The Innovation Room E17 - Circular Economy with Kati Pallasaho

I'm doing well, so happy to be here with you.

Sure, sure I can. So like you said, I started my career in research and in academia, and from there I moved to consulting, strategy consulting, management consulting, and then now I'm at Lindstrom working with strategy and sustainability. And I would say that the common denominator from research to consulting and now to leading strategy and sustainability has actually been strategic change, strategic renewal. So that is something that has always interested me. And now I think that the big, big strategic change that basically all businesses need to go through is the sustainability transformation, and now I'm super happy that I have the chance to participate in that at Lindstrom.

Circularity to me is a completely new paradigm, a way of doing business, organizing the commercial activities in our society. So if we think of the way that we operate at the moment, often times called the linear economy, meaning we just take stuff usually from nature, we make something out of it, we use it, and then when the product comes to the end of its life cycle, we throw it away. And there are a lot of different things that underpin this way of doing business, for example how we see ourselves as consumers, meaning that we think we are here to consume something, consume the natural resources. Then if we think of circularity, it's a 360-degree change compared to what I just said of the linear economy. It's about us as consumers seeing ourselves in a different way, it's about how do we take care of the things that we own, for example. It's a different way for businesses to do their business, it's not that much anymore about just selling more stuff, it's about also what kind of services can be provided in order for the products to be with us for a longer time. And then at the end of the cycle, it's about what do we do with the end-of-life products and with the raw materials that we have used, so how do we ensure that they get back to the circle and are not thrown away. So to me, it's a very profound change that we also in society need to go through in order to mitigate climate change and conserve natural resources, take care of nature and biodiversity, for example.

I think that if we think of it so that with circularity we would still need to increase consumption, we're thinking from this linear mindset. I think circularity is a lot more than consuming more stuff. It's about how do we, for example, repair things to enable things to last longer, whether we're talking about electronics products that we are using or the textiles that we are wearing or whatever type of product. So that's one thing: we make the products more durable, we make them repairable, we make them reusable. It's also about sharing. I don't think that we need to own all the stuff that we own. So it's very much also that whatever you are owning, can I borrow it, can you rent it to me? This type of sharing economy principles. If we think of personal cars, for example, they sit in the parking lot for the majority of their time. So is it necessary that each and every family owns a car, or could there actually be more of these platforms where you can just rent the car when you need it? So this is also one way that we need to start thinking about ownership in a completely different way. And then also if we look from the business perspective, the change that businesses might need to go through, and also businesses need to start challenging themselves: is the business model only based on selling more stuff, or is it that we actually try to sell maybe more but then also get new earnings from different kinds of services that can be provided to make the products last longer, or repair them, refurbish them, and so forth.

Very good. If we think of the way that we are consuming natural resources at the moment, there is a concept called Earth Overshoot Day, meaning when do we during the calendar year overshoot the consumption of the resources compared to what the Earth has to offer to us? The different kinds of minerals and metals that we're using in electronics products, or if we think of wood that we are using in our furniture, or the textile fibers that we get from nature. At this rate that we're consuming natural resources at the moment, we're consuming the resources of 1.7 Earths. So we are over-consuming by 70% what nature has to offer to us. So I think that alone should wake us all up to critically look at the way that we are using natural resources. We simply cannot continue in this kind of way. So that's one thing: the consumption of natural resources and what it does for nature and biodiversity. And then the second aspect, for example, being climate: the more that we are producing stuff, and especially if we're doing it with fossil electricity or fossil energy, if that's the way of fueling our manufacturing operations, then we also emit more greenhouse gas emissions, and that then ultimately contributes to global warming. So I think that these should be critical wake-up calls for all of us to consider: is the linear economy something that we can still continue for a very long time?

Yeah, yeah, sure. So if you don't mind, I'll introduce Lindstrom a bit because Lindstrom might not be familiar to all of the listeners. So yes, please. Lindstrom Group is a 175-year-old or young textile rental service business. We originally from Finland, and we're family-owned and still headquartered here in Finland where I'm now joining this recording. And we operate in 23 countries at the moment, both in Europe and in Asia. And our business is textile rental services, meaning that we offer different kinds of textiles as a service to our B2B customers. We, for example, rent workwear, meaning the different textile products that employees of our customers wear, for example in manufacturing facilities. We also rent textiles to hotels and restaurants: the bed linen and the towels, the bathrobes, the tablecloths, the napkins, and so forth. Also for industrial environments, we have industrial wipers, for public spaces we have mats, and also reusable cotton towel rolls for the washrooms, and so forth. So all the different kinds of textile products that we offer, we offer as a service. And what does that service mean? It means that we rent the products, and then also we maintain them, we wash them, we repair them if needed, and then also we take care of the delivery for our customers. So we deliver the clean ones to our customers, and then when the textiles have been used, the hotel textiles or the workwear or the mats, we then pick them up from our customers' side and take them to our laundries and wash them, repair them, whatever maintenance needed, and then deliver them back to our customer. So that's in short our business model. And with this kind of rental business model, we have been operating since the 1930s and continue to develop the circular business model from now until the future.

