A Week of Circularity: An Early Start Matters

Circularity as a concept has been around for a long time.

It's not possible to attribute it to an individual author but going back to the late 1960s - early 70s gives us a good timeline around its inception. Why is that relevant?

Because here we are, 60 years later, we are still making sense of its two basic strands: ?

1. the first relating to the flow of materials through an economy, and
2. the second concerned with the economic conditions that sustain that flow.?

There's wisdom in history that can support sheer vision for what lies ahead.

A remarkable passage from the address of the President of the American Association for the Advancement of Science in 1970 gives us a glimpse of that: “The object of the next industrial revolution is to ensure that there will be no such thing as waste, on the basis that waste is simply some substance that we do not yet have the wit to use... In the next industrial revolution there must be a loop back from the user to the factory, which the industry must close. … If industry should take upon itself the task of closing this loop, then its original design of the article would include features facilitating their return and remaking.” (Spilhaus, 1970: 1673)

No wonder why, organizations that embrace circularity think of it with a bias towards short-term execution. Focusing on the flow of materials as it stands and balancing off the longer-term economics as they go along. Think for example of raw materials such as plastics where heavy regulatory pressures (over 1,000 plastic pollution-related laws globally) support the case for a nearly inelastic (price-agnostic) demand for recycled content.

Fact: the (market) demand for recycled materials keeps exceeding its supply.

To strengthen supply in the long term, three components need to see meaningful, daily progress: the buildout of Collection and Recovery Infrastructure; Ease of Access to Infrastructure; Participation (incentives, education and community engagement). When half of the world lacks a reliable recovery system for raw materials in place, it is hard to focus on the need to drive higher adoption and participation among consumers and households.

But that's what is needed to close the loop and keep it closed.

?? The Science of Impact

In researching the body of work that constitutes the science of impact, I have discovered that most of the businesses I have interviewed as early adopters of its principles, continue to face significant hurdles. Hurdles in the geographic markets in which they operate and in the over-regulated sectors they navigate. Hurdles in the form of continued pressure from investors and civil society organizations to build faster and cheaper solutions in an inclusive manner and create deeper outreach and expand their services and products to underdeveloped communities. It is humbling to see how these leaders not only continue to advocate for change from within, but also steadily dismiss industry pressures and short-termism to build enterprise value?sustainably. Needless to say, they are a handful.

How to recognize them?

They are usually organizations that have made an early start on this journey by effectively incorporate impact-oriented data and frameworks to guide their decision making.

But it's not about data in itself.

In fact, these early efforts to gather, analyze, verify and sustain the integration of decision-useful data and insights go hand in hand with authentic efforts to deepen inclusivity in their stakeholder networks. they have kept seeking and building a highly diverse network of advisors, thought partners and community leaders to help their teams deliver value by iterating for change and embracing innovation responsibly.

One example I discuss in the Impact Challenge is that of addressing "sustainability transitions". In the case of the circular economy, we can draw them from the work of the Ellen MacArthur Foundation. The Foundation’s pioneering method of measuring a company’s circularity performance (Circulytics?) offers a series of indicators (called Material Circularity Indicators – MCIs) and presents the assessment result in a scorecard template.?While Circulytics? is quite?data-intensive for businesses, it relies on the assumption that company level MCIs can be derived as a proxy of the aggregate of individual product’s circularity statistics and the flow of materials volume involved in the manufacturing of each product and its offering in the marketplace. During the aggregation stage, it is possible that important details about the changing environment the business operates in, as well as its ability to keep up with its stakeholders' needs, may be overlooked. I suggest that by adding a set of complementary risk and impact indicators to the aggregation of individual product assessments, we can arrive to a circularity framework built around the MCI model that also identifies its effects on both the business and its stakeholders based on their interactions.

Let us look at the case of consumer products as an example.

Here, a complementary impact indicator would be the assessment of the effect of the consumer education programs on product recyclability. It is listed as a way of evaluating a?value-capture opportunity for the company, as it potentially drives higher awareness and develops a perception of higher brand value in the medium term. It also exposes the organization to?value-creation opportunities in the alignment with other?best-in-class?organizations – within its own end markets or outside.

It's really not only about the data we extract.

It's more about how it describes the whole system of interactions and all the players involved. An important reminder when we choose our collaborators and seek to broaden our ecosystem.

Are we really broadening our chances of having an impact?

