The value of a circular economy

As environmental, social and governance (ESG) issues are increasingly factored into company decisions and investment strategies, governments, regulators, and central banks are reorienting public spending and policies towards the transition to a ‘circular economy’. This is a shift from an excessive, linear supply chain to a more low carbon and inclusive circular model, whereby value is created by implementing a “reduce, reuse, recycle” waste management system, optimising resources. 

A circular economy has the potential to reduce global greenhouse gas emissions by 39% and tackle interlinked crises such as biodiversity loss and over-extraction of resources. According to the Circularity Gap Report 2022, of the 100 billion tonnes of materials which enter the global economy every year, only 8.6% are cycled back into the economy. There are 91 billion tonnes of materials being wasted each year. 

We know stakeholders expect sustainability to feature prominently in decision-making, so net-zero practices must become central to companies’ end-to-end operations, and although so far gradual, we must collaboratively accelerate this process.

The World Economic Forum calls for more businesses, countries, and cities to commit to doubling circularity in the next ten years saying “this will bring more sustainable consumption and production into the mainstream, and initiate and drive the change needed in policy, practice, and behaviours.”

Seizing the opportunity for for new revenues and better growth

According to the Ellen Macarthur Foundation, circular solutions accounted for 13% of Philips’ revenues in 2019, while Caterpillar offers more than 7,600 remanufactured products. Unilever has pledged to halve its virgin plastics use by 2025 and Solvay has set a goal to more than double the sales of products based on renewable or recycled resources to 15% of turnover. The Foundation’s collaborative report with Bocconi University and Intesa Sanpaolo set out new evidence that circular economy strategies can de-risk investments and offer better risk-adjusted returns.

In order to achieve the EU’s 2050 climate neutrality target, to halt biodiversity loss, and to reduce pressure on natural resources while creating sustainable growth and jobs, the European Commission adopted the new circular economy action plan (CEAP) in March 2020. It is one of the main building blocks of the European Green Deal, Europe’s agenda for sustainable growth and promotes systemic change that aims to make sustainable products the norm.

Scaling up for positive change

As part of this ambitious challenge, it is vital that data is collected and used to understand the environmental impact of decisions made along the supply chain. Adopting a comprehensive set of indicators that measure the scale and circularity of total material and waste flows will help along this journey. Indicators may include circular water consumption/ discharge, renewable energy consumption, or the recyclability of a product.  This will enable asset managers to identify sectors with high linear material use and environmental impact, so that capital can be distributed to business models that support circularity and, as a result, stand to benefit financially. 

Engagement with holdings and stakeholders is another key part of this transition; to encourage implementation of circularity and to address some of the broader barriers to adjusting to a new economic model.

The journey towards the circular economy is building momentum. If you’re ready to fast-track your transition, get in touch to discuss the benefits of collaborative engagement and rich insight provided by our purpose-built solution, SI Engage.

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