How businesses can catalyse the transition to a circular economy

From regulatory red tape to changing business models and consumer behaviour, the shift to a circular economy will require entire markets and systems to evolve. At a recent edie roundtable in London, a group of sustainability experts explored how this transition can start to take shape.

How businesses can catalyse the transition to a circular economy

There is no doubt that the global transition away from linear “take-make-waste” business models would maximise benefits for people and planet. But the reality is that this transition is proving fiendishly difficult, with reports revealing that the economy is in fact getting less “circular”.

According to the most recent Circularity Gap report, just 7.2% of the raw materials used by humanity each year are kept in circulation. The fact that the vast majority of these materials go to waste, the report outlines, is fuelling nature loss and the climate crisis – megatrends that disproportionately impact the poorest nations.

The Ellen Macarthur Foundation estimates that 95% of the value of plastic packaging materials produced each year is lost through pollution, landfilling, incineration, or downcycling. This is equivalent to at least $80bn.

This broken, linear economy needs to change and many consumers are looking to businesses to act as catalysts for this transition.

To uncover the key challenges and opportunities facing businesses seeking to close the loop on resources, edie hosted a roundtable featuring dozens of sustainability professionals. Hosted as part of edie’s Circular Economy Week (22-26 May) and supported by Danfoss, the roundtable brought together a selection of sustainability leaders from a mix of industrial sectors for a much-needed dialogue around embedding circular economy principles and reversing the overshoot of planetary boundaries.

Participants at the roundtable spoke of the current challenges regarding regulation, which can vary from region to region, but that any efforts to lead on circularity required embedding it as part of a holistic corporate sustainability strategy.

Participants warned of the danger of viewing circularity in isolation, as a separate strategy away from other key ESG metrics. The most obvious correlation with resources and other sustainability issues is that of carbon and participants noted they were having to juggle product innovation to ensure that any introductions don’t increase emissions, even if they could help reduce waste.

However, the Ellen MacArthur Foundation notes that moving to renewables across the globe will only address 55% of greenhouse gas emissions. To tackle the remaining 45%, the paper notes that transitioning to closed-loop value chains, diet shifts, emerging innovations and carbon capture and storage are all required. These will all need to be considered as part of corporate circularity strategies, stretching sustainability teams to their limits.

Additionally, participants spoke of the need to consider other metrics, including water use, biodiversity and “other knock-on impacts”.

Indeed, recent research revealed that 84% of studies into the socio-economic benefits of adopting a circular economy had focused on countries in the Global North. The research argues that the shift to a circular economy can – and must – contribute to efforts to improve worker protections, alleviate poverty and end discrimination on bases such as gender. Better data collection and analysis, plus joint policy advocacy, will be needed to make this a reality, but these are all areas that need to be considered and integrated into corporate efforts to close the loop.

Much like with Scope 3 emissions, data management remains a big issue for brands trying to improve circularity across the value chain. Many are developing baselines for their data collection and participants spoke of the need to engage with key suppliers to get the ball rolling on data collection for resources and waste.

Some companies have successfully set up supplier hubs for resources and carbon. Telecoms giant BT has a long-standing hub for key suppliers to share best practices on carbon and sustainability. Others have successfully tied KPIs for key suppliers to their efforts to reduce resource use. Sky, for example, has worked with suppliers to create new contracts based on the elimination of single-use plastics.

Regulation red tape

Regulation was a common theme during the roundtable, with participants claiming that legislation was required to provide long-term certainty to enable investment into circular solutions. That would then create more scope for businesses to work on the consumer-facing behavioural piece.

In the UK, resource policy has suffered from a “culture of delay” according to reports that claim that the key legislative frameworks such as the Waste and Resources Strategy have suffered due to political inaction.

Consultations on many key inclusions, including Extended Producer Responsibility (EPR) requirements for sectors such as textiles and a Deposit Return Scheme (DRS) for drinks containers, did not run on time last year. As such, the implementation timeframes of these measures have been pushed back.

Defra published its response to the latest round of consultations on the DRS in January. It confirmed that the scheme will be implemented in 2025.

Roundtable participants noted that legislation can help level out the playing field by highlighting which materials and systems can be used in harmony with legislation, rather than brands having to second guess the direction of travel for material markets.