Yeah, so in 2018, 2019, when we were working with our strategy 2025, we were anticipating that the overconsumption of textiles cannot be continuing for a long time. So sooner or later there would be some sort of regulation that would halt the overconsumption of textiles. Today, actually, there are some 100 billion textiles annually produced for the 8 billion inhabitants on planet Earth, meaning that there's an overwhelming amount of textiles being produced. And a few years into our strategy 2025, the EU started to talk about the circular textile strategy, meaning that all the different kinds of textiles that are in the EU area would be repairable, reusable, would have circular material, they would be also recyclable. So in 2018, 2019, we were a bit ahead of the curve when we set ourselves the recycling target that by 2025 we aim to recycle 100% of our end-of-life textiles. Because no textile, no piece of textile, workwear, mat, hotel textile lasts indefinitely. So we also have some waste in our hands, end-of-life textiles in our hands, so we needed to find a solution for that. And for that reason, we set ourselves a recycling target that by 2025 we aim to recycle 100% of our end-of-life textiles. And that target has led us on a very interesting journey where we have been in our different operating countries searching for local recycling partners and finding solutions for the end-of-life workwear or end-of-life hotel textiles. And now it actually looks quite promising that we have also found a solution for our end-of-life mats. So a lot of local partnerships that help us to recycle our end-of-life textiles, and then of course that is precious raw material for the recycling company for the products that they then want to make out of the end-of-life textiles. So that's one thing. And another thing is that we have also increased the recycled material in the products that we then offer to our customers. So our goal for 2025 is also that 30% of the textiles that we purchase and then also rent to our customers would include recycled material or some biobased materials.

We have learned, for example in China, that there might be some issues with social acceptance of recycled materials in textiles that together with our recycling partners we would need to overcome. But this is a topic that we have recognized, and then also we are working toward making the recycled materials in textiles being more acceptable. However, many of our customers in the European markets, they are actually asking for it: 'Do you use virgin materials only, or do you have some sort of recycled content?' And our customers, I think, are very well aware of what kind of environmental burden certain textile fibers might have. So it has been a pleasure to be joining various different customer encounters and talking with them about what could be the different types of materials that we could provide to them that would then also make their operations more sustainable.

Yeah, we talked about the different kinds of materials and what would be the development that would be needed in that front, not only in textiles but also in other types of materials that we are using in our products. Earlier I also mentioned about consumer behavior. So us as consumers, we need to challenge ourselves when it comes to the narrative of owning things. We own a lot of things, and if we think, are we really actively using all the different kinds of products that we have in our closets? If we're talking about clothes or different types of textiles, or for example the different other products that we own, I don't know how often you use a screwdriver from your closet, or could that be something that you actually rent when you need it? So us as consumers, we need to challenge the narrative of owning and consider other ways of getting access to the products when we need it, whether that is by sharing or by leasing. Do you always need to buy a new one? Could you maybe consider buying pre-owned, pre-loved? So that's one thing. The second thing, then, when it comes to different kinds of businesses manufacturing products, is how do we overall design for durability, for example, so that the products would have as long a lifetime as possible? How do we also design for repairability, reusability, recyclability? These kinds of product design principles. Then earlier also mentioned about what is the type of business that a corporation is in. Is the corporation in a business that tries to only sell as much as possible, or is it maybe a combination of selling something and then also providing additional services when it comes to repairing, or possibly even operating with a similar kind of business model than what we are offering? We don't sell, we rent. So it might be also a completely new type of earning logic for businesses. Then if we think of materials development, if we think about recycling, when a product comes to the end of its life cycle, it could be that there are new types of partnerships needed. I mentioned that locally in the different countries where we operate, we have searched for partnerships that help us to reach our recycling goals, but then that's also business for other corporations, as we are able to provide them with the raw material, and that's an important feedstock for their operations. And then I think that the EU is driving forward this change in circularity as well, and we also need a push from the governments so that there would be acceleration toward the circular economy. I think for example France has been doing really well offering incentives to consumers to use more services to repair different kinds of products, and thus we are able to avoid that the products end up in landfill. So I'd say it's many different kinds of things that need to change, from consumer behavior to the way businesses operate, all the way to the different kinds of incentives that governments would be offering.

