The circular economy is not a new idea. In 1987, the United Nations published the Report of the World Commission on Environment and Development: Our Common Future, which called attention to the global issue of diminishing natural resources and introduced the concept of sustainable development. Today, the circular economy model has grown in importance: governments build regulations to enforce material transparency, businesses tap into circular economies to improve material efficiency, and sustainability changemakers across the globe collaborate to promote sustainable business practices at events such as international Circular Week.
Business leaders looking to improve their environmental, social and governance (ESG) footprint can apply the circular economy model to use the planet’s limited resources more efficiently while also improving their operations and positively impacting the socio-economic growth of their communities. This is true for international circular economies such as the European Union as well as microeconomies formed between local businesses.
The time to act is now and there are practical steps complex manufacturers can take to apply the circular economy model across their supply chains.
The urgent need for circular economies
According to the latest National Footprint and Biocapacity Accounts 2022 research from the Global Footprint Network, a nonprofit research organization, the world is consuming 1.75 planets’ worth of resources annually (an increase from 1.7 Earths in 2021). To make matters worse, much of what is considered waste is actually reusable material being sent to landfill or disposed of prematurely.
Shifting to a circular economy reduces the burden on the planet by preserving materials, giving Earth time to regenerate its renewable resources. But there is a need for supply chain collaboration and acceleration of efforts to reverse the trend toward overconsumption.
While there are regulations that support the circular economy, it is up to individual organizations to take the lead in making this model possible by designing products that take environmental considerations into account and incorporate ESG impact into their purchasing decisions. Focusing on data transparency between supply chain partners and streamlining processes with the right tools is a vital step in the right direction.
Data drives the circular economy
At its heart, the circular economy is about making the most from Earth’s scarce resources. When a product reaches the end of its lifecycle, a circular approach requires businesses to understand the value remaining in that product’s materials and give them new life. In a linear economy model, a product and all its component materials reach an end-of-life stage and become waste. Many of the raw materials, however, can be harvested from that product and reused. This diverts useful materials from the landfill, reduces an economy’s overall natural resource consumption and injects valuable materials back into the system to spur economic growth.
This is only achievable when businesses have deep visibility into what goes into their products. For complex manufacturers, it is not enough to know what parts go into their finished goods — they also need to know what goes into the components of the parts they are using. This is typically where the data about raw and reusable materials is found. Supply chain data is essential to knowing what components in a product can be repurposed, recycled or considered waste.
Governments and institutions around the world are taking great strides to harness supply chain data for their circular economy efforts. For example, the 2018 amendment to the European Union’s Waste Framework Directive (WFD) established the Substances of Concern In articles as such or in complex objects (Products) (SCIP) database requiring manufacturers to collect and publicly disclose product component data. This data helps waste operators identify which materials can be safely reintroduced into the economy and how to safely dispose of them when needed.
For complex manufacturers seeking to engage in a circular economy, a data-driven view of their products and how they are created is essential to drive supply chain collaboration and manage the flow of resources.
Steps to making it a reality
How does a business capture that data and make it usable within a circular economy? Since suppliers and partners are the best authority on what goes into the materials they provide, getting the data from them directly is the best practice.
The challenge, however, is making sure that communicating this complex data is simple, cost-effective and aligned with every partner’s goals. Members of the circular economy will need to agree on what data needs to be shared (or which regulations need to be followed), when data is needed and in what form it should be communicated.
Evidence from numerous ESG initiatives shows that using a standardized template is fundamental to making real progress. There may already be industry-standard templates or guidelines from market regulators available that support a business’ circular economy and social change goals.
For example, governments and industry workgroups worldwide recognize the Slavery and Trafficking Risk Template (STRT) and Conflict Minerals Reporting Template (CMRT) as best practices for capturing and communicating due diligence to protect human labor rights.
Make the data gathering process simple
The next consideration is ensuring a company’s supply chain data management is optimized to make data and material sharing effective. This means making it easy for supply chain partners to share data about what is in their products.
Today, most businesses have embraced digital platforms designed specifically to streamline data sharing. There are online marketplaces for organizations to buy and sell end-of-life products, software tools that help collect technical product data, and solutions that make it clear which components are safe to reuse and which are classified as a substance of concern under various product safety regulations.
The need for these types of digital solutions scales up with the complexity of a manufacturer’s products and the size of supply chains for all players involved in the circular economy. For example, automotive manufacturers have partnered with local non-governmental organizations (NGOs) to turn waste-stream plastics into consumer goods such as filling for jackets and sleeping bags. While NGOs have a much smaller supply chain than an automotive plant, deep insight is still needed into that raw material, and a robust system is required to support the communication of material data.
Because the circular economy model relies on the flow of data between supply chain partners, adopting technologies that streamline this process accelerates the growth of each organization in the cycle. By implementing these practical steps, complex manufacturers can contribute to a circular economy by embracing digital tools to gain deeper visibility into their supply chains and manage the end-of-life environmental impacts of their products.
