Adopting a Circular Economy: The Future of Corporate Sustainability
We are currently at an unprecedented junction, both nationally and internationally. Climate change is a very real crisis that will have significant implications for every nation across the globe, and industries are already facing the repercussions.
In fact, the International Panel on Climate Change (IPCC), has affirmed that if we don’t act now, every region of the world will face hazards, from flooding and wildfires, to severe storms, drought and failed crops.
Governing bodies are paying attention, and many nations are adopting ESG climate policy initiatives, in alliance with the EU’s Corporate Sustainability Reporting Directive (CSRD).
An integral part of the ongoing expansion of national and international ESG policies is the shift towards a circular economy. With this shift, collectively we can work towards a more sustainable future that is healthy and prosperous for everyone.
In this article, we’ll go over what exactly a circular economy is, its benefits and considerations, and what the future might look like under a circular economy.
Let’s get started.
What Is a Linear Economy?
To understand what a circular economy is, we’ll first define a linear economy.
Linear economy is an economic model that works similar to an assembly line. Materials are resourced, products are manufactured, and then they go out into the market, and consumers buy the products.
Throughout the production process, there is very little or no inherent recycling, upcycling, or resource renewability built into the products. While we do have a recycling mindset, this isn’t the goal of most manufacturers.
A linear economic model can be summarized as the “take, make, dispose” approach. It’s unsustainable and contributes to climate change.
We need a better way.
What Is a Circular Economy?
A circular economy is an economic system where the goods and materials used in industry are never wasted and therefore, natural resources are regenerated and ecosystems are protected.
In our current linear economic model, materials and products are often relegated to waste (the throw-away clothing industry being a perfect example of this). This economic system is not just unsustainable, but it’s extremely harmful to the environment and fuels climate change.
By contrast, in a circular economy, all those materials and resources are kept within the economic system through the processes of maintenance, reuse, refurbishment, recycling, composting, and remanufacturing. This is where the ‘circular’ aspect of this sustainable economy comes from.
A circular economic framework takes on climate change through protection of biodiversity, regeneration of resources and ecosystems, reduction (and even elimination) of waste and pollution through the process of decoupling manufacturing and industry with the consumption of finite resources and eliminating the throwaway economy.
According to the Ellen MacArthur Foundation, a circular economy is based on three principles:
- Elimination of waste and pollution
- Circulation of product and materials at their highest value, thus eliminating waste
- Regeneration of ecosystems and resources
A circular economy model might appear like a pipedream, particularly given that a large part of our industry is based on a finite supply of nonrenewable resources and pollution. However, there are already nations that have adopted a circular economic model, such as the Netherlands. Currently, the Dutch government has a goal of becoming a country that is 100 percent based on a circular economy by 2050.
Not only is a circular economy possible, it’s essential for the health, welfare, and even survival of many regions and biodiversities.
One of the biggest barriers to adopting a circular economy in the US, and in many nations, is corporate buy-in. Shifting not just mindsets but also operations can seem like a daunting task. And it is. However, there are a multitude of benefits for everyone.
What Will it Take to Transform Our Economy to a Circular Economy?
Moving towards a circular economy takes effort from everyone, but most of all from manufacturers and other industry leaders. Manufacturers hold a position in the current linear economic model where they can dictate the flow of materials.
This is where we can pivot towards a sustainable industry: a circular economy.
Benefits of a Circular Economy
There are multiple advantages of a circular economy, the top of which is working towards an economic model that not only reduces waste and emissions, but in the long run can also help promote the regeneration of biodiversity and ecosystems.
On a more immediate, tangible level, the optics of companies moving towards a sustainable future can help engender public trust and accountability. Customers have become infinitely more conscious of their own consumption and are demanding the same from the companies they are purchasing from.
Companies that take climate change seriously, and work towards mitigating their impact on the environment, will become more favorable in the eyes of investors, stakeholders, and other business partners. Overall, a company that wholeheartedly adopts the circular economy and that aligns with its customers’ values is one that will have a positive reputation.
Considerations of a Circular Economy
Shifting to a circular economy is no small task, and it is a collective effort.
The first hindrance is regulatory frameworks and public policy. While ESG policies and procedures in the US are becoming more robust with standardized requirements, there are still considerable gaps in what manufacturers are and are not responsible for.
Additionally, many businesses and corporations may have to invest heavily in new technologies, infrastructure, and operational changes. While these investments are, for the most part and aside from upkeep, one-and-done, it can be particularly difficult to make the transition, company-wide.
In the early days and as companies make this transition, getting company-wide buy-in may be an uphill battle. Wide-scale change can require a heavy labor investment, and many personnel may not be agreeable to both the change and the workload. Providing incentives, thorough education, and outlining the benefits that extend far beyond the company borders can help ease the path towards this transition.
