The following is adapted from State of Green Business 2020, published by GreenBiz in partnership with Trucost, part of financial information and analytics giant S&P Global.
Having moved from fringe, mostly academic conversations into the boardrooms of Fortune 500 companies and the halls of parliament around the world, the idea of a circular economy is growing up fast.
In its infancy, circularity’s primary pain point was awareness and conceptual understanding — or a lack thereof. Now, in the impressionable days of early adolescence, its most consequential limiting factors are the lack of consistent metrics to understand inefficiencies within the current linear system, to measure progress over time and to contextualize circularity within global boundaries.
Existing anecdotal case studies of materials being cycled back into value chains aren’t going to cut it.
While valuable storytelling tools, conceptual notions of circularity don’t translate into effective government policies, industry norms and business strategies. But a growing number of tools and frameworks at the systems, company and product levels are beginning to provide the formal metrics needed for circularity to live up to its potential. And as countries, cities and companies commit to ambitious — albeit loosely defined — circularity goals, consistent measurement frameworks will enable data-driven decision-making, facilitate accountability and progress-tracking, and ultimately justify the value of a circular supply chain, business model or economy.
At the systems level, measuring circularity is primarily understood as a matter of quantifying material flows. According to an analysis by the Dutch consultancy Circle Economy, the world today is just 9 percent circular. The firm’s 2019 Circularity Gap Report calculates global metabolism, quantifying the stocks and flows of materials in the global economy and highlighting the difference between materials extracted and disposed of.
In context, 9 percent of the 93 billion or so tons of minerals, fossil fuels, metals and biomass that enter the economy are captured and reused annually.
With countries such as the Netherlands committing to achieve 100 percent circularity, country-scale conceptions of circularity must take into account more than material flows, including the import and export of goods; end-of-life and waste management strategies; energy inputs, including of materials extraction; transportation of goods and materials; water usage and, in some cases (PDF), job creation and gross economic value-added.
At the business level, companies are beginning to use circularity frameworks as an internal tool to assess the full scope of material flows in their operations and to understand the potential value of circular strategies and tactics.
For example, WBCSD’s just-released Circular Transition Indicators framework, or CTI, helps companies assess if its operations align with its ambitions, from design and procurement to new business models and resource recovery. Developed in partnership with a diverse group of about 25 global companies, including Royal DSM, Philips, Suez and Whirlpool, CTI provides a data-driven approach to weighing the holistic benefits of circular opportunities. This requires companies to calculate the inflow and outflow of all materials, including renewable energy and water, and can serve as a baseline to analyze the value of more circular options, such as new business models or substituting one material for another.
As more companies set audacious circularity goals, such as IKEA’s aim to be a fully circular business by 2030, success can be as achievable or elusive as it sees fit, given that each organization currently defines progress on circularity in its own way. Although the conceptualizing of circularity varies widely from a chemical manufacturer to a furniture business to a software company, cross-sector metrics will enable companies to at least speak the same language.
At the product level, life-cycle assessment, or LCA, has been the dominant tool to calculate the environmental impact of goods and continues to serve as a relatively effective proxy for product circularity. However, LCA-driven decisions are sometimes at odds with seemingly more circular choices.
For example, while reusable foodservice ware may sound like a better option than its disposable counterparts, LCAs suggests that the material intensivity of reusables may not pencil out from an environmental perspective. Similarly, increasing plastic packaging can extend the shelf life of food items and cut food waste, and therefore reduce the emissions of potent methane gas into the atmosphere when food decomposes in a landfill.
Set to launch its fourth version of the standard in 2020, the Cradle to Cradle Products Innovation Institute offers a set of metrics tailored specifically for the circular economy. It includes considerations of sourcing (recycled or renewable content), design (intentional end-of-life strategy such as disassembly), recoverable content (recyclability or biodegradability) as well as investment in investment in infrastructure to enable end-of-life strategies.
At all levels — systems, business and product — the development of specific and actionable metrics is a key accelerator for circularity at scale that allows data-driven decisions to be made, tracked and celebrated. Of course, the operative word is actionable. Quantifying circularity proves valuable only to the extent that the metrics align with planetary boundaries and science-based climate targets.
For many, adopting metrics and methodologies to calculate circularity won’t mean starting from scratch. Organizations such as the Global Reporting Initiative and the U.S. Green Building Council are adapting their own standards to incorporate principles of circularity, which will be crucial to ensure alignment with the frameworks and goals that companies already have in place.
As metrics to operationalize circularity mature and scale, it will be important to acknowledge their shortcomings. A myopic understanding of data points and material flows as the key to a circular economy can overlook human, on-the-ground realities — and unintended consequences — of systemic shifts best understood through a qualitative lens.
Ultimately, circularity requires more than closing the loop on materials flowing through the economy. It invites a fundamental shift in business-as-usual towards regeneration, abundance and reimagined relationships with goods, suppliers, customers and one another. Formalized metrics are one point in the constellation of tools, best practices and proof points that will help us get there.