Discovering forgotten value from the circular economy

A discussion with Timo Huhtamäki and Kati Pallasaho

To achieve value from the circular economy, we need to move away from the traditional linear approach and adopt a completely new way of thinking. This means understanding and recovering the value of every resource, both during production and after a product has been used. This strategic approach is called value retention. The discussion below explores this concept with Timo Huhtamäki, EU climate ambassador and Entrepreneur at Emmy Clothing Company, and Kati Pallasaho, Senior VP of Strategy and Sustainability at Lindström.

What is important to understand about “value retention”?

Timo: The old economic system is very linear in nature. By switching to a circular economy, we reveal the hidden value loops surrounded by value retention markets. A 2022 study by Barclays estimates that around 49,000 jobs and £7 billion (over €8 billion) were added to the UK economy through the growth of secondhand markets and consumer durables. 

Kati: A range of supporting services services are needed to retain value from materials. One example is the sharing economy via textile rental or car-sharing platforms. Another is care and refurbishment services to keep materials and products in the value loop for longer. At Lindström, we offer textiles as a service, renting textiles to customers and providing all the related services required, thus getting value from the circular economy. 

What signals the growth of the value retention economy?

Timo: There is the growth of supporting technological infrastructure through the data economy. Software platforms are evolving, like in the case of Reflaunt. This luxury brand reseller uses data to create a digital fingerprint for each item so that it can be resold again and again. Another is Circuly, which offers a digital operating system for rental or subscription business models in the circular economy. More established companies like Ikea have introduced a Circular Hub for reselling used items. 

Kati: There are also regulatory signals, at both the national and EU levels, seeking to accelerate the value retention economy. Regulation is both incentivising shifts to new models and prohibiting harmful business practices. If we look at the clothing industry, we can see that secondhand is gaining market share, particularly with the younger generations. A study from Global Data Research Agency shows that 64% of GenZ start their purchasing plans from secondary markets.

What else is the EU implementing to drive the circular economy?

Timo: Many things are happening. The EU’s textile strategy, which strongly promotes the circular economy, is significantly increasing the material remaining in circulation. The ecodesign and ‘right to repair’ directives help increase product design flexibility, making them repairable and reuseable and supporting the shift to a new economic model. 

What is still lacking are economic tax initiatives, such as the removal of double taxation, so consumers don’t pay another round of VAT on pre-owned products. These internal market mechanisms are essential to creating a single market for the circular economy.

Kati: It’s surprising we are still missing these incentives, given that the EU is pushing companies with regard to regulation. Also, the only way to become less dependent on raw materials that we can not produce in the EU is to ramp up value retention through the circular economy. 

What is the role and importance of data in the drive toward a circular economy?

Kati: Data plays a major role in balancing demand and supply, making sure that different marketplaces know which items are top-sellers and ensuring availability. In the future, we need more data on the lifetime of the products, their content, how they have been used and repaired, etc. There is a regularity push to this kind of world with digital product passports but it’s still unclear how that will be digitally executed and what content will be included. 

Timo: Dormant capital is a synonym for capital that is leaking from the supply side of a business. It is items sitting in people’s closets or any raw material that is wasted in the production process and simply written off the books. This is where data comes in. If you want to create a market for the circular economy from dormant capital then access to this has to be through the cloud. If it’s available in Europe then the market is significantly larger. Put simply – there is no circular economy without a data economy!

What else is affecting the drive towards value retention?

Kati: Active warzones around the world show how fragile global supply chains are. In addition, climate change will affect a farmer’s ability to grow crops, such as virgin cotton, leading to an impact on price and longevity. One scientific study concluded that marketing is the biggest contributor to climate change because it fuels consumption, appealing to our emotions and fueling the fear of missing out. However, marketing could also help to significantly accelerate the move to value retention.

Timo: The many defence mechanisms of linear systems will also impact economic growth. Supply chains, for example, which include IT infrastructure, ERP systems, warehousing automation systems, etc., are all optimised for linear use and are not easy to change. Any company reliant on volume over quality and durability will lose out in the circular future. 

Any final thoughts on the shift to a circular economy?

Timo: What is important to understand is that we need to imagine the world through value retention markets. Companies and industries need to realise that this requires major structural adaptation and changes to our habits and thought patterns. 

Kati: We want to spark the desire in other companies to think about the strategic transformation that their business really needs to go through. We want them to rethink their whole business model and ask themselves what is the future source of value creation? It’s a long journey but it’s better to start now. 

We offer circular and easy-to-use textile services.

What we do.