Beyond environmental gains: the social benefits of circularity

Circularity is often discussed in terms of material use, but its full definition encompasses a social dimension, focusing on non-monetary values and enhancing individual well-being and social governance. According to a report by the Foundation for European Progressive Studies (FEPS), transitioning to a circular economy could have net-positive effects on both GDP and employment, suggesting that it is possible to simultaneously become more resource-efficient and increase job opportunities. As such, many governments are starting to embrace the concept, implementing circular economy strategies and supporting their economic and civil society actors to boost the transition.

More research is needed, however, to fully understand the benefits and impacts on a local level. A 2023 study by Circle Economy and the ILO highlighted the shift needed from macro-level to more localised, city-based research on how circular economies can enhance employment and the quality of work which impacts local people and their livelihoods.

With this in mind, the CIC aims to contribute to this understanding, showcasing how local initiatives in Amsterdam can significantly impact employment and foster more inclusivity in the labour market.

The spectrum of circularity and the critical role of startups in advancing the circular economy

To fully appreciate the vital role startups play in advancing the circular economy, it's essential to understand the various degrees of circularity.

The concept of "circularity" broadly refers to efforts aimed at reducing or eliminating the consumption of finite resources. However, not all circular practices offer the same level of sustainability. For example, while recycling transforms certain materials for further use, it still requires additional resources, making it less sustainable than straightforward reuse of existing products.

Understanding the full spectrum of circular practices can be facilitated by the R-Strategies hierarchy, a framework that categorises these practices according to their sustainability impact.

‍Read more in part 2 of the CIC guide, p 22

As our global economy progresses towards greater circularity, the transition from lower-R strategies (such as recycling) to higher-R strategies (like redesigning and rethinking) is essential not only for achieving environmental goals but also for fostering higher-value employment. This is where circular startups play an essential role. The strategic positioning of startups, oftentime inherently more aligned with higher degrees of circularity, enables them to adapt new practices more readily compared with established businesses which are often more tethered to linear models. New market entrants are not only better positioned to leverage higher R-strategies but also vital for driving broader environmental and economic transformations. According to a study by Xu, Lu, and Li in 2021, while 54% of circular startups engage in mid-R-ladder practices such as repair or reuse, only 35% of traditional firms do the same.

Circular jobs explained

Jobs in the circular economy tend to fall into three categories (following Circle Economy definitions):  core circular jobs, enabling circular jobs and indirect circular jobs. 

Core circular jobs ensure the closure of raw material cycles. These include jobs in repair, renewable energy, waste and resource management. They require strong manual and/or technical skills.

Enabling circular jobs remove barriers to core circular activities and enable them to accelerate and scale up. Typical examples are jobs in leasing, education, engineering, design and digital technology.

Indirect circular jobs occur in other sectors that do not play a direct role in furthering the transition to the circular economy, but can still adopt circular strategies. They include jobs that provide services to core circular strategies, such as in information services, logistics and the public sector.

Developing and perfecting core circular skills, such as hands-on repairers and knowledgeable senior managers, relies on the availability of jobs within circular businesses. This is necessary both for gaining experience and for providing the incentive for an educational route into these jobs.

Identifying and addressing common barriers for circular startups

As essential as circular startups are, their much-needed impact is often hindered by financial constraints, meaning they struggle to employ, train and retrain enough people to scale operations to the point where they can achieve their potential impact and survive (and thrive) within the existing market. It’s catch 22, as articulated by a young impact venture from the Impact Hub Amsterdam network: “You are often required to grow from your own resources before you get access to the resources, such as funding and grants, that you need to grow”. 

‍How can startups demonstrate financial traction without the initial financial means required for a proof of concept? At the CIC, we explored a holistic view of what is needed to realise the potential offered by young circular ventures in pursuit of Amsterdam’s circular ambitions. We sought to identify the innovation gaps based on circularity targets, set up a Venture Support Programme to equip these startups with the tools and resources they need to thrive, and are helping secure impact finance for those participating in the program.

One of Amsterdam’s objectives is to achieve 70% circularity in textiles by 2023. We used this as a basis for our pilot Venture Support Program. We joined forces with the City of Amsterdam (Amsterdam Impact), the DOEN Foundation and Goldschmeding Foundation to conduct the pilot, identifying and supporting the needs of ten relevant businesses and documenting the outcomes. 

Through the pilot, we demonstrated the role ambitious circular businesses can play in creating jobs which are relevant to the circular economy of the future, in both a materials and social sense. The pilot also revealed the challenges circular startups face, and inspired us to create recommendations for how policy makers can step in to alleviate these, and thereby come closer to achieving their circular objectives.

Upon termination of the CIC pilot program, we collected impact data through sequential quantitative surveys and qualitative interviews aimed at identifying the progress, growth, challenges, and continued needs of the participating parties up to one year after its commencement. Compiling these insights, we created an open-access guide to advance circular innovation programs across European cities and regions.

The full guide can be downloaded here.

Participant views on obstacles that hinder the scaling and impact potential of startups:

• “It's been a challenge to find people that meet the level of ambition and agree with the provided salary and additional compensation/rewards.”
  

