A practical toolkit for Product-as-a-Service models
Today Sustainable Finance Lab, Circle Economy, Fairphone, PGGM, ING, ABN AMRO, NBA, Allen & Overy, and Circularise, have teamed up within a Community of Practice and launch the report The Circular Phone that provides practical answers to common financing pitfalls for circular businesses, using Fairphone as the real-life example. All learnings and contract templates created during the project are now available open-source and ready for other companies to apply to their products.
Shifting ownership to design better products
While the circular economy is gaining momentum all across the world, the urgency to actually implement circular business models remains a challenge. One of the most promising ideas to bring circularity to life, is the “Product-as-a-Service” models. They focus on use and service, rather than on the product itself. To help propel businesses in their journey to implement circular business models these frontrunning companies and organisations have teamed up within the Community of Practise to solve the barriers encountered by these companies.
This report will give companies the tools to jumpstart and run their circular business, especially those, that have built models of retaining ownership of their products. This incentivises companies to create high-quality and durable products, while customers enjoy the performance of a product without the hassle. So far, businesses striving to implement “Product-as-a-Service” models have had the challenge of reconciling the need to find financing parties with the complexities of their own business model.
The difficulty in finding financing for “Product-as-a-Service” models
It has proven to be very challenging to create a financial model for complex “Products-as-a-Service” models. This is especially true when the product involved has components that can be cycled infinitely, because current reporting tools are not equipped to deal with this circular way of thinking. Businesses often lack the expertise to provide financiers with the financial impact of their circular business model, leaving them unable to convince financiers of its soundness. The lack of a proof of concept of the business model leaves difficulties for financiers four sound decision making.
The work with Fairphone is going in depth into the challenges the transition to a circular economy poses. All experts of this Community of Practice have contributed energy and knowledge to solve a concrete problem at hand. We use this to build open source tools – for example a first circular service contract – that can be used to all those interested to implement and scale their circular impact.
– Harald Friedl, CEO Circle Economy
A Circular Fairphone Service for Companies
This report highlights the learnings generated during a six month project with the Amsterdam based company Fairphone, known for its ethical sourcing and circular practices, as the real-life example.
Fairphone 2 was a breakthrough in the industry for circular product design; its modularity provided ease of repair and upgradability. But a real transition to the circular economy requires new business models that detach profit from the use of resources. With Fairphone-as-a-Service, we are taking a new and exciting step in our journey to change the industry.
The First Circular Service Contract & Cash Flow Tool
To achieve a financeable model for the Circular Fairphone Service, the Community of Practice created a blueprint for Fairphone’s business model. Through the creation of a legal template – a 1st Circular Service Contract- and a financial cash flow tool, the group has proven that the gap between the businesses and financiers can be bridged. One of the other concrete and practical outcomes was a 5-year cash flow projection that enables financiers to assess the benefits and risks of their investment.
Fairphone is currently exploring opportunities to start a pilot project to offer the world’s first Circular Fairphone Service for companies.
Note to the editor
Open Source Access to all Learnings
Sustainable Finance Lab and Circle Economy have created a model with all the learnings gained during the Community of Practice. Following their open source ethos, all learnings and the Circular Service Contract can be downloaded here. The financial modelling tool developed for Fairphone is replicable and can be applied to any other “Product-as-a-Service”.
About The Community of Practice
To tackle the financing challenge for “Product-as-a-Service” models, several stakeholders and experts were connected in a ‘Community of Practice’ (CoP). Fairphone (the future PaaS provider), PGGM (the intended launching customer), ING and ABN AMRO (financial experts), NBA (accounting experts), Allen & Overy (legal experts), Circularise (data experts), Circle Economy & Sustainable Finance Lab (project and content management). With special thanks to NederlandCirculair! that co-funded the Community of Practice together with the above-mentioned organisations. Thanks to the input of all these parties, in an open learning environment of several workshops and thematic deep dives, we were able to create the launching pad for the Circular Fairphone Service.
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