Why behavioural insights is the new best friend of circular economy

Since the industrial revolution, the economy has been operating with a linear, take-make-waste approach. However, it is time to rethink the ways we produce and consume goods. Part of the solution could be the transition to a circular economy and its approach: take, make, reduce and reuse. But, as with all change, we need to consider the people aspect.

While companies and governments might be successful in driving for instance decarbonisation across certain sectors by innovation or regulation alone, the sustainability benefits from circular economy are absolutely dependant on how people - the consumers - behave.

Circular business models will not succeed without an obsession-like interest in consumers’ needs, practices, non-practises and all the things that drive and influence ‘circular behaviours’. Such behavioural insights – lessons derived from behavioural economics and psychology - are valuable for companies aiming to further develop their circular business models, or for companies who have just started. Think about behavioural insights as circular economy’s new best friend.

Circular value creation is a business opportunity

But why circular in the first place? According to the World Economic Forum, the circular economy represents a $4,5 trillion business opportunity until 2030. And one might say that if your company is not circular, it is not fully sustainable.

The transition to a circular economy is one of the EU Taxonomy’s six environmental objectives and disclosure of all objectives will be mandatory for the fiscal year of 2022, for companies that fall under the Non-Financial Reporting Directive, large public-interest companies with more than 500 employees.

In a previous article, Ramboll listed five reasons why it is best for businesses to proactively align with the Taxonomy. In addition to the Taxonomy, the upcoming Corporate Sustainability Reporting Directive, which will be compulsory even for SME companies, will include a reporting standard for resource use and a circular economy. Going circular can provide an opportunity for value creation and subsequent value capture. Yet today, most companies remain linear, keeping with a value chain that is leaking value.

To avoid becoming the Kodak of the 2020s by failing to adapt to a changing environment, companies need to ensure they have the right tools at hand to make this transition. One of these tools is behavioural insights.

Consumers want to consume sustainably but fail to do so

The motivation for a sustainable transition is high amongst consumers. A sustainability report in 2021, covering 12 markets in Europe, revealed that 92% of people want to live a sustainable life, but only 16% are actively changing their behaviours. This implies that their strong motivation does not match their reality. Common barriers upholding this intention-action gap are cost, inconvenience, and difficulty finding more sustainable consumer options.

Examples of circular consumption practices are to repair products and lease new products instead of buying them. A study showed that 77% of Europeans would like to repair broken products, but 45% do not ask about repair options, when purchasing. Likewise for leasing, 25% of Europeans are willing to lease certain electronic products, however, only 1% have ever done it.

Behavioural insights can help bridge the intention-action gap and enable circular business models.

Business is about generating value through solving consumers’ problems and fulfilling their needs and desires. Companies can gain financially from enabling sustainable consumption, by providing circular products and services as well as helping consumers bridge the intention-action gap.

To do so, companies need to gain a deeper understanding of consumer behaviour and design circular business models that consumers will adopt. Behavioural insights are lessons derived from areas such as behavioural economics and psychology, making them valuable tools in this endeavour. Such an insight makes you focus on what drives the behaviour you want to influence – which helps you understand what you can do to change or optimise things for the better.

Decades of research and empirical testing have shown that the way people behave is surprisingly often influenced by systematic biases, which can prevent us from translating our intentions to actual behaviour. For instance, consumers might have wrong beliefs about the effort required in fixing a broken item. This is one of the reasons why consumers will need help changing their consumption habits in a transition from linear to circular consumption.

Example: Sustainable consumption amongst young people

The ‘Right to repair’ is a prime example of cross-national and national bodies pushing for change via new acts or laws. But small nudges and clever use of behavioural insights might also play its part – which if scaled widely may be substantial. Consider this example for instance:

A study conducted by The Nordic Council showed that the use of behavioural insights might potentially have a major effect on sustainable consumption of mobile phones amongst young people. By making the option of repairing a product the default choice (a classic nudge) in the experiment, 87% of young consumers chose reparation over buying new phones, compared to 67% in the control group.

Clearly, small changes in the choice environment can have a substantial effect on consumer behaviour. Such insights are valuable in the design and implementation of circular business models.

What to think about

Even if both circular economy, circular business models and behavioural insights are big topics in their own right, here are a few things to consider at the early stage of product development and communication tactics:

Regardless of approach, make sure to test and learn. Both from a prototype and a communications point-of-view. Currently, companies are obsessed about big data but in these cases look for ‘small data’ too. That is the small nuggets of insights from observing usages or really scrutinising real-life-barriers to usage. This will likely give a boost of energy to further test and improve. Which funnily enough makes for an iterative, circular process inside your company…

Need help?

Helping sustainability-driven consumers translate their intentions into actions can generate trust and increase brand loyalty. We use behavioural insights to help companies understand and influence consumer behaviour in favour of consumers and businesses. Contact us to learn more about our services in this area.

Ideas for relevant reading:

Parajuly, Keshav & Fitzpatrick, Colin & Muldoon, Orla & Kuehr, Ruediger. (2020). Behavioural change for the circular economy: A review with focus on electronic waste management in the EU and European Sustainability Reporting standard E5 for resource use and circular economy