Legislation should also, the participants note, limit the risk of greenwashing from corporates over their circularity claims. Participants argue that clearly defined legislation on what can be used for materials and how they can and should be treated will see more companies fall in line with a more standardised market. This level playing field means that potential greenwashing cases should be reduced.

innocent Drinks, for example, was rapped over its adverts for greenwashing. Campaign group Plastics Rebellion – an offshoot of Extinction Rebellion – filed a complaint with the UK’s Advertising Standards Agency (ASA) in 2022, arguing that a brand that mass-produces plastic packaging should not be implying that its products deliver a net benefit to the environment.

Businesses are also aware that the investor community is focusing more on the environmental credentials of businesses, while also being wary of greenwashing, including approaches to the circular economy. Six companies faced shareholder resolutions calling for increased plastic-related disclosures and more credible plans to reduce plastic use in 2022. Included in this cohort are McDonald’s and Amazon, the latter of which also faced a resolution on the topic in 2021.

Raising awareness

The UN’s Environment Programme (UNEP) recently claimed that global plastic pollution rates could be slashed by 80% by 2040, and more than $4.5trn of cost savings reaped in the process.

Achieving this shift will take unprecedented action from governments, finance and the private sector. Virgin plastic production will need to be reduced, with reusables and alternative materials scaling up significantly. The UN states that a 10% absolute reduction in short-lived plastics production is possible by 2027. 20% of these plastics could reasonably be replaced with reusables, and the majority with alternative materials. However, policy and finance will need to be aligned to highlight what alternatives are suitable for businesses to pursue.

Indeed, participants at the roundtable noted how the investor community could help scale circularity solutions by aiming finance at new business models and closed-loop solutions. This would enable the transition to move faster, but participants again referred to the need for enabling policies to create certainty to corporates and investors alike that circular solutions and businesses were scalable.

Participants spoke of the need to raise awareness of how closed-loop solutions can help deliver against wider carbon and nature goals, but that data collection in this area needed to be improved.

CDP has this year opened a new function on its global environmental disclosure system, which is used by more than 18,000 companies, enabling them to report their plastics production and use, but other cases of voluntary data collection are sparse in this area.

Businesses at the roundtable noted the lack of standards currently available to showcase the circular benefits of the products. While many are using life-cycle analysis (LCA), some participants noted that this type of analysis isn’t always done to a common standard covering a wider scope of impacts. Apples were not being compared with other apples, through this current approach.

Success stories

While LCAs aren’t perfect, the participants noted that it is a valuable undertaking to help highlight some potential quick wins. Some businesses have been able to reduce the size of their packaging as a result of LCAs. This can also create new mindsets around circularity on packaging, namely moving some of the on-packaging information to online portals accessed by QR codes, which can reduce packaging further while creating a new and more engaged relationship with the consumer.

As businesses continue to drive circularity across the value chain and improve data collection metrics, there are some positive success stories that can inspire more organisations to act.

The roundtable finished with participants sharing some examples of sectors that have been able to accelerate the transition to circular practices.

Philips has successfully moved to a sertivisation model for lighting that sees customers pay for a service, rather than a product that helps keeps products in the loop. A similar trend is happening in small parts of the fashion sector, with companies switching to a rental service model that ensures that clothing is reused and given a longer life.

These are small case scenarios, however, and participants noted the need for a mindset shift to help grow innovative business models.

This is starting to take shape in the construction and built environment, where the World Green Building Council’s new Playbook specifically calls for organisations to view buildings as a “material bank” where every brick, wall, door, and window pane has a value and should be reused and recovered at the end of that building’s life. Whether this is adopted across the sector will depend on the collaboration of the organisations within.

While this shift is welcome, participants noted the need to get everyone on board with the transition – from policymakers to consumers – and that as corporates yet have control of a product or material across its lifecycle, this engagement would be crucial to realising circular ambitions.

Commenting on the discussions at the roundtable, Danfoss’ sustainability integration manager Lina Psarra said: “The circularity challenge cannot be solved by a simple snap of the fingers and anyone saying it’s a walk in the park is not being truthful, However, by making progressive change to the design of new products we can cut emissions and reduce waste.

“But we can’t do this alone. We need to help, inspire and support each other by developing synergies and working together our peers, suppliers and customers. There is a clear need for better regulation on waste and standardised definitions on circular economy metrics and claims so that we have the same common basis and interpretation of circular economy.”

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