The second life of products: the role of the circular economy in ESG strategies

The toolbox of the circular economy is very rich, including sustainable product design, product life extension, rental and service models, the sharing economy, industrial symbiosis, reuse and, as a last resort, recycling. 

The session “The second life of products: the role of the circular economy in ESG strategies” at the 62nd Economists’ Conference, recorded in September 2024, explored this theme (the discussion is available here). Participants in the roundtable discussion were Attila Bálint, Sustainability Officer at IKEA Hungary; Péter Bera, PhD candidate, Lecturer at Corvinus University of Budapest and Mária Csutora, Professor at the Centre for Sustainability Indicators at Corvinus and Chair of the Environmental Economics Section of the MKT. The discussion was moderated by sustainability expert Mária Farkas, researcher at Corvinus University of Budapest and HUN-REN SZTAKI 

Attila Bálint presented IKEA’s sustainability strategy, with a special emphasis on its circularity elements, which he divided into four areas: design, material selection, development of circular services and partnership building. IKEA aims to implement the key elements of its circular strategy by 2030. 

The manufacturing aspects of products determine their entire life cycle, so IKEA strives to extend the useful life of products and provide customers with reuse opportunities and tools. The “Second Life of Furniture” service involves buying back products that are no longer needed but can still be used and reselling them. They also offer the ability to order spare parts online to support a longer life. The supply chain is governed by IWAY 6.0, the Supplier Code of Conduct, which covers working conditions, employment conditions and raw material sourcing in the value chain. 

Mária Csutora’s provocative presentation was entitled: “The circular economy as a misunderstood concept”. According to her, recycling is the only circular solution that has recently taken center stage. Consumers have been steered in the easiest direction, towards selective waste collection, so there has been no need to change unsustainable business models. Prevention and the production of durable products have taken a back seat, whereas the circular economy should be shifting towards prevention and durable products. 

The lifespan of products is getting shorter, their repairability is decreasing, and the cost of repairs has increased. Manufacturers do not inform consumers about the life expectancy of products, so they cannot take it into account when making purchases. A fast fashion clothing brand designs its garments with the expectation that the average customer will use a garment no more than nine times. In contrast, ultra-fast fashion is accelerating this process with the help of AI. There is a need to rethink these business models because while they may seem to stimulate the economy, they are actually taking a toll on the environment and causing losses to consumers. 

The European Union is trying to encourage change through legislation, with legal instruments ranging from eco-design, the right to repair, putting problematic sectors in the “spotlight” and banning greenwashing. The European Union’s new regulation on corporate sustainability reporting, the CSRD, also devotes a specific standard to the topic, ESRS E5 Resource use and circular economy. 

Péter Bera spoke about his research at Corvinus University, which examined the everyday environmental awareness of the population. A representative survey of 1,000 people was carried out using a face-to-face interview with 36 main questions and 174 sub-questions. The results show that households with a net income between 1.3 and 2 million forints are more likely to buy second-hand goods, especially clothes and electrical appliances. 56% of the respondents also stated that they would buy more packaging-free products if they were available. However, it was also found that 60% of respondents are highly price-sensitive: if the price of a more sustainable product is 20% higher, they are less likely to buy it. 

The survey also looked at the importance of improvability, which was rated as a key factor by almost all groups. The researchers concluded that improving attitudes is particularly important for those with a net household income of less than HUF 1.3 million. For them, price, value for money, energy consumption and repairability of durable goods are important considerations. Overall, the Hungarian population is open to measures that encourage the purchase and use of longer-life products. 

The presentations were followed by a discussion moderated by Mária Farkas. Among other things, it was discussed that the transition to full circularity can only be achieved by companies working in partnership and cooperation. This could even happen under legislative pressure. It was also pointed out that the transition to circularity is also in the interest of the national economy, as keeping raw materials in circulation reduces dependence on imports. 

On the consumer side, quality, modularity and repairability are paramount, but the need to get the best quality at the lowest cost is often seen as unrealistic. The durability of products is currently not visible to consumers, as they are not given information on life expectancy, which is not the same as a guarantee. However, it is worth noting that it is not always easy for manufacturers to predict how durable a newly developed product will be, especially when components come from multiple suppliers. 

New business models and circular strategies require a new approach from business leaders that should be incorporated into university courses. Although circular solutions are many and varied, their practical application requires further research, which opens up new areas of study for researchers. 

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In November 2024, the Sustainability Theme of the Month project will continue, this time focusing on waste reduction, with the circular economy model as an important element. What a zero-waste future looks like, what we can do ourselves and what events we can take part in this month are covered in this article. And we still welcome ideas and activities related to this topic at mate.kovacs2@uni-corvinus.hu.