Lastly, as companies shift operations to adopt a circular economic model, gaining customer buy-in is always a consideration. Many customers may not even be aware of what a circular economy is or why it’s important. Marketing teams will most likely have to pivot towards campaigns of education and customer buy-in.
Shifting to a circular economy will require effort on many fronts.
Examples of Industries That Can Shift to Circular Economy
While we’ve been talking about circular economies, both nationally and globally, there are many industries that can – and are – working towards shifting their business models.
Here are a few examples of a linear versus circular economy.
1. Retail and Fashion Industry
Right now, our fashion industry in the US leans heavily towards a linear economy – one that is substantially harmful to the environment and for workers overseas.
With the rise of “fast fashion” came a throwaway model, where materials are sourced en masse using an unsustainable model that threatens ecosystems. From there, these materials are produced at a very low quality, and products are assembled again on a mass scale, quickly and usually using underpaid workers in developing nations.
From there, clothing is shipped to consumers often in the US, where these products are quick to sell and even quicker to be thrown away, due to poor quality, quick fashion turnover, and consumerism pressure to purchase new.
Under a circular economy model, the materials used will be circled back into the production process through recycling programs, upcycling, return and repair programs, and equitable and sustainable labor investments.
2. Financial Sectors
While financial sectors may not have a direct impact on a linear versus circular economy, per se, there is increasing pressure to invest in corporate sustainability programs. Many of these programs will be backed by financial institutions and other investors.
These ESG financial investments are rising, and sustainability is becoming a mainstream prerequisite, not just an added value. Investment portfolios and funds that focus on corporate sustainability and that emphasize economic growth based on environmental benefits have become strong contenders in the market.
Additionally, the introduction of green bonds, which are aimed at financing specifically eco-friendly corporations and projects, are gaining momentum in the markets, as are banks' preferences for investing in eco-friendly projects and companies.
3. Energy and Resource Sectors
The energy sector potentially has one of the biggest impacts on how successful circular economies can be. At the crux of everything we do is the use of energy, whether that comes from renewable or finite resources. Energy drives our economy – nationally and globally. Energy then has the potential to transform economies.
The use of recycled or sustainable materials in energy production has grown in popularity, and has the potential to transform how we make and use energy. Globally, there are a number of manufacturers that are using recycled materials to manufacture energy infrastructures, such as wind turbines and solar panels. This limits the exploitation of natural resources and ecosystems.
Visualizing a Future Circular Economy
Transformative shifts in how we operate, collectively and globally, can be hard-won and intensive. The rewards are worth it.
Visualizing a circular economy that is not only self-sustaining, but is net-zero with positive impacts on the environment is a future we all want.
It’s understandable that many companies might be hesitant to shift their operations on such a wide scale. Here are a few steps that manufacturers can take to get started:
1. Adopt ESG Data Transparency
ESG data reporting and transparency is becoming the de facto standard, particularly for investors, stakeholders, and customers.
Collecting ESG data also serves another purpose: It’s a track record of where your company can begin to address operational gaps. For example, if your company is using non-renewable energy sources to manufacture or transport products, this is an aspect that can be addressed.
2. Audit Your Source Materials
Industries that rely on source materials that are non-renewable or the sourcing of them could be potentially harmful to the environment and local communities, is an area of operations that can be reimagined.
Shifting to materials that are renewable, sustainable, and ethically sourced means shifting a business model that is also sustainable. Those materials could be recycled from other industries through recycling and remanufacturing partnership programs.
3. Consider Partnerships With Other Eco-Friendly Companies
When we consider the end journey of many products within a linear economy, it’s simply wasteful.
Partnering with eco-friendly companies to bring materials and products back into the economy, through recycling, upcycling, or refurbishing programs not only signals to the public and investors that you are a company that takes sustainability seriously, but also contributes to the health of the entire economy through value-aligned partnerships.
4. Make a Long-Term Net-Zero Plan That Includes Corporate Social Responsibility
It’s understandable that companies can’t shift overnight. To do so would be detrimental. However, articulating a long-term plan that moves the company towards the global net-zero goal and corporate social responsibility is no longer negotiable.
Corporate social responsibility (also known as CSR) is the philosophy and reasoning behind why businesses make the decisions they do. It’s about remaining accountable to sustainability, diversity, and inclusion. While environmental responsibility falls under the CSR umbrella, all aspects of CSR are interconnected: environmental responsibility is inseparable from social responsibility, and vice versa.
Addressing a long-term plan that inculcates the spectrum of CSR, company-wide, will help set the framework for sustainability and contribute to a circular economy.
Harness the Power of Your ESG Reporting Today
Working towards a circular economy takes considerable effort and corporate responsibility. Harnessing the power of your ESG data will set your company on the right track and a sustainability software partner like AMCS can be the solution you need.
To find out more about how you can harness the power of your ESG reporting, speak to an AMCS expert today.