Circular Economy: The Aquafil Case – Salvo Testa, Giulio Bonazzi

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Corporate Sustainability. Understanding and Seizing the Strategic Opportunity

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Università Bocconi

Corporate Sustainability. Understanding and Seizing the Strategic Opportunity

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The achievement of a balanced economic, social and environmental development - as expressed in the UN Agenda 2030 for Sustainable Development - is recognized as one of the major challenges humanity is facing today. What is less clear is whether and how organizations can generate business opportunities and value for their stakeholders while tackling such challenges. In this course, thought leaders in a wide variety of management and economics fields illustrate how to assess and seize the opportunities offered by these global emergencies. They will offer new ways to understand the purpose and the logic of success of the business enterprise in this new context, providing ideas and examples on how to manage the transition process to realize the value creation potential from corporate sustainability for all involved stakeholders. Learning objectives The course will allow you to: - Understand What the macroeconomic and microeconomic consequences of both climate changes, poverty, hunger, gender or race discriminations, lack of communication between the State, Civil Societies, and businesses, etc are. - Understand Why it is important for businesses to tackle sustainability issues in order to create more and better business opportunities; - Learn How each individual, organization and system can start to analyze its behaviors and change towards more sustainable practices and models.

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Why Corporate Sustainability? Assessing the Strategic Opportunity

This module consists of two different parts. In the first part we will explore why corporate sustainability could be paramount for corporate success. In the second part, you will learn about successful cases of organizations focusing on a business model designed around sustainability principles and mindsets.

Social Enterprise: Definitions and Examples – Rakhi Mehra6:16

Creating a Sustainable Enterprise from Scratch: a Case Study – Rakhi Mehra8:13

Impact Investing – Audrey Selian, Rakhi Mehra22:55

Impact Assessment – Rakhi Mehra, Eric Ezechieli14:14

Circular Economy: The Aquafil Case – Salvo Testa, Giulio Bonazzi22:45

Responsibly-Innovative Startups: Re-Bello & Wrad Cases – Francesca Romana Rinaldi20:52

Rencontrer les enseignants

Maurizio Zollo
Dean’s Chaired Professor in Strategy and Sustainability
Management and Technology Department

TESTA: Welcome everybody. We have the pleasure today to have with us Mr. Giulio Bonazzi, who is the owner, president and CEO of Aquafil.

Aquafil, the company founded about 50 years ago, specializes in the business of nylon.

And especially, they cover the business of carpet and textile yarns,

with a presence in eight countries in the world, three continents, fifteen plants and about 2,700 people involved.

Today, we will talk about sustainability and circular economy

by using the case of Aquafil and the best practices in order to cope with two important issues. First question for you Mr. Bonazzi,

concerning the relationship between ECONYL

and the contribution to circular economy. So far, just less than one percent of material used in clothing is recycled.

And then the second issue is related to the contribution to the pollution of the environment, especially the ocean,

of plastic used in the production. Which are the challenges which

Aquafil is facing up in order to cope with these two problems related to the business of clothing? BONAZZI: Thank you. Well, very few

people know that fashion is one of the major contributors to landfills

and the landfilling of products. More than 70 million tons per year of textile products are landfilled

or abandoned in the environment. And with the new fast fashion system which is becoming more

and more popular, this amount of material is increasing very, very quickly. So, it is absolutely important

to change this model, because we cannot simply continue like that, and to find the way to close the loop

and to work in a circular economical model.

Aquafil has invented a new Nylon 6 regeneration system,

which we called ECONYL. So, we sell a through the branding of ECONYL,

which is practically completely substituting material coming from oil without any compromise on quality,

any compromise on performance, and without obliging our customers to change any small details.

So for them, they can use our ECONYL product exactly like they use any other nylon yarn.

Nylon is also a very nice material because it is a continuous filament, not creating microfibers that are

through washing machines, going into the oceans or into the waste water systems and then to the rivers,

and to the seas, and the oceans. And not only, but

one of the major streams of material that we use in our regeneration system is coming from fishnets.

And so we not only produce something which is not giving microfibers,

but also we take material from the oceans like waste nets and we take them back.

And through their regeneration, we can reproduce for an infinite number of times,

a new nylon yarn, which is performing like the others.

TESTA: Let’s move to the second question for Mr. Bonazzi concerning the relationship between circular economy

and profitability. So, so far brands and retailers have started to address specific changes within their supply chain

but without facing the true, real challenges in the business. That is, the recycle factor, okay, and also the utilization

of the lifecycle of the product at the end. So, do you believe that the circular model can be a new industrial model

which is destined not only to change the way to do the business,

but also to achieve a new profitability for the industry? BONAZZI: I do not only believe that circular economical models

are the most profitable one, or are going to become the most profitable ones,

but I believe that they are the only system. We live in a closed world. Raw materials

and resources in our planet are limited. And we have to face

and realize that we are experiencing a growing population, growing income per capita, so people want to consume more,

and there isn't enough for everybody if we continue like that, so we have to change the system of a make, take, waste.

