The transition to circular bioeconomy represents a big step for companies. Although there are many potential benefits for SMEs adopting circular business models, high initial investment and possible trade offs can represent a substantial barrier. Companies need a clear overview and guidance to be able to move towards sustainable business models while practicing the circular bioeconomy.
At Anteja, we conducted a series of interviews with the representatives of clusters to evaluate their role in the transition towards circular bioeconomy and their perspective on the issues of circularity and sustainability in bioeconomy. Our findings cover how clusters are engaged and perceive their own role in this transition, their views on the biggest sustainability drivers, market demand and company engagement. We highlight the challenges and potential of the transition.
Clusters as Players in the Circular Bioeconomy
Clusters are designed to provide a neutral environment for collaboration between private enterprises, public stakeholders, investors, and knowledge institutions, creating innovation and business opportunities. To overcome the complexities and barriers that come with implementing innovative circular economy solutions, clusters can help by assisting companies and leading the way.1 Therefore, they can play a vital role in the transition towards a circular bioeconomy.
Clusters from our study are significantly involved with companies’ interests in issues of sustainability and circularity, and are therefore aware of the problems and challenges companies face in this transition. Clusters are a valuable source of regional and sectoral interests of their members. Cluster organisations function as a catalyst for these interests, and can provide a broader outlook on the state of industries as a whole. They are thus able to focus on and assess the strategic implications this transition implies for industries and specific sectors.
Clusters play an active role in transition by encouraging cooperation
One of the main questions was how clusters perceive their role in this transition. The majority of clusters stated they have an active role, but that the level of engagement was still comparatively low. Their main engagement proved to be rising awareness about circular economy and sustainability issues, but they felt limited in ability to progress from this level and develop a consecutive strategy on how to actually accelerate this transition. It was pointed out that the core issue is the discrepancy between the circular economy and bioeconomy, as the linkages between these two topics are still developing (as well as definitions).
The potential important role of clusters is the ability to encourage cooperation. Especially in the comparatively small industry clusters, encouraging cooperation between companies helps to build the core structure for initiation of sustainable business development. Clusters, regardless of the development state, show the ability and motivation to upgrade the current level of support they offer. They acknowledge the importance of circularity and sustainability, and their part in the process.
Clusters’ perspective on sustainability drivers
Sustainability issues are preferably dealt with at the company level
Sustainability has become one of the core issues for businesses. Even though clusters are still dealing with a variety of other topics, the importance of sustainability is rising. Though many interview partners stated they don’t deal with sustainability on a day to day basis, they still reported a shift in the conversation around sustainability in their sector. While a few years ago sustainability was to many only an abstract concept, mostly discussed in policy forums hosted by the EU or a pressure point for large corporations, companies are now getting more concerned on how to deal with this issue.
A largest driver for SMEs is market demand, facilitating a bottom-up push for sustainability. Consumers’ preference is moving towards ‘greener’ products, which pushes businesses towards circular bioeconomy. SMEs have to satisfy customers’ needs to stay in the market, so they increasingly feel pressured to develop sustainability initiatives, thus looking for strategic ways of how to develop their business strategies, and communicating this transition to their customers. As examples of good practices, clusters highlighted sectors of food and agriculture, forestry and energy.
Burning question is where to start
One of the key challenges companies are facing is finding out where to start. The missing guidance on issues like sustainability and the circular economy from the government seems to be the most important issue that affects the capability of clusters to aid in this transition. The lack of funding and resources is another problem. A special struggle with companies’ transition is that it requires them to reassess their whole business model and production processes. They are also lacking finances for the investments needed for the transition. To be able to move forward, they need help to understand the changes they have to make. From a cluster perspective, the industry support for such a transition is still too scarce.
Many companies are only at the very beginning of their sustainability journey. The topic of a circular bioeconomy is unfamiliar for many SMEs, and its implications have not yet gained a lot of understanding. Many SMEs use certificates as a way of authenticating their sustainability or have some sustainability initiatives in place, but do not have the resources or time to assess their business models for changes. Supporting joint efforts to create sustainable innovative solutions is therefore the basis for a change – and that’s where the clusters can step in.
Potential for change
The interviewed clusters saw the highest potential for sustainable development in the enhanced transparency and collaboration between companies. That way, valuable knowledge could be exchanged in the process, and companies would have a better understanding of what to do and where to start. The journey to achieve a shift in the mindset might take some time before the sectors will see transparency as an opportunity rather than competitive risk.
Does being sustainable pay off for SMEs?
From the value chain perspective, clusters have pointed out that change will most likely start with research and development activities to find innovative solutions for existing problems. They also largely agreed that to facilitate impactful change, production processes will have to change in the long term. These changes could reduce profitability, especially in the short term.
This perspective shines a critical light on the question if the transition could be profitable for companies. Many participants in the interviews agreed that the needed investments to become more sustainable could become long term gains. But in the short term, especially in industries with low margins on their products, financial support from governments and institutions is needed to help companies to compensate the initial decrease in profit.
Problems with reporting
Another challenge that clusters pointed out was sustainability reporting. Regulatory efforts to push companies to set up sustainability reports and strategies are largely limited to large corporations. SMEs are in most cases not able to manage the burden a sustainability report creates for a company. But as there is no regulatory pressure, there is also no guidance for SMEs on how to collect or present any sustainability data they might have. Right now there are no standardised ways in which SMEs could present the initiatives or data sets they may have. While they are sometimes able to comply with more general sustainability reporting guidelines such as the UN-SDGs, many are left stranded.
Interviewed clusters agreed that the level of knowledge about sustainability reporting was extremely low among their members, and that one of the ways they reported sustainable information was through acquiring certificates. Adequately representing sustainability data is a core issue, especially in a market where the demand for ‘greener’ products is rising. SMEs should not lose their market shares to bigger companies, simply because they are not able to show the efforts they are making.
Challenges and hurdles in bioeconomy sector
In the interviews performed by Stegman et al. (2020)2, clusters’ representatives pinpointed the impeding policies and regulations. For example, the classification of a material as waste often limits its further use. The small market share of bio-based products and higher costs compared to linear business cases were mentioned as challenges as well. Less pronounced hurdles in the interview were the traceability of materials throughout the value chain, technological challenges and issues with recycling composites. Only a few clusters stressed the importance of inconsistent waste management practices in the EU, rejection of bio-based products in recycling systems, unstable supply of waste and residues, and lack of funding.
It has been pointed out by Stegman et al. (2020)2 overview, that practitioners in bioeconomy clusters can support the development towards a circular bioeconmy by (1) facilitating cooperation between stakeholders along and across supply chains; (2) fostering bio-based product design that facilitates durability, reuse, repair, recycling or biodegradability; (3) fostering the use of residues and wastes valorisation as resource; (4) intensifying the cooperation with the waste management sector to ensure that the bio-based products can be integrated in collection, separation, recycling and composting schemes.
The article was written by Dr. Maja Berden-Zrimec, Researcher and Content Writer at Anteja. The presented interview findings were analysed and summarised by Clara Panse.
Sources and further reading
- Nielsen K., Nielsen M.D. (2019): Clusters in the Circular Economy: Building Partnerships for Sustainable Transition of SMEs. Cluster Excellence Denmark.
- Stegman P., Londo M., Junginger M. 2020: The circular bioeconomy: Its elements and role in European bioeconomy clusters. Resources, Conservation & Recycling 6: 100029; https://doi.org/10.1016/j.rcrx.2019.100029