The circular economy rethinks the economic model that we, as consumers and businesses, operate under today. It is a proposed solution to many of the issues driving climate change, to reducing emissions of greenhouse gases and resource usage[i]. The European Commission estimates the adoption of legislations contained in its 2015 Circular Economy Package could avoid 600 million tonnes of CO2 equivalent emissions by 2035[ii]. The goal of the circular economy, instead of minimising the flow of materials from cradle-to-grave (i.e. the product use cycle), is to create ‘cradle-to-cradle’ systems whereby materials are re-used across multiple cycles, accumulating intelligence or being upcycled[iii] (Appendix 1).
Mattel, a global producer of popular children’s toys, is increasingly facing the need to ‘circularise’ its operations and reduce its footprint in light of climate change. Plastic, an oil based product, is one of the most common component materials in Mattel’s products. In Europe, it was identified that less than 25% of collected plastic waste is recycled and 50% goes to landfill. Given this, the EU has made plastics a priority in its Action Plan for the Circular Economy[iv], and Scotland has mandated that no more than 5% of waste can go to landfill[v]. Mattel additionally faces pressures outside the regulatory environment. Greenpeace attacked Mattel in a high profile video media campaign (click link for video) for its participation in rainforest deforestation[vi]. Mattel must respond to this call for action and look for ways to increase its circularity, which will have significant effects on its operating model.
To respond, Mattel must focus on three priority areas:
- Improve the environmental performance of its production and distribution operations (increased efficiency, increased use of renewable energy, reduced waste);
- Increase use of sustainable materials as inputs and reduce volume of materials in products;
- Identify opportunities to increase end of life recycling, and encourage re-use or up-cycling
By pro-actively addressing these priorities, Mattel will benefit from the cost savings of sustainable investments. It will be positioned to shape future plastics regulations for toy producers. Finally, Mattel will have a new way to engage with its consumers, new product lines may develop, and its reputation will be preserved. These opportunities reverse to become risks if Mattel does not respond to the call for action. Perhaps most importantly, Mattel could lose its ‘license to operate’ as a business if it delays action and later cannot innovate in time to find sustainable alternatives to plastics to respond to regulations.
Mattel is taking some steps in the right direction. Three supply chain SPIs (Sustainable Performance Indicators) have been introduced and investment made in new manufacturing equipment, better managerial practices and maintenance such that since 2008, energy consumption per unit of sales has reduced 44%, water usage has reduced by 59% and waste generation by 36%[vii].
In addition, Mattel has directly begun to address the sustainability of their products. Between 2011-14, Mattel increased the efficiency of its packaging by ~16%, and increased sales of products that incorporate environmental enhancement through innovation to $32mn between 2012-14, thereby meeting their 2015 goals[viii]. In response to the Greenpeace campaign, Mattel has also introduced sustainable sourcing principles.
Whilst Mattel has made some progress against priorities (1) and (2) outlined, it has failed to address (3), and its goals across the board are insubstantial. Mattel’s sustainability charts (see Exhibit 1) clearly indicate that using normalised measures is insufficient, as carbon emissions, energy usage and waste have all increased over time. Similarly, the achievement of $32mn of products incorporating environmental enhancement is in the context of $5.7bn in annual sales[ix]. Mattel must do more.
Exhibit 1: Outcomes of Mattel’s existing sustainability initiatives
First, Mattel needs to increase the amount of renewable energy used in their production and distribution. Next and critically, Mattel must explore ways to replace the plastic in their products with sustainable materials. This presents a challenge as toy-makers face a double bind: they have to comply with more stringent materials regulations for children, and resolve the issue that most bio-based alternatives do not possess the exact properties desirable for toy production (e.g. colouring, durability). However, as evidenced by Coca-Cola’s 100% PET based bottle[x], it is possible to identify working alternatives. This belief is echoed by LEGO, Mattel’s primary competitor, through their investment in a Sustainable Materials Centre to research and develop alternatives to petroleum-based materials[xi]. Finally, Mattel must explore ways to increase re-use at the end of life of their products, as well as collection mechanisms to increase recycling.
These actions will have effects on Mattel’s operating model. However, by making this investment, Mattel will upholding its role as a corporate citizen, it will be playing by the rules of a new sustainable world.
Appendix 1: Model of a Circular Economy
[i] European Commission, (2015), Closing the Loop – An EU action plan for the Circular Economy, <http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0614>
[ii] Bourguignon, D. (2016), European Parliament Briefing: Closing the Loop – New Circular Economy Package, Members Research Service, <http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/573899/EPRS_BRI(2016)573899_EN.pdf>
[iii] Ellen MacArthur Foundation, (2012), Efficiency vs Effectiveness, <https://www.ellenmacarthurfoundation.org/circular-economy/interactive-diagram/efficiency-vs-effectiveness>
[iv] European Commission, (2015), Closing the Loop – An EU action plan for the Circular Economy, <http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52015DC0614>
[vi] Greenpeace, Stop Destroying Rainforests for Toy Packaging – Ken leaving Barbie, <http://www.greenpeace.org/international/en/campaigns/forests/asia-pacific/barbie/>
[vii] Mattel, Citizenship – Responsible Supply Chain, <http://citizenship.mattel.com/responsible-supply-chain/>
[x] Coca-Cola Company, (2012), PlantBottle: Frequently Asked Questions, <http://www.coca-colacompany.com/stories/plantbottle-frequently-asked-questions>
[xi] LEGO Group, (2015), Lego Group to Invest 1 Bn DKK Boosting Search for Sustainable Materials, <https://www.lego.com/en-us/aboutus/news-room/2015/june/sustainable-materials-centre>