If you can’t measure it, you can’t manage it!

As the world commits to sustainable development goals and Net Zero targets, more and more businesses across sectors are transforming their processes to shift away from the linear model to embrace circular economy practices. From designing out waste, and launching take-back programs to implementing closed-loop manufacturing processes, a variety of actions are being adopted. It's promising and exciting!???

Environmental and Economic Benefits?

Studies show that circular economy strategies can help reduce global GHG emissions by 40 % by 2050 through more circular use of materials in just four key industrial sectors (cement, steel, plastics, and aluminum). And if we include the food system, we could achieve as much as 49 % reductions in global GHG emissions overall.?

Besides environmental benefits, companies that adopt circular practices can reap remarkable economic and business opportunities — create new revenue streams, reduce costs due to lower virgin material requirements, and strengthen their reputation among customers and investors.?

Assessing progress

Beyond doubt, circular practices have gained traction. But a crucial question for businesses here is: how can circularity efforts be measured? How can they track the progress and monitor the extent to which their activities and products follow the circular principles? What are the key circularity indicators??

Importance of measuring circularity?

According to the Ellen MacArthur Foundation, the benefits of circularity indicators could be significant: from decision-making tools for industrial practitioners to internal reporting, through rating or evaluation of companies. The indicators should enable all the stakeholders to understand where their actions stand in terms of circularity performance. The numbers will help them analyze how well they integrated circular strategies; the effectiveness of the actions implemented; and assess the pitfalls.?

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Evolving field?

Companies are now making significant headway in embracing circular principles, but the impact is often difficult to quantify. Several tools are available to measure a business’s circularity efforts, and more are being developed. However, the development of comprehensive and actionable metrics is a key accelerator for circularity at scale.

In a linear economy, more often than not, value is measured by a singular aspect of the business, which is finance. But in a circular economy, the product can go through several life cycles or loops and initiatives involving an array of supply chain activities. Besides cost, the measuring tool should consider various variables and indicators such as product durability, recyclability, repairability, and so on. Because of these complexities, measuring the circularity of a product or service can be challenging. The initiatives and aspirations have to be broken down into quantifiable, measurable, trackable, and comparable data.?

In our previous article, we examined how reporting on end-of-life product treatment was something of an Achilles heel and we offered a tangible solution in Ehfaaz’s framework of the End-of-Life Impact Report. Similarly, existing circularity tools have missing links. While there is an urgent need for a holistic tool that assesses circularity at system, business, and product levels, let’s take a look at some of the tools that are in use and under development.?

Circulytics?

In 2020, the Ellen MacArthur Foundation launched Circulytics. In its words, “It’s a data-driven tool that allows companies to measure their circular economy performance, highlighting successes and identifying areas for improvement.” The Circulytics methodology is a set of indicators that collectively capture the circular economy performance of a company’s entire operations. It is structured into two categories – Enablers and Outcomes and covers 11 themes (refer to the figure below).?

The Enablers category consists of qualitative indicators such as strategies, innovation, and operations that are used to assess how well-positioned a company is to transition to a more circular way of doing business in the future. The Outcomes category captures actual circular economy results at a company level, such as material flow, water and energy use, service provision, and product design, or procurement and decommissioning of plant, property, and equipment assets. The theme-level scores give companies a more well-defined insight into how they are performing in specific areas of their business.?

Circular Transition Indicators (CTI)

CTI was designed by 30 member companies of the World Business Council for Sustainable Development (WBCSD). According to WBCSD, the CTI is a quantitative framework that can be applied to businesses of all industries, sizes, value chain positions, and geographies. It is a self-assessment tool for businesses to determine their circular performance across various dimensions such as business units, sites, and products.?

?The CTI framework consists of the following four modules of indicators (see figure below)

The methodology is based on the assessment of material inflow and outflow. Inflow measurements look at the source material and water and energy use, while outflow assessment takes the potential for recovery of material in the process cycle into consideration. Early this year, the WBCSD released the 4th version of CTI, which includes a new indicator to measure impact on Nature.?

ISO standardisation

In 2018, the International Organization for Standards (ISO) created a technical committee dedicated to circular economy. Known as ISO/TC 323, the committee works on “Standardisation in the field of Circular Economy to develop frameworks, guidance, supporting tools and requirements for the implementation of activities of all involved organizations, to maximize the contribution to Sustainable Development.”

The under-development framework: ISO 59020: Circular Economy “Measurement and Evaluation of Circularity” will be used to determine the effectiveness of circular actions carried out by public and private organisations. “It will assist organizations in collecting the necessary information to enable circular economic practices that minimize resource usage and/or enable a circular flow of resources, contributing to sustainable development.”

Reporting circularity?

Globally, regulators are adopting legislation to increase the scope of non-financial reporting. From 2024, the European Commission has mandated companies to report on sustainability-related impacts, opportunities, and risks under its upcoming Corporate Sustainable Reporting Directive (CSRD). The circular economy efforts will be a key part of this disclosure process. Going forward, companies will have no choice but to measure and document their circularity actions. After all, reporting your circular results will demonstrate your accountability, transparency, and credibility.?

While Circulytics and CTI are suitable for internal reporting, the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), Natural Capital Protocol, and WEF Stakeholder Capitalism UN Global Compact Sustainable Development Goals standards are for external disclosure. Alternatively, companies can seek product certification such as the Cradle to Cradle Certified? Products Program, administered by the Cradle to Cradle Products Innovation Institute.?

In conclusion…

Circular economy reporting frameworks and communication strategies are in their nascent stages. Some of those available today are industry-specific or limited in scope. Choosing the right tool that aligns with your company’s strategies and operations will hold the key to a successful journey towards circularity. Data science is fast evolving and soon, we can expect robust tools and standardization within the reporting framework.?