Today, the global economy is only 8.6% circular — just two years ago it was 9.1%. The opening statement of the Circularity Gap Report of 2020 could not be any clearer: with just 8.6% of the world being circular and a negative future trend, it is evident that we currently lack the ability to capture the full potential of this business model. A major opportunity missed since a circular economy is not only the most sustainable option but also the most profitable in the long run.
The terrible three
Whilst many companies are claiming to be circular, the Circularity Gap Report clearly proves that we are still in a hardwired ‘take-make-waste’ economy. More specifically, the high rates of resource extraction, ongoing stock build-up and low levels of end-of-life processing and cycling, form the main barriers towards creating a circular economy. However, it must be clear that these three challenges are interlinked. The fact that we extract huge amounts of resources does not per se pose a sustainability issue. In his book ‘The Blue Economy’, Gunter Pauli argues that the world has an overflow of resources if only we would not just throw all used products in the dump, but actually treat them as the useful resource they are. In other words, resources should not only be extracted from nature but mainly from the existing material flow that is currently circulating in our economy. This clarification immediately indicates how the current lack of end-of-life processing lies at the base of the existing shortage of resources. Additionally, resources should only be used when there is actual demand. By keeping products in stock with the purpose of using them in a distant future, we park useful resources and create a second trigger for resource shortages.
A small curl at the end of our linear model
Even though we are still confronted with several challenges, we must not forget that many companies already try to take the first step in a sustainable direction. In many cases though, recycling of materials and waste is the closest we can get to closing the loops. The main stimuli are ever-rising competitive pressures, low-cost rivalry and increasing warranty expectations from the consumer side. However, circularity rarely results in large-scale changes in the core business, since companies only have direct control over a fraction of the sourcing and make-up of their final products. Before arriving at the final stages of production, a product’s ecological footprint has already been determined by an average of 70%. This is all the more a problem since suppliers of raw materials and semi-finished products often lag significantly behind in terms of circularity. Large scale initiatives and inter-company collaborations are a prerequisite to making a transition towards true circular economies. The current situation leads to sizable losses in cost savings and efficiencies, resulting in missed opportunities to unleash growth and profitability across the supply chain.
From a small curl to full circularity
impact of one party that withholds us from becoming circular. In order to overcome this challenge, we should break down silos, invest in partnerships and make use of digital advantages.
Due to the fragmented responsibility across suppliers and functions, corporates experience major barriers. Only limited success can be achieved within a single functional silo. Companies that will gain the greatest value from a circular economy will be those that look for opportunities that impact the very core of their operating models as well as seek to build a network of partners. Apart from seeking partnerships within their supply chains, corporates can also greatly benefit from collaborations with front-running businesses, governments, NGOs and academics to collectively boost the capacity and capability of sustainability. Lastly, the digital area should serve as an accelerator. Technologies, such as IoT, radio-frequency identification and analytics, are critical for embedding circularity across operations and company networks. These tools are utmost suited to track resources, monitor products and gain insights into product end-of-life. By following products in every stage of their creation, usage and disposal, we will be able to identify critical issues within the supply chain and focus on crucial improvement areas.