?? Circularity Roadmaps Explained

Trace the pathways of materials and uncover the secrets of global trade and diplomacy.

Thailand's ban on plastic scrap imports. Thailand is enacting a ban on plastic scrap imports. Starting this year, the amount of imported plastic scrap will be limited based on production capacities of the processing plants. By 2024, only half of imports will be allowed, and the ban will be fully in effect by 2025. The U.S. is the second-biggest exporter of plastic scrap to Thailand, however, U.S. exports have been decreasing and now Canada and Mexico are the top two international markets for U.S. plastic scrap. Some U.S. officials and activists are calling for even more restrictions, including ratifying the Basel Convention, an international agreement that aims to ensure certain waste is handled responsibly. The U.S. is one of the few countries not yet a part of this agreement. * follow WasteDive for more

Explore the potential of a circular business and unearth the potential for financial gain.

Renault shatters the status quo to accelerate circularity in the automotive sector. Maybe? It deserves some eyebrow lifting. Coupled with a healthy dose of optimism since it comes from the 2022 Paris Motor Show where the company announced the creation of a new business entity: the Future is NEUTRAL. With a 2030 revenue goal attached to it, Renault is betting on making its closed-loop know-how and extending the life of car parts and materials as a service. Its car-to-car concept deserves some thought as the car itself becomes the primary source of raw materials for future vehicles. Repurposing each vehicle in a supply chains of its own requires a true circularity ecosystem (check! Renault has built it in Flins, France) and partnerships with other companies (check! the process is a decade in the making with Solvay and Veolia - at least for the EV battery side of things, and Schneider Electric for its own operations in Flins). *credit to Sophia W. on GreenBiz

So goes one prediction for those interested in global financial markets. As newer business units launch and are in need of capital injections to reach meaningful scale, automakers such as Renault will be more likely to attach circularity metrics to their green or sustainability-linked debt offerings. A noteworthy read is the review of the sector from Ulf G. Erlandsson and Josephine Richardson .

?? Investing in the Circular Economy

Inspired by the new coverage of the circular economy led by Rebecca Chapman for the Principles for Responsible Investment , I invite you to take a look at their introductory review. It provides a handful of guideposts for responsible investors seeking to take action and wave in the pillars of circularity in their climate commitments.

If anything speaks louder than headlines on the relevance of circularity principles for the finance industry, we can get a hint by tracking the booming M&A landscape for the waste and recycling industry in the US.

The gist of it: Companies are splashing out on acquisitions and consolidating their operations at unprecedented levels. A notable industry tracker is from Cole Rosengren at Waste Dive . To understand the value of these transactions, it is essential to build a circular economy framework on waste that goes beyond specialized handling and logistics, and into upstream processing and reuse to turn the waste value chain into environmental gold...

With one caveat:

The European Union continues to face challenges in reaching an agreement on new packaging and waste rules. The impacts of downcycling - the production of goods of lesser value than the original - on the overall materials innovation and adoption of circular goods are also noteworthy analyzing. Downcycling as a practice has led to an emphasis on quantity of recycled content, instead of quality, and may have potentially hindered progress.

Turning waste to gold in 2023 may take few extra steps and thinking in terms of a broader value chain shared with many more market participants.

???You don't want to miss this week...

Jan 12th 2023:?The EU Circular Economy Stakeholder Platform is hosting their first #EUCircularTalks this year on the topic of social impact of procurement for developing countries: How Procurement Could Drive a Just Transition (link). Several cases will be presented on how procurement can positively impact local jobs and training opportunities while driving the circular economy. It will be followed by the presentation of a project to support the Mongolian wool and cashmere supply chain and processing industry in adopting more sustainable sourcing and production practices. The Norwegian Transparency Act will also be discussed.

Jan 14-19th 2023: Abu Dhabi Sustainability Week. ADSW 2023 is the first major global sustainability gathering of the year in the run-up to COP28, with a special session dedicated to the?Green Hydrogen Summit. The majority of events will be available online via ADSW Live.

?? Last but not least, the latest episode of the GreenBiz 350 podcast is now live.

Twelve inspiring professionals from all corners of the sustainability ecosystem presenting their wish for the year ahead - a glimpse of how much vision, hard work and collaboration goes into showing up and doing the right thing every day.

You will hear from Jillaine Dellis , Eileen Mockus and me about our fully circular, minute-long hope for 2023!

Off to another impactful week!