So, the linear model of today, which is, you know, take a material, make a product

and then dispose this material to landfills is not simply sustainable in the long term. We have to close the loop, work in

a circular economical model in a way that the material at the end of its useful life is going back to the producer to

be disassembled and to return as a secondary raw material for the next cycle. Maybe at the beginning of this system

and because of economies of scale and because of technology, which is not as well developed as, let's say, the

conventional one, is not as

competitive as the normal one. But if you insist and if you build the right technological model,

and especially the reverse logistical system,

the circular economical models are for sure becoming more profitable than the linear ones. TESTA: So, let's move to the

third question concerning the alignment of a circular economy to the fashion industry and the key players.

The fashion industry is a very articulated

and fragmented industry, where each note of the pipeline is connected to the other.

So far, especially the institutional brands and retailers

haven't demonstrated sensibility to sustainability and the circular economy.

But maybe now there are some signals that something is changing. Also we consider the last of the recent

events of the Green Awards

in Milan in September 2017.

So looking at your experience, do you think that today we are facing a new change in the attitude of the

pipeline, also in the institutional key players? For example, top designer brands, top textile fabric manufacturers,

also in the Italian reality,

where they are specializing in the top range of products. So, are there signals that also the institutional fashion is facing

and is demonstrating interests to sustainability and circular economy?

BONAZZI: Well, this is a good question. For sure the final consumer is becoming more aware of what he

or she is doing and is every day confronted with the effect that the goods he or she is consuming

is creating to the environment. And consequently,

when available, they love to purchase products that make them feel better, so they don't want to feel guilty

when they buy and consume something.

Of course they want to feel, how can I say, excited because they want to buy beautiful products,

because if a product is not beautiful

nobody is going to purchase it. But at the end of the day, it is also important,

and I also always like to say that my dream is that the consumer buys with the end in mind, so knows what is happening at

the end of the life of one product. Starting from the final consumer, there are more

and more actors in the fashion industry that are, how can I say, organizing themselves in order to supply products

and business models that are more aligned with this system. And also I have a question for you

or I would like to ask you a question, but the answer is very obvious. Every shop, every retailer loves to see a customer returning to the shop.

So, in this ideal system,

the circular economical model, so, a customer that goes to a shop, buys a product, is happily consuming

and using this product as long as possible, because at the end of the day, it is of course better to have a product which is lasting longer than a

product that is, you know, finishing in a few hours.

But at the end, the ideal situation of the retailer is that the consumer returns to the shop, so the idea of bringing back the

product in order to recycle this product is creating an opportunity for the retailer

or for the shop owner to have the consumer again inside and hopefully to buy something new while he or she is there.

Having said this, it's a long process. I must say that there are countries

and geographical areas where both consumers and players of the industry are more, not only aware,

but maybe they really believe that the circular economical model

and sustainable production is the only way to survive in the long term. I must say that in my experience I particularly

like the British people and the Scandinavian ones. And there are others especially in the south

and parts of Europe where we are a little, how can I say, in delay, but knowing

and seeing what is happening we are recovering quite fast. So, yes, even in Italy and even in Southern Europe more

and more fashion companies and designers and stylists are trying to bring more

and more innovation through sustainability also in their value chain. TESTA: So we can hope to close the loop, not only from the

point of reference of the end customer,

in terms of going back to the store to deliver the product at the end. BONAZZI: Some of them consider this as an

opportunity. It is not easy to organize the reverse logistic

and to have people people bringing back you know small articles and small products,

but in the longer term for sure this is something that will create new business opportunities. TESTA: Would be the ideal

conclusion of the model of circular economy, okay. BONAZZI: This is what I think.

TESTA: And the other point that we have to hope, that also in, you know, Southern Europe or the Latin countries

will develop a culture towards sustainability, like maybe in the northern countries and Anglo-Saxon countries is already developed, right?

BONAZZI: Well, I believe that we in Italy,

we are experiencing society and the culture different than in the rest of the world,

but expressing a far better result than people can imagine. Sometimes our reputation is not representative of our

real way of living and doing things. We started later than others because maybe this was less part of our culture,

but, for example, let's give numbers, let's speak about garbage collection. Today Italy and major Italian cities are

at the top level in terms of separation of garbage in Europe

and in the world. So, if we are able to do this for sure we will be able to be also leaders in sustainability in the fashion industry.

TESTA: The last question concerns the listing on Piazza Ferrari Milano,

for the company decided in last December to be listed on the Italian stock market.

So, in this case, the company is trying to cope also

with the financial market in order to acquire resources to be invested in the business. So the question is how

Aquafil is going to invest the financial resources related to the listing?

And also, which is your peer after

just a couple of months, their reaction of the financial market to one of the few companies

in the stock market related to sustainability and the circular model?

BONAZZI: The reason why we decided to go public is because we had a minor shareholder, around 15 percent

of the share capital of the company, in the hands of a private equity firm. So, at this point we had mainly two options:

to buy back the shares, it was possible to call back during two different windows, or to go public. We decided to go

public because if we had bought back shares we should have leveraged the company,

and this would have limited, for a certain period of time, our possibility to make investments.