I think that the biggest challenge is that to make the change, it takes collaboration from many different parties, and of course to get all the different parties on board and jointly start driving the change, I'd say that is the biggest challenge. So just to give you an example, to be able to add more recycled materials to the fabrics that are being used in our textile products, that has required collaboration not only between us and the fabric manufacturers but also of our recycling partners. So it's a multi-party collaboration that needs to take place in order for us to start seeing acceleration toward circularity. It's also a long journey because when we are developing new materials and new fabrics, we can't risk the durability. In our line of business, we operate industrial-scale laundry operations, and the fabrics that we are using in the textile products that we are offering to our customers, we can't sacrifice durability. So we need to test and test and test and continue developing to ensure that the fabrics are really durable, and that increasing the recycled content in the fabric would not sacrifice the lifetime of the garments, because then we would not be making real progress if the fabric would have a shorter lifetime than the fabric made out of virgin materials.

First of all, a circular economy could open up new types of revenue streams. So if we think that in addition to selling products or equipment or whatever it is that the company is doing for business, offering services, for example, in addition to selling the products, that could open up a new type of revenue stream. And we have already seen that change happening several years ago. In addition to companies selling products or equipment, they have actually been able to build really nice service businesses to complement the product or equipment business. That's one thing. Also, if companies would be more taking back the different kinds of products or equipment, refurbishing them, that could then open up journeys to new customer segments, for example customer segments that are maybe more cost-effective or cost-efficient in their mindset and don't necessarily want to buy brand new stuff but could be very happy with owning something secondhand or pre-owned. And that could of course then also open up a new type of revenue stream. Also, if we think of talent attraction and employer brand, at least what we are hearing in job interviews together with recruitment candidates is that people more and more want to work for sustainable businesses. So I'd also say that the change from linear to circular business model is a good talent magnet.

I get my source of inspiration from encounters with fellow sustainability champions. So maybe as a recommendation, reach out to interesting characters working in sustainability, sit down together with them, I don't know, join a podcast or go and have lunch together. That's always a great source of learnings. I was just last week attending a World Net Zero Summit and talking with fellow sustainability leaders from various different industries, from equipment manufacturing to food to logistics. And it was so nice to hear both the similar challenges that other leaders are facing but also the solutions that they have been able to find and could also be applicable to us. So now that we are out of the pandemic, I'm strongly advocating for people again to start meeting one another and learning from one another.

Yeah, I a few times tried to highlight the change that also needs to happen in our mindset, whether we are talking about us as individuals as consumers personally buying something, or of the corporate buyers, the professional purchasing procurement departments. So I would highlight that that is a very critical area. The change in mindset from owning to sharing, from owning to renting, from owning to leasing needs to happen. So you didn't fail to ask it, you were asking what are the big changes that we need to see happening, but often times we focus quite a lot on the materials, recycled materials, recycling, but we don't really talk about the change that needs to happen in our mindsets or in our consumption habits.

Yeah, if I elaborate a bit and if you allow me to maybe provide three lessons for different kinds of listeners that we have online. So the first takeaway for each and every one of us as consumers: please, whenever there is a need to make a purchase, buy something, please consider if you could be buying something that is pre-owned, secondhand, pre-loved, instead of buying something new. Please consider if you could be buying something that already exists or has already been produced in this world. Then a second takeaway for the business decision-makers who are listening: please consider if there would be the possibility to rent or to share or to lease the assets, products that you need, instead of owning them. And thirdly, for all the sustainability champions who are listening: keep on pushing the circular agenda and keep on challenging the existing business models, the linear take-make-use-waste type of business models, so that we with the circular economy are able to mitigate climate change and do good for nature and biodiversity.

I am optimistic because if looking at the different trend research and trend reports that have been published during this year, it actually looks like circular economy has reached a megatrend status. We're not moving yet as fast as we should be moving. So if we also look at the analysis that have been done on circularity, we are less than 10% circular, meaning that over 90% of the different materials that we are using still end up considered as waste, either in landfill or brought to incineration. So we are not taking action as fast as we should be. However, for circular economy having reached a megatrend status, that to me tells that there is a lot more awareness, people are more speaking about it, and I'm hoping that very quickly we would be moving from talking about it to acting on it. We still have a very long road ahead of us, but at least I'm personally taking quite a lot of inspiration and positivity from this conversation.

Thanks a lot, Lora, for the invitation.