Post written by Dr Nadia Millington, Associate Professor (Education) in the Department of Management at the London School of Economics and Political Science, who specialises in sustainable social business design and scaling, open innovation and business strategy consulting, and Franziska Golenhofen, an LSE alum of the Masters in Social Innovation and Entrepreneurship (2019) and Senior Sustainability Solutions Manager at Visa.
The natural world thrives on cycles. But in our modern world, a far more linear system dominates; we take, we make, we discard – thereby depleting resources, polluting ecosystems and destabilising our climate. The circular economy (CE), pioneered by sustainability champion Walter Stahel in 1976, offers a vital solution. It builds a regenerative closed-loop system that maintains the value of materials for as long as possible, using practices such as reducing, repairing, reusing, recycling, and recovering.
Despite estimates that embracing circularity can generate a whopping €1.8 trillion per year for businesses by 2030 in Europe alone, global circularity rates have actually declined by 21 per cent in the last five years. This signals a worrying increase in extraction and waste generation with disastrous consequences for those living in regions that are most vulnerable to the climate crisis.
To understand this troubling trend, we combined extensive desk research and expert interviews in order to investigate what hinders progress towards circularity in large global firms. Beyond operational and logistical hurdles, our research has revealed that leadership is often constrained by ‘mindset traps’, which remain largely unexplored in the current literature.
Mindset traps can be defined as cognitive barriers that prevent leaders from seeing the full potential of a circular economy and from taking the necessary steps to implement responsible change. Similar to the fear of failure in innovation, CE mindset traps act like mist on sunglasses, blurring effective decision-making on critical issues, such as how to allocate resources, design and dispose of products, and transform business models. In this article, we discuss three key mindset traps: strategic short-termism, paralysis, and fear of public backlash. Our premise is simple: if leaders can recognise how certain ways of thinking are slowing CE progress, they can begin to address these and play a greater role in getting global circularity back on track.
Mindset trap 1 – Strategic short-termism
Many leaders think that they can treat Circular Economy (CE) like any other strategy. They set ambitious net-zero targets and develop implementation plans in three-to-five-year cycles. Sounds good, right? Well, not exactly! Paradoxical though it may sound, this common strategic planning approach which rewards achievement of short- to medium-term performance, motivates leaders to support less risky projects over the bolder, longer-term bets required to prioritise placing nature on the balance sheet. Moreover, shifting leadership priorities or economic downturn can lead to CE strategies being orphaned in powerless departments or abandoned for more certain returns on investment.
The solution to this trap is to reframe CE as a core organisational value, rather than a transient strategic initiative. As CE expert Helen Trehin states “You don’t do CE. You live, contribute and benefit from a CE”, indicating that a resilient, circular economy is inseparable from the operations of any company. Leaders therefore need to challenge their board and rally shareholders to make CE part of the company’s DNA in order to build long term appetite and commitment within the firm. Our analysis indicates that this seemingly small change from strategy to value correlates highly with a company’s green credentials. We found that 75 per cent of the top performing companies in the 2024 Corporate Climate Responsibility report have CE as a core organisational value. This includes companies at the top of their game such as Nike, Danone, and Apple. In contrast, companies with lower scores for climate responsibility are 3.7 times less likely to have environmental sustainability as an enduring value.
Mindset trap 2 – Paralysis
Some leaders become utterly paralysed by the thought of CE. Unfamiliar concepts and perceived complexities fuel misconceptions that transitioning to CE is too expensive, too risky and too difficult to optimise. Faced with these perceptions of insurmountable odds, leaders often hesitate to invest in CE and default to more familiar linear ‘take-make-waste’ solutions. Consider the case of an executive within a listed multinational company, who felt too uncomfortable to champion an end-of-life recycling system because the cost seemed overly prohibitive. Yet, the proposed change, which represented a less than 0.1 per cent increase in the per unit cost, could have been easily passed on to customers.
To address this trap, leaders need to reframe the cost narrative. Instead of focusing primarily on the financial investment which can be paralysing, consider the cost of inaction also. For instance, it certainly costs less to approve viable business cases which contribute to global carbon reduction targets now, rather than to deal with the escalating costs associated with a 2°C rise in temperature in the future.
Building a more robust narrative about the added value of CE is also equally important. This shift is not always instinctive. Ask any executive and chances are that they can readily quote the value of Amazon Inc. but will struggle to estimate the value of the Amazon rainforest unless it shows up on a ledger. Yet, Dr Manuel Braun, Director at Systemiq, highlights how “CE generates credible business value in the form of multiple benefits that have secondary effects on profitability. A circular, more resilient value chain can reduce the financial risks of environmental harm or disrupted supply chains. Circular business models can also increase customer loyalty and brand value.”
Ultimately, breaking free from the paralysis mindset trap is about combating a lack of knowledge or belief in CE’s potential. As Dr Marianne Kuhlmann, Co-Founder of Circularity, reminds us “In order to do something different, you have to first believe it is possible.” This can be achieved by shining a light on impactful and scaled solutions that already exist today. Companies such as Phillips, which has shifted from selling light bulbs to providing lighting as a service, embedding return and recycling of products into their business model, are a great case study to start restoring CE ambition.
Mindset trap 3 – Fear of public backlash
Some leaders shy away from radical CE initiatives due to fear of backlash associated with publicising success. Surprisingly, this fear isn’t entirely unfounded. Across fashion, banking, and retail, there are numerous examples where companies faced harsh criticism of their sustainability initiatives. This fear can lead to risk aversion! It makes leaders reluctant to take bold steps, worried about gambling their careers or compensation on ambitious green projects. Some even choose to avoid publicising their accomplishments altogether, a practice known as “green hushing.”
To break free from this trap, leaders need to dial up the firm’s transparency to decrease the likelihood of negative scrutiny or attention. Pranshu Singhal, Founder Karo Sambhav, states that “all too often successes are promoted, without telling the whole story of what the organisation does when no one is watching”. To combat this tendency, leaders should kickstart a flywheel of actions that demand a more holistic, and quantifiable approach to proving CE success. They should also pay special attention to differentiating between genuine accomplishments and mere mitigation of negative impacts. A genuine accomplishment advances a firm’s green credentials, for example: increasing the use of secondary materials, while corrective actions merely address past shortcomings.
Finally, we recommend approaching CE as a marathon not a sprint, so that the fear of backlash does not derail ambitions. Our research shows that 75 per cent of the top green performers in the 2024 Corporate Climate Responsibility report, at one time or another, have faced backlash in the press for elements of their CE work. Key learnings from their journey include being prepared to re-group, take corrective action, and embrace opportunities to move forward.
Conclusion
The journey towards circularity demands an open conversation about overcoming mindset traps. Traps act as chokeholds on genuine circular transformation because thinking precedes doing. While leaders can never fully escape their mindset traps, by interrogating whether they are stuck in a strategy, paralysis, or fear of backlash trap, leaders can better recognise the mental patterns that hinder circularity progress.
The time to act is now. As economist Kenneth Boulding reminds us, the economy is a fully owned subsidiary of the environment. It is to our benefit to protect it!
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