UNDRESS – Circularity: Circular business models for electronic products – are they worth it?

Although electronic devices contribute a lot to our lives and greatly simplify things, their impact on the environment is a problem. Electronic waste is one of the fastest growing waste streams. Many devices that are discarded indeed never reach their actual end of life.

Circular business models have the potential to stem this trend. However, whether services such as refurbishing or leasing actually have a positive impact on the environmental impact of electrical appliances cannot yet be answered with any certainty with the data that is currently available.

The aim of the UNDRESS – Circularity project is to evaluate this data and get better pointers for evaluating future circular business models. The project examines how consumers use their products and attempts an answer to the question of whether these models lead to a longer service life of devices – and thus to greater sustainability.

Circular business models are becoming more and more common these days. When it comes to electronic products such as smartphones or tablets, many people rely on certain strategies when making their purchase.

The term »circular business models« refers to economic strategies that are based on the principles of the circular economy. Product lifecycles are designed in such a way that as many components and materials as possible can be recovered and recycled at the end of their working life. In the case of electronic devices, some of the most common examples are »refurbishment« – preparing appliances for being used again -, second-hand sales or »leasing« – the renting of new appliances for a limited period of time.

Of these business models, refurbishment, second-hand sales, and leasing are particularly popular with consumers. Increasing environmental awareness is a reason for many to make this decision – discarded electronics are one of the fastest growing types of waste, which could rise to 120 million tons per year by 2050.

Whether circular business models can really counteract this trend, however, remains unanswered as a result of the limited current data.

As the name suggests, the UNDRESS – Circularity project dares to life the veil. The project aims to analyze the practical potential of circular business models by collecting and evaluating data directly from the companies involved in these business models. Instead of just discussing theoretical concepts, the researchers use real figures about repair rates, rental periods, etc. to find out whether these models actually extend the working lives of devices in the real world.

In order to learn more about circular business models and get a precise overview of the data landscape, the researchers of the UDDRESS – Circularity project came together with various associated partners in dedicated workshops. | © Circularity EV.

Data analysis made difficult by complex, interlinked company processes

The project uses a combination of market surveys and data collected from partner companies to generate the most meaningful statistics possible. The researchers focused on four product groups: smartphones, laptops, cameras, and games consoles. They are investigating how these devices are used and managed.

»One challenge we encountered during data collection,« explains Dr.-Ing. Marina Proske, head of the Life Cycle Modeling group in the Environmental & Reliability Engineering department at Fraunhofer IZM, »is that many companies do not collect all the relevant data or actually have it within reach. In addition, our analysis is made more difficult by the fact that many processes do not exist independently of each other. Many companies work closely together, and models get blurred.«

Circular does not always mean sustainable

A central point of the project is the realization that circular business models are not automatically more sustainable. For example, frequent refurbishment or long transport of devices can lead to a worse ecological footprint than buying new appliances, as this also generates greenhouse gases and consumes other raw materials.

At the same time, not all circular business models actually lead to longer use. In the worst case, they can even make consumers replace devices sooner, because access is easier and the financial commitment is lower.

Different markets and customer groups may also have different requirements for circular business models.

»In the first report, the Circularity Report ›From Consumer Insight to Circular Impact Market Report of Circular Business Models in the Electronics Market in Germany‹, we therefore made a distinction between business-to-consumer (B2C) and business-to-business (B2B). The results not only gave us an insight into user behavior, but also provided initial indications for the eventual Industry Report. This will be published at the end of the project and will contain key findings as well as evaluation tools and guidelines for circular business models,« Proske goes on to explain.

For the business-to-consumer (B2C) and business-to-business (B2B) markets, the data collection results in different focal points and findings.

Business-to-Consumer

• Adoption: 20% of consumers have already purchased a used device, while only 1% would rent devices. One reason for the low proportion of rental models is that many consumers prefer to own their device.
• Sustainability awareness: Sustainability-conscious consumers are the main drivers of the second-hand market.
• Purchase criteria: Price, warranties, and convenience are decisive factors in purchasing decisions.
• Potential: Selling old appliances (23%) instead of keeping them stored away as back-ups (21%) is also an increasingly utilized option. This is interesting for circular business models, as it could boost returns and thus extend the lifespan of devices.

One aspect that can have both negative and positive effects is that around 42% of buyers of second-hand appliances buy their appliances second-hand, but also replace them more quickly. The exact environmental impact behind this is an aspect that needs to be investigated in more detail in future.

Business-to-business

• Adoption: 30% of companies buy used equipment and 11% use rental models.
• Sustainability awareness: For large companies, sustainability is the most important criterion when purchasing IT equipment.
• Purchase criteria: Flexibility – meaning the ability to quickly replace devices and access the latest software – is the most important criterion at 60%.
• Potential: Most companies (70%) recycle their unused devices, but a significant proportion (60%) store away smartphones and laptops. A better strategy for reusing devices from business pools would offer great potential for extending the working lives of devices.

One of the biggest obstacles to the use of second-hand goods within companies is that companies often need many devices in the same condition at the same time. Quality concerns and limited flexibility therefore often prevent companies from using second-hand devices.

Questioning user behavior: innovative approaches for circular models

»The most important conclusion we have drawn from the project at this stage is: It is important to use devices for as long as possible. Smartphones and tablets are often used continuously on a very individual basis. However, for less frequently used devices, such as cameras or games consoles, circular models could be more promising. A model that is suitable for every type of user behavior will be difficult to realize. But with our environmental analysis, we can provide companies with a tool that will enable them to analyze and improve their own business strategies more precisely in the future.«

UNDRESS – Circularity is in the final phase of the project. In addition to the Circularity Report, an Industry Report will be produced by March 2025, which will compile all the data collected and use it to draft guidelines.

»For me, UNDRESS – Circularity has shown how complex the world of circular business models is. The project encourages us to question our own usage habits and consider innovative approaches for the future. The results could be of great interest not only to companies, but also to consumers who are considering sustainable alternatives.«

UNDRESS – Circularity is a project of the Circularity EV. in cooperation with Fraunhofer IZM and SYSTEMIQ. The project investigates the actual potential of circular business models by collecting and evaluating company data to find out whether these models lead to a longer useful life of devices.

Project management: Circularity EV

Partner Project management: Fraunhofer IZM; SYSTEMIQ

Stakeholders involved: Energy Impact Partners; Circularity Capital; ETH Zurich; DIN; WWF; cep circular electronics partnership

Industry partners: rebuy, GROVER, Vodafone; Assurant; RLG; fixfirst; INGRAM; everphone; Foxway; re!commerce GROUP; Telekom; circulee

Strategic partners: DBU German Federal Environmental Foundation; Deloitte.

Funding: DBU Deutsche Bundesstiftung Umwelt & associated partners

Funding reference: SMAC-AZ 38989/01

Sources:

Circularity Report »From Consumer Insight to Circular Impact Market Report of Circular Business Models in the Electronics Market in Germany«