Working across your value chain to enable the Circular Economy Model

Post Date
22 January 2024
Bonia Leung
Read Time
5 minutes
  • ESG advisory

According to the Circle Economy Foundation, only 7.2% of materials in the world flowed in a circular loop in 2023. This means the majority were either in a conventional and linear ‘take-make-dispose’ economy (ultimately destined to become waste) or were embedded in infrastructure. How then do we unlock the potential of material flows, so more can operate in a circular economy?

Making the transition to a more circular mode of operation is becoming a common challenge for business. In fact, so sizable is the challenge, that many companies struggle with even starting to think about it. What’s more, while there are many successful case studies on the adoption of the model, these are not applicable to every sector and every business. As is so often the case, a simple ‘one-size-fits-all’ solution is sadly lacking (and always will be).

Policymakers have a role to play in shaping the road ahead, as legislation will also help to stimulate action. The European Commission launched its Circular Economy Action Plan in 2020, aimed at mandating member states and business to facilitate systems (such as extended producer responsibility and the right to repair) that might then help accelerate the transition. We are also witnessing an increase in mandatory disclosure requirements, such as the new EU Corporate Sustainability Reporting Directive, which aims to formalise the consideration of materials’ circularity.

If such regulation helps to make the business case internally (the transition no longer being seen as a ‘nice to’ but a ‘need to’), companies must still navigate a number of external factors, which should all be seen as equal enablers.

Where in your supply chain should you start to explore circular business opportunities to deliver the biggest impact?

Normally, most companies would start looking within their own operation when viewing the main stages of their value chains. This is because companies have the most control over how they use materials, and so are better positioned to monitor efficiency and influence choices of material, alter product designs, and manage waste generation. All of these are key to encouraging the internal transition to a circular economy. Beyond internalities, businesses can look to their procurement practices to choose service and product providers who can deliver according to recycling targets and specific levels of recycled content in materials, so making sure their company is becoming more circular. Once the internal operation and procurement are optimised, businesses should look to incorporate suppliers and customers in a circular economy.

The Ellen MacArthur Foundation has developed helpful guidance on the core principles of this approach, including nine focus areas such as ensuring organisational structures can convert circular thinking into circular action, and assessing how partnerships, whether customers or peers, can become suppliers of circular inputs for circular processes. Mini case studies are also signposted.

How can existing data help inform your opportunities in the journey to a more circular economy?

According to the World Business Council for Sustainable Development, “data has the potential to support actors across the value chain in making informed decisions, optimising processes, and identifying opportunities for circularity”. Data points such as waste generation, recycling rates and landfill diversion rates are typically used to provide a basic understanding of the materials and waste management status of businesses. In addition to the standard data points required by most sustainability reporting requirements, other data, such as the level of recycled and / or renewable content in products, the repairability of products and post-consumer waste generation, is all useful in offering a bigger picture of a business’ status in transitioning.

This topic has been the subject of much academic study, led in the UK by a dedicated ‘data observatory’ hosted by Exeter University, which is in turn part of a Government-funded CE-Hub that is looking to design collaborative, multi-stakeholder solutions.

What options are available to engage with your value chain, to make your business operate in a more circular mode of operation?

The nine focus areas outlined by the Ellen MacArthur Foundation acknowledge the importance of external engagement, even stressing this needs to go beyond the point of sale, so that consumers are considered – and leveraged – as critical partners in the circular supply chain. Put simply, to enhance the transition to a circular economy, businesses must encourage each stage of their value chains to adopt practices that will enable the change and ‘close the loop’. Examples of this include:

  • Engage with suppliers in order to discover the latest development in materials and encourage the incorporation of recycled and renewable content in research and development.
  • Set realistic targets for waste management service providers to meet expectations for recycling.
  • Provide guidelines to customers on appropriate use of products to prolong product lifetime.
  • Offer takeback and / or repair service to minimise the virgin material footprint. This thinking has then further evolved, so that some companies have made the shift into ‘servitisation’ (effectively leasing the products that were previously made and sold, with repair being included in the fee). While initially this scales more effectively as a B2B model (with Rolls-Royce now selling ‘power by the hour’ subscriptions), the growth of B2C applications is likely to see the concept become more mainstream.

There are many actions businesses can take to kick-start their circular economy pathway. Prioritisation is the key, so that you can engage the right people along the value chain at the right time. However, the journey will take time, effort, and a collaborative organisational culture that is prepared to view ‘risk’ as a door into ‘opportunity’. Importantly, businesses should focus on making small changes first, piloting innovative approaches, and then track how these can spark more systemic transformation.

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