Fostering socially and environmentally responsible businesses – new report

As business leaders strive for sustainability, systemic problems such as poor working conditions, unfair distribution of profits and wasteful consumption patterns undermine Europe’s quest for a fair and truly circular economy.

An increasing number of businesses market themselves and their products as being sustainable and circular. Yet, whether new business models actually deliver resource savings and sufficiently consider other aspects such as social equity remains an open question.

A new report by Circle Economy, the European Environmental Bureau and the Fair-Trade Advocacy Office launches a debate on what constitutes truly sustainable business models.

The report identifies blind spots in the European textile and electronics sectors, helping policymakers and business leaders understand how they can address the manifold challenges of the post COVID-19 economy. The authors also interviewed several progressive businesses to share examples of best practices.

Unfair distribution of profits

While major electronics manufacturers generated $27.7 trillion in combined profits in 2016, the report finds that workers in this sector still face issues like excessive overtime, low wages and short-term contracts. Tellingly, labour costs represent 0.5% of a smartphone’s market price.

The textile industry generates $1.9 trillion each year. Wealth and profits are largely held by these corporations, while the manufacturing and raw material sourcing workforce earns minimum wages and suffers most of the adverse health and environmental negative impacts.

However, the authors of the report highlighted some positive examples within the textile and electronics sectors. Two small-scale businesses interviewed mentioned that they offer employees access to ownership of a share of the business. This is highlighted by interviewees not only as a way of redistributing profits among employees, but also as a way of generating increased sense of commitment and belonging to the organisation.

There is no doubt we need more circular and sustainable businesses promoting repairing, reusing and product as a service,” said Jean-Pierre Schweitzer. “Yet in a world where inequality is soaring, we cannot neglect other key aspects of sustainability like human rights and social justice. Policy makers and entrepreneurs urgently need to connect the dots on these topics to reduce the exploitation of natural resources as well as individuals and communities,” he concluded.

Overall increased consumption

The report recommends that for repairing, reselling, leasing or renting products to achieve a substantial environmental impact, these models need to be an alternative to linear forms of consumption, rather than an addition to it.

Both in the textile and electronics sector, evidence suggests that some of the current circular business models still result in additional consumption, which defeats the purpose of a circular economy. A survey conducted by a luxury clothing resale platform highlighted that 32% of the surveyed sellers in the platform sold the items just so that they could purchase new first sale items.

Precarious, informal, unsafe work, lack of a minimum wage and social protection in sourcing and manufacturing

Finally, both the electronics and textiles industries are built on long and non-transparent supply chains, where precarious labour conditions are the norm, the report finds.

For example, in mining for raw materials for the electronics industry, workers take on hazardous activities and are highly exposed to toxins and poor air quality. These conditions are often worsened by the use of forced labour, including child labour, in illegal mining operations in conflict areas, where little to no attention is paid to safety or health standards.

Within the textile and apparel sector, the authors of the report highlight that manufacturing workers are commonly exposed to lack of access to living wages, significant overtime, unsafe work and in some cases, forms of bonded or forced labour, including child labour, in raw material cultivation, and forced labour in apparel cut-make-trim facilities.

For textiles and clothing, interviewees also suggested the need to establish repair operations as close to the customer as possible, avoiding unwanted additional costs and logistics.

Recommendations from the report include:

  • Ensure that circular business models replace existing linear ones, rather than just creating new forms of consumption, by using macro level resource targets and indicators to demonstrate performance
  • Prioritise wellbeing and fairness rather than growth as the primary objective in new and existing business offerings
  • Increase supply chain transparency on both environmental performance and supply chain ethics, e.g. through the introduction of product passports
  • Integrate due diligence into Europe’s circular economy agenda, including the Sustainable Products and Empowering the Consumer for the Green Transition initiatives
  • Guarantee design for repair and reuse, regulating obsolescence and strengthening the market for reuse and repair services.
  • Ensure equal access to circular products and services, using economic incentives and pricing mechanism to avoid circular products being labelled as luxuries
  • Enable circular and socially responsible procurement – public and corporate procurers should simultaneously pursue environmental and social impact criteria in purchasing contracts
  • Optimise reverse logistics and value retention processes – boost innovation in key areas such as repair and reuse as well as increasing support for existing actors in these sectors.