"How do we know it'll work?"

We are just 14 days away from the 2023 Earth Overshoot Day (2nd?of August), the annual reminder that our overconsumption of resources is not sustainable, neither in the environmental nor economic sense of the word.

The circular economy creates and maximises value by increasing resource utilisation, enhancing energy efficiency, lowering resource consumption, and minimising waste. In short, we need the circular economy. So, what is stopping us?

Much has been written about?‘linear lock-in’, the complex system of mechanisms that maintain linear systems despite the clear benefits of the alternatives. I don’t want to oversimplify the issue, but in my experience, one major aspect of linear lock-in is the difficulty organisations have in answering one big question – “How do we know it’ll work?”

Inevitably, making the transition to an entirely new business paradigm has its risks and challenges. Product design, business models and supply chain management have close mutual dependencies in any business, but in a circular company, these interdependencies have a scale and complexity that’s unprecedented in the history of industrial society.?

These need to be explored, new approaches must be piloted and – as with any transition strategy – we must begin by understanding the ‘as is’ situation before we can strive for something better. That’s why the second most frequent question that I hear is “How ‘circular’ are we now?”.

From ‘as is’ to ‘What if?’

Identifying hot spots within the value chain where interventions have the greatest potential to reduce the environmental impact of the whole system, is the first response to the ‘as is’ situation. This holistic view also both quantifies the major dependencies that a business has on non-renewable sources of materials and energy and ensures that we avoid the risk of simply shifting impacts from one stage of the value chain to another (‘burden shift’).?

The approach that enables this view is Lifecycle Assessment (LCA), a familiar and proven practice but one that needs to be?made dynamic, scalable, and applicable to complete product portfolios?if it is going to be useful to businesses in managing the transition to the circular economy.

Once we understand the as is situation, the next step is to begin exploring scenarios for changes to product design, operational processes, and business models. A major barrier to adopting circular economy approaches is the inability of businesses to make changes confident that they will reduce environmental impact while avoiding the?risk of?unforeseen consequences?that might make the business unviable.

For example, it is possible that the activities involved in recirculating some parts or materials (reverse logistics, disassembly, remanufacturing, recycling, etc.) may have a cumulative environmental impact or financial cost that negates any benefit that might have been assumed to be the outcome.?

It could also be true that if recycled materials are used, the product’s lifetime may be shorter due to quality loss, thereby increasing waste. Conversely, it may be true that whilst using a premium material, freshly extracted from nature may have a greater footprint and cost, it means that the product’s lifetime is greatly extended and that the material can be recovered and reused with little loss of value. If so, the environmental and cost impact of the choice may be mitigated by the greater value that the choice makes possible.

All such scenarios are possible, but they depend upon a complex interplay of factors. It’s essential to test assumptions about material and process choices as well as achieving a new understanding of how users will consume the product. This is particularly true as we move to new business models that create value through means such as ‘product-as-a-service’; these new patterns of consumption that depend on greater utilisation and longer use phases may demand very different product specifications than those we have today.

Measuring the transition

Whilst?TCS’s dynamic approach?to LCA can evaluate the environmental impacts of products and business models, the data that it captures to calculate LCA can also be used to show ‘how circular’ a company is. Standardised circularity indicators are fast emerging and are being applied by many companies. Well-known indicators are the?Material Circularity Indicator (MCI)?by the Ellen MacArthur Foundation and the?CircularTransition?Indicators (CTI)?developed by the World Business Council For Sustainable Development (WBCSD).

The MCI measures which linear flow has been minimised and which restorative flow has been maximised, while considering the product’s lifetime and intensity of use. It concentrates on the flow of materials throughout the manufacture and use of the product, explicitly encouraging the use of recycled or reused materials and product life extension.

The CTI aim to assess material flows within company boundaries, to minimise resource extraction and waste material at three key intervention points:

·???????Inflow

·???????Outflow – Recovery potential

·???????Outflow – Actual recovery

Those three key intervention points can be measured with specific indicators and the results can help with closing and optimising the loops

Importantly, the approaches also enable companies to gauge the economic as well as the circular aspect of the circular economy, showing how to calculate the value of circular materials, productivity, and revenue from circular practices. Combining this with LCA adds the dimension of being able to measure the environmental?benefits in terms of GHG reduction, lower abiotic depletion, reduced impact on biodiversity and other impact metrics.

Both approaches have their?merits,?and?they are not mutually exclusive or competitive. In fact, there’s a good deal of cooperation and convergence around because all stakeholders recognise the need for consistent, comparable, and applicable methods.

The importance of applying circular economy principles is becoming more urgent by the day. Well-defined metrics are key to a successful circular transition. What is measured can be managed – and what can be managed can be improved over time. We believe that the way forward is to collaboratively develop effective and practically applicable metrics that transparently report the circularity and sustainability of products and services.