And on the contrary, my idea is to speed up our investment process in order to become 100 percent equity driven.

I want to tell you this. Today 35 percent of the turnover of Aquafil, which believe me represents something like

more than 30,000 metric tons per year of material, is coming from the recycling project ECONYL, so the up-cycling

of nylon waste coming from all over the world. The target is to go to q00 percent as quickly as possible. It is indeed

possible, we have given a target period between five to seven years,

and in order to do this, of course you have to make investments. And when I speak about investments, I don’t speak about one

or two million euros, but several tens of millions of euros.

We are going to build the first carpet recycling plant in Phoenix, Arizona.

This plant will be opened up next spring,

March, July in two different steps of 2018,

and then the second unit is already foreseen, very likely in Sacramento at the end of 2018.

Each of these units is going to cost around ten million dollars. We will need seven

or eight of these, plus investment

here in Europe and in the States in order then to regenerate nylon into its raw material.

So we needed money.

And through this listing process, we raised additional capital without having to leverage, to buy back the shares.

The first experience, we are quite fresh, just arrived, and I can speak a lot about the process of listing, which

of course, because of the protection of minorities, requires a lot of bureaucratic actions

and a lot of investment in the

ERP system of the company, because of course authorities must be able to control what we are doing,

and we have to respect the rights of minorities.

But we were quite welcomed by the financial community, because in this moment everybody is looking for companies working

in the circular economical system or in the sustainability models. So the financial community has taken

us so well that from the moment that the business combination was announced last July until the moment of listing,

the value of the shares had already increased to something like 25 percent. TESTA: Not bad.

BONAZZI: And after one month, the value is resisting, so it is not dropping. On the contrary, it is on the increasing mode.

Why are they looking for sustainable companies? Because also the financial community understands that this is a

trend which is very well accepted by the final consumer and that consequently we have the possibility to increase our

size and our profitability.

Beside the fact of the investment in the economic regeneration system, we also target

for some acquisitions. In our industry, but not only, in the technology of recycling, and why not, in business that are aside

or, let's say, connected with our recycling business, because

when I take back a material, normally it is not like recycling plastic bottles that are 100 percent

of one single raw material, but

more often what we take back is containing between 35 to 60, 65 percent of nylon

and the rest are other potential

or secondary raw materials to be recycled, up-cycled,

or regenerated for other businesses. So we have, we feel that we have incredible business opportunities in front of us.

I close giving this number. In the United States, more than 2 billion tons per year of fibers are used in the

carpet industry, 1.7 billion tons in Europe, and something similar in Asia.

Aquafil, which is the tenth largest nylon company in the world, is consuming 100 thousand tons of nylon.

So you can understand the enormous potential that we have in front of us through these

circular economical systems and recycling, up-cycling processes. TESTA: So maybe there are other conditions why

planet, people and profitability can be a synergic, you know, fusion. BONAZZI: This is, of course,

the idea, and we are testimoning, we are for sure showing that it's possible to be more sustainable, because we're not yet fully sustainable.

We are, aim to be more profitable, to be happy also when you're doing something,

and to make your customers happy, because at the end of the day,

I need happy suppliers

and also very happy customers, because if I'm the only one making money I have a problem. TESTA: So, maybe after ten years of,

you know, investment, you were a pioneer ten years ago in this field, you are starting to collect some result.

BONAZZI: Yes, I can say that, having already more than 35 percent of my business driven by up-cycling of nylon,

the limitation is not the potential to sell this material, but the capability of

reinventing the chain, bringing back the material, creating the reverse logistic,

reinventing the technology to separate the different components, up-cycling the different components. This is the

bottleneck. Once you have the material, to sell is the easiest thing. All the rest

is a big challenge. We make a big effort in research

and development. We invest a lot of money every year. With the invention of new technologies, sometimes, not always,

depositing patents in order to protect our intellectual property.

And we have a great cooperation with several universities around the world, and research centers in Italy and abroad.

TESTA: Very well. So we hope this is not just a short term fashion trend but as you know, a vision

at the starting point of a new, really new industrial model with a long term perspective in the business.

BONAZZI: You teach me and to your people, you teach that the reputation for, especially in the fashion industry

and in the high value products, is the most important thing.

So, you see the pressure, the incredible pressure which is mounting and is built up by NGOs

and communities in order to make every business more sustainable.

But I must say that especially fashion, more fashion luxury brands are under, I don't want to say, under attack,

but under scrutiny, and are always finger pointed by NGOs and environmental communities

in order to improve their systems, because they play a big example for the rest of the planet

and the rest of the industries. So, you know, they feel an enormous pressure, so I don't believe that this is

just a simple short term fashion effect,

but this is becoming something that if you don't have it you get out of the market. TESTO: OK. I think we have to thank a lot

Mr. Bonazzi. BONAZZI: Thank you. TESTA: For his kindness and also for the clearness of his position

and we also feel that Aquafil is just a best case in this model of sustainability and circular model.

BONAZZI: Thank you. TESTA: Thank you Mr. Bonazzi. Thank you very much.

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