To date, the global transition to circular economy has been slow – the latest estimate in the annual Circularity Gap Report put the global economy at around 8.6% circular.
Why is circular economy not gaining more traction, when it makes perfect sense? Why do you want to waste value, why do you want to destroy biodiversity, why do you want to run out of materials, why do you want to continue to contribute to climate changes etc. etc?
According to Patrick Moloney, sustainability expert at Danish advisory firm Rambøll, the most basic deterrent for companies is that they are rarely presented with a simple way to get started.
“There has to be a clear incentive to make the change towards circular practices if you are a private enterprise. This can be regulatory, risk, brand, productivity, control of supply chain, efficiency etc. but it must be very clear. But when circular economy is being explained today, it oftentimes still has a rather philosophical perspective, rather than “how does it apply to my business and to me,” he explains.
“Another barrier is that there really isn’t an off the shelf-manual for this work, which leads to people jumping to a strategic level before understanding what their own situation is, leading to a sense of overwhelming demands – and opportunities – but no clear direction. That makes management of both private and public enterprises to back away.”
Patrick Moloney has some clear designs for how to avoid this situation, where the tendency to talk about circular economy at a macro level leaves companies lacking an idea of where to start. We will return to those at the end of the article.
Five drivers for mainstreaming
For 2021, he has arrived at a set of drivers pushing circular economy on to companies’ agenda – regardless of the level of bewilderment. These are:
1. ISO 14009
In December 2020, the global standards organisation ISO published ISO 14009 “Guidelines for incorporating material circulation in design and development.”, which is expected to be used by organisations that work in accordance with ISO 14001. There are upwards of 300,000 certifications to ISO 14001 in 171 countries around the world, and circular economy and material circulation now, by default, become a part of the thought process of 300,000 organisations globally.
“This is really the largest single step to date in mainstreaming circular economy. It takes it from the periphery to the centre,” says Patrick Moloney.
2. EU Circular Economy Action Plan
In March 2020, the European Commission adopted a new Circular Economy Action Plan, one of the main blocks of the European Green Deal.
The Action Plan includes initiatives along the entire life cycle of products and introduces legislative and non-legislative measures, many of which are expected to become reality in 2021, among these establishing – among many others - a new “Right to repair”, mandatory green criteria, targets and reporting in public procurement, mandatory requirements on recycled plastic content and plastic waste reduction measures for key products such as packaging, construction materials and vehicles.
3. The EU Sustainable Finance Taxonomy
The hardest hitting instrument in putting circular economy on the finance institutions’ agenda will be the introduction of the EU Taxonomy Regulation at the beginning of 2021.
The EU Taxonomy Regulation will require most European financial and non-financial companies to outline the environmental sustainability of their economic activities. The circular economy is one of six objectives of the EU Taxonomy. Although the circular economy-specific objective will not be mandatory until 2022, the necessity to comply with the EU taxonomy in 2021 with respect to climate objectives will nevertheless force financial institutions and companies alike to begin alignment with the circular economy objective.
4. From target to action on climate change
Countries and companies alike are setting targets for their CO2-reductions and overall decarbonisation. Targets, which they will have to deliver on and that brings circular economy into play.
Switching to renewable energy can cut emissions by 55%. But decarbonisation requires us to look at the remaining 45% of emissions, which come from how we make and use products (responsible for circa 20 percent of global CO2 emissions), and how we produce food (responsible for circa 25 percent of emissions).
“The role that the circular economy can play in reducing carbon emissions, as illustrated above, is not necessarily new, but what changes the emphasis is the regulatory and stakeholder demands being placed upon, for example, industry. In Denmark, it is a reduction of 70% by 2030 and full carbon neutrality by 2050,” says Patrick Moloney.
5. Robust vs. efficient supply chains
The final driver seen by Patrick Moloney is a bit more of a dark horse. It relates to the potential redesign of supply chains on the back of the Covid-19 pandemic, where companies discovered the vulnerability inherent in a supply chain designed solely with efficiency in mind. Working to enhance management of this risk could lead to designing access to raw materials from a new angle: circularity.
A more detailed description of these five drivers can be found here.
Advice on how to set yourself up for a successful start
As promised earlier, Patrick Moloney has some concrete advice on how to get a company moving in a way that will prepare it for the effects of the drivers above:
“Companies need to understand what their point of reference, targets and distance to those targets both with respect to time but also effort. Their own, not the one set by governments or think tanks.”
This implies understanding one’s own organisation, what peers are doing, and what is best in class for one’s industry.
“Sometimes companies find it difficult to think about talking to peers because they are usually your competitors. We then advise them to go to a different industry that uses the same material but produces a different product. See what they are doing – they might well be more open to sharing than your competition,” says Patrick Moloney.
At a close second comes the use of metrics. It is the old saying: If you can measure it you can manage it, but equally important, explains Patrick Moloney, if you can monitor it you can monetise it.
“You need to be aware, however, that there is no off the shelf-tool for doing this, so you have to define the metrics yourself,” he says.
The third point is to focus on value and the different guises that value has – the most obvious one being that if you use less materials you are likely to save money. But there are other types of value to be obtained: compliance with regulatory demands is a value, brand enhancement is a value etc.
Perhaps most importantly, Patrick Moloney insists that you need to give yourself the time.
“If you go to fast you risk going bankrupt. If you move to slow and narrow circular economy down to being about recycling and waste management to avoid the confusion, we’re doomed.”
“Converting to circular economy principles is about connecting a very large number of dots – it is changing an entire system. So you have to be patient in coming to understand all the connections and in building and strengthening new ones in order to share risks and value creation across supply and value chain,” he ends.