate environmental and social policies have emerged, with them playing a significant role in the definition of a company’s overall commitment to the future.

An important challenge inherent in this broad area is for companies to integrate beneficial environmental and social ambitions into the operation of their businesses, rather than treating them as compliance requirements to be ticked off and reported on. For individual companies, the task now is to proactively formulate and implement realistic programs to achieve environmental and social benefits in the context of their own businesses.

We look at the potential use of circular economic principles as a model to enable companies to achieve higher levels of environmental and social sustainability while at the same time realising cost savings.

Circular Economic Principles

Circular economic principles provide a compelling model for the analysis and achievement of both more sustainable businesses and cost savings. A circular economy is one in which a company, city or region keeps resources in use for as long as possible, extracting the maximum value from resources while in use, then recovering and regenerating products at the end of their life. It is a more efficient and environmentally sound alternative to the traditional short-sighted linear economic model in which resources and products are used and disposed of in the “throwaway society”.

A $23 billion boost to the economy

The practicalities of implementing circularity depend on whether it is being applied in the context of an individual company’s business or at a wider regional level. However, the broad aims will be the same, namely, design efficiency, waste reduction, the re-use, repair and recycling of products and resources, reduction in energy usage and improvement in overall sustainability. Achievement of these aims brings both economic and social benefits.

In a report commissioned by CSIRO, KPMG estimated that the transition to a more circular economy across Australian food, transport and built environment (construction) sectors could give the country a $23 billion GDP boost by 2025 (Potential economic pay-off of a circular economy – KPMG Australia). Government support for the promotion and development of a more circular economy is evidenced by the establishment of NSW Circular, which has the mission of encouraging the development of a circular economy.

Providing community benefits: The Bega Circular Valley

Addisons long-time client, Bega Cheese Limited, has recently announced an ambitious circular economy project within the Bega Valley Region of New South Wales. The company’s 2021 Annual Report provides an outline of the project’s ambitions to establish a more resilient Bega Valley region by implementing circular economic principles. While it is looking at specific projects for its own business, Bega Cheese is aiming to drive broader benefits for the community and region in which its business was conceived. Addisons has worked on a pro bono basis with a team of others, including KPMG, Rabobank and Bega Valley Shire Council to initiate and progress this project. Bega Cheese has also identified greenhouse gas emissions reduction targets for its own business, including a net zero emissions target by 2050.

Conclusion

There is an expectation that companies will address environmental and social issues even if governments fail to develop policies and take action in the space. This expectation can be expressed in business and financial terms or in terms of a broader commitment to sustainability and climate change action.

Listed companies, in particular, are being pushed to respond in the ESG field by a combination of community and investor activism and corporate governance requirements. The challenge for companies is to respond proactively and implement practical changes that address environmental and social goals. The adoption of a circular economic model can help by providing:

  • a framework within which the sustainability of businesses and the communities in which they exist can be analysed holistically
  • a practical focus on identifying changes that businesses can make both individually and co-operatively with others
  • a focus on innovation in production processes
  • a long-term focus on sustainability and resilience together with the opportunity to design cost-saving initiatives.