• “It's hard to afford the seniority that's needed.” 
  

• “We need experts but experts can easily work for big companies like Uber and receive great salaries. We can’t do much with more juniors.”
  

• “Creating impact involves not only fair payment to suppliers and key partners but also throughout the entire value chain of production and resource extraction.” 
  

Attracting senior management staff, who are crucial to growth, is often impeded by not having the funds to offer a competitive salary. A lack of wage competitiveness also makes it difficult to keep experience and expertise of all kinds in-house. This, in turn, affects the ability to deliver quality and leverage existing knowledge and skills to train new employees. 

The qualitative research conducted with the startups in the program highlighted challenges including setting appropriate compensation strategies (bonuses, shares, salaries), preparing job vacancies and communications, and defining a growth strategy that clarifies the expertise needed for the company's development and expansion.

The high turnover rates among young, highly-educated employees also pose a challenge, as these individuals are prone to job-hopping early in their careers, affecting the startups' ability to maintain experienced staff and quality. One of the ventures pointed out the “repetitive nature of work” and “idealistic expectations” as reasons for high turnover, influencing their capacity to leverage knowledge and skills for training new employees.

Operating ethically across the entire value chain increases costs, making competitive independence challenging. Yet this approach is often integral to a purpose-led circular business, as one entrepreneur in our pilot highlighted,

• "Creating impact involves not only fair payment to suppliers and key partners but also throughout the entire value chain of production and resource extraction."
  

External investment might seem an obvious way to give circular startups the boost they need. Yet, if we look at the situation in the Netherlands, there are very few venture capitalists who are willing to look beyond tech companies with fast expected growth and high return on investment (to the tune of 10x). New circular business models simply don’t deliver returns at the speed and rate they demand since they are typically based on gradual and sustained growth models.

Despite these challenges, the commitment and determination of the ventures in our pilot program to their mission are clear and beginning to show results. These businesses are growing their teams, expanding to new locations, and establishing partnerships. However, to fully realise their potential and maximise their impact, external support remains crucial. 

The startups particularly advocate for investment funds that are patient and willing to commit to long-term impact in exchange for a slower ROI, or other types of financial instruments that align the interests of impact-driven founders and funders towards achieving a vision of a circular economy. They also call for policies that compel businesses to take responsibility for their products and services, alongside stringent regulations on waste management and environmental protection.

How policy makers can make a difference

Through the Amsterdam pilot, we gained valuable insights that shaped the development of our Guide for Accelerating Circular Innovation Across Regional Value Chains. We identified the following support that can help young circular businesses succeed, which includes:

• Investment funds tailored to smaller companies.
  

• Venture capitalists who are prepared to accept a slower return on investment in exchange for long-term impact.
  

• Local entrepreneurial networks that enhance access to talent, collaborations, and partnerships.
  

• Policies that encourage companies to assume greater responsibility for their products by offering circular services.
  

According to Eva Helmond from Goldschmeding, collaboration is vital for a successful circular transition:

• "Policy makers responsible for resource and materials conservation (the circular economy) will only thrive if they work together with other disciplines. Get your labour market colleagues involved, policy makers in the social domain and in the economic domain, educational organisations, collective HR innovation, etc. And last but not least: take care of guarantee funds to build vacuums in which ecosystems of entrepreneurs can experiment."
  

Our recommendations to policy makers for supporting circular ventures to thrive and drive the circular jobs transition locally:

Recommendation: Implement comprehensive venture support programs for circular startups to assist in the development and validation of business and impact models, conducting research and development, piloting projects, and building customer bases.

Justification: Continuous and multi-faceted support not only strengthens the business foundation but also enhances market readiness. For example, initiatives like CIC can be instrumental in creating vital networks that connect entrepreneurs with stakeholders and potential financial partners, thus bridging critical gaps in the ecosystem.

Recommendation: Establish and promote guarantee funds specifically tailored for circular startups to mitigate investment risks and attract venture capital. Policymakers can break through bottlenecks by arranging such funds for labour-related costs and setting up work-to-work infrastructure (such as training positions).

Justification: Guarantee funds, similar to those being piloted in Brussels, Czechia, and Finland, can provide the necessary safety net for investors, encouraging them to invest in high-risk but potentially high-impact circular ventures.

Recommendation: Encourage the development of new educational programs and training centres that focus on craftsmanship skills essential for repair, refurbishment, and recycling.

Justification: Initiatives like Practoraat in Lelystad, the Netherlands exemplify how specialised training in repair and refurbishment can not only create jobs but also support a sustainable economy. Expanding these opportunities ensures a workforce that is well-prepared for the demands of a circular economy, addressing the skill mismatches commonly seen today.

Recommendation: Integrate circular economy strategies directly with labour market policies to ensure that economic sustainability and job creation are aligned and mutually reinforcing.

Justification: By aligning these policies, cities and regions can ensure that the transition to a circular economy also results in the creation of new jobs and supports existing ones, thereby ensuring a holistic approach to sustainable development. Read more about the roles cities can play in part 2 of the CIC guide, page 32.