The challenge

While the exact impact of the capital equipment value chain on emissions is unclear and requires further research, some figures estimate up to 6.5% of global emissions to be attributable to capital equipment activities. [1] Capital equipment manufacturing also consumes 7.2 billion tons of raw materials globally each year—including half of all metal ores consumed globally—and contributes almost 13% of global gross value added. [2]

But while the manufacture of new capital equipment may be environmentally costly, the industry is well positioned to drive the circular economy transition, thanks to its business-to-business nature and the highly durable nature of the assets it produces. Philips is one of the main companies leading the way.

Lifetime extension through access-over-ownership business model, improved maintenance and take-back and refurbishment

PaaS business model. Philips’ Healthtech Leases programme allows healthcare facilities to lease healthcare equipment. Customers can use Philips medical equipment and solutions for the duration of their economic life—without owning them. Payment structures vary from fixed monthly fees, stepped payment loans and pay-per-use agreements. [3]

Improved maintenance. Philips’ service model includes maintenance services, powered by usage data and analytics that allow the company to manage its assets more efficiently. Customers can also easily upgrade their technologies as they become available, returning assets to Philips when they are no longer fit for purpose.

Take-back and refurbishment. Philips trades in and repurposes large medical equipment such as MRI, CT and X-ray systems at the end of their use cycle and is extending these practices across all their medical products. [4] As a result, customers can also choose from different value propositions—from new or upgraded to refurbished versions.  [5]

Impact

Philips’ leasing model allows the company to have greater control over its products’ lifecycle and therefore incentives better product stewardship. By retaining ownership, Philips has all the incentives to design them for circularity, to maintain them at the highest value throughout their active service life and, ultimately, to take them back for refurbishing or recycling—away from the landfill, hopefully resulting in less new components needing to be made overall. [6] And while the exact impact on Philips’ carbon footprint may be difficult to estimate, it is clear that Philips’ circular economy strategy is well integrated within their climate action strategy and is listed as one of the main ways they aim to minimise their climate impact in their supply chain. [7]

[1]  PACE, Accenture & Circle Economy. (2021). Circular economy action agenda: Capital equipment. (pp. 1-46, Rep.). The Hague: PACE. Retrieved from: https://pacecircular.org/sites/default/files/2021-02/circular-economy-action-agenda-capital-equipment.pdf

[2]  Circle Economy. (2019). The circularity gap report, 2019. Retrieved from: https://www.legacy.circularity-gap.world/2019

[3]  Philips. (n.d.). Healthtech Leases. Retrieved from: https://www.philips.co.uk/healthcare/resources/landing/philips-capital/healthtech-leases

[4]  Fadoul, P. (2021). Capital Equipment Sector Paves the Way to Decarbonization. Retrieved from: https://www.uschamberfoundation.org/blog/post/capital-equipment-sector-paves-way-decarbonization

[5]  Wilkinson, R. (2021). The potential of leasing as a product stewardship strategy. (pp. 1-12, Rep.). Sydney: Product Stewardship Centre of Excellence. Retrieved from: https://www.aigroup.com.au/globalassets/news/reports/2021/potential-of-leasing-as-a-product-stewardship-strategy_august-2021.pdf

[6]  Wilkinson, R. (2021). The potential of leasing as a product stewardship strategy. (pp. 1-12, Rep.). Sydney: Product Stewardship Centre of Excellence. Retrieved from: https://www.aigroup.com.au/globalassets/news/reports/2021/potential-of-leasing-as-a-product-stewardship-strategy_august-2021.pdf

[7]  Philips. (2021). Driving climate action in our own operations and beyond. Retrieved from: https://www.philips.com/a-w/about/environmental-social-governance/environmental/climate-action.html