From pioneers to fast-followers: Circular metrics are for the masses

Despite how turbulent 2020 turned out to be, circular pioneers did not waver in their ambitions. Inter IKEA Group completed over 9,500 circular assessments of their products and used 98 percent sustainably sourced wood. Microsoft (automatic PDF download) found that its Surface products and packaging performed between 22 to 25 percent according to the WBCSD’s Circular Transition Indicators (CTI).

The interest in, engagement with and implementation of circular metrics in business is quickly gaining speed, as calls for transparency and data-driven action increase in response to climate change, biodiversity loss and other environmental pressures.

This growing demand is being met by the expansion in circular measurement resources that took place in 2020. In addition to the CTI, the Circulytics and GRI 306: Waste 2020 standards joined circular metrics initiatives such as the Circularity Gap Reporting Initiative and Cradle to Cradle Certified. Recognizing this growing momentum, the World Economic Forum’s International Business Council included circular metrics in its Measuring Stakeholder Capitalism white paper. Fast Company cited companies measuring their progress on the circular economy as one of the seven ways the circular economy will grow in 2021. 

If 2020 was the jump out of the gate, 2021 is set to be a year of acceleration.

3 stakeholders, 1 direction 

Currently three system catalysts are simultaneously accelerating progress in the circular metrics space, driving an urgent need to transition for businesses in all industries. These catalysts are companies, investors and the public sector/civil society.

Companies

Pioneering companies already have completed circular performance assessments on their products, services, business units or entire companies. These businesses typically have conducted these exercises either for internal or strategic decision-making, or to demonstrate their commitment to the circular economy in a transparent way. Given these objectives, the most valuable outcome from these assessments is not the final score or performance level. Rather, it’s the insights collected through the process, as well as the understanding of risks and opportunities to the business as a result of that performance.

Beyond the potential of risk and opportunity assessments to boost a company’s competitive edge, businesses that understand the circular performance of their products or services will also undoubtedly strengthen their customer relationships. Indeed, as more companies adopt circular metrics, having this data readily available increasingly will become an expectation, rather than an exception. 

As the value of assessing a company’s circularity is increasingly recognized, this exercise will be more understood as a business risk and opportunity assessment, and less as an item on the sustainability to-do list. As this transition unfolds over the remaining months in 2021, circular performance measurement will be taken up by both pioneers and fast followers.

Investors

Measurement of circular performance in the investment community has been discussed for a few years, particularly in Europe. In 2018, ABN AMRO, ING, and Rabobank published the Circular Economy Finance Guidelines to try to establish a common understanding of the circular economy in finance. That same year, the European Investment Bank published The EIB Circular Economy Guide, which had similar ambitions in addition to assessing EIB investments.

This momentum in the investment space has only ramped up, with circular finance announcements from Intesa Sanpaolo, BNP Paribas, Blackrock and RobecoSAM emerging since then. As these announcements continue, alignment and consistency will become critical.

As industry begins to align behind circular metrics of its own, some investors see an opportunity to use those frameworks to evaluate the risk of their investments. Investors are increasingly looking to assess their portfolio against regulatory and compliance risks, financial performance and the sustainability impact of an investment’s circularity performance. To be recognized by these investors, it will be essential for circularity frameworks to respond effectively to these interests.

Public sector/civil society

Beyond the private sector, numerous efforts are underway to catapult the circular performance measurement space forward. 

The International Organization of Standardization (ISO) Technical Committee (TC) 323 on Circular Economy was created in 2018. It aims to align national standardization entities on the development of frameworks, guidance, tools and requirements on the circular economy. The Technical Committee includes 80 countries and eight other liaisons, reflecting the level of global interest in the project.

The European Union’s Taxonomy for Sustainable Activities aims to align the continent on what qualifies as a “sustainable” activity, with the circular economy as one element. While not yet ready for deployment in the private sector, the expectation is that investors and companies will use the taxonomy to assess the broader sustainability merits of products and services on the market.

On the public sector front, the Ministry of Economy, Trade and Industry (METI) of Japan recently published the “world’s first disclosure and dialogue guidance” on the circular economy formulated by a government. The Disclosure/Dialogue Guidance for Promoting Sustainable Finance for Circular Economy is currently only available in Japanese, but an English translation is anticipated for the spring. 

In other words, even if the private sector was completely complacent on circular metrics, governments and NGOs are making enough progress by themselves to warrant a discussion on circularity in any company.

Don’t get left behind

Since the publication of the Circular Transition Indicators (CTI) v1.0: metrics for business by business in January 2020, the WBCSD Factor10 project has aimed to improve the framework to reflect companies’ feedback and priorities.

In February, WBCSD published CTI version 2.0, an effort led by Royal DSM that involved 30 industry organizations. This updated version includes three new indicators on water circularity, a new CTI revenue indicator and extensive guidance on the bioeconomy. In addition to the new framework document, all updates have also been applied to the CTI Tool, which is ready for immediate application.

It may seem a daunting initiative to measure the circularity of your whole company. We’d recommend you start with something more digestible: a product; product group; or facility. Take the lessons from that exercise and scale up. One of the elegant features of CTI is that it can be applied at process, product or business unit level, allowing you to measure circularity consistently — regardless where you are on the circular maturity curve.

Given the trends identified, the businesses that start evaluating risks and opportunities through circular performance measurement undoubtedly will become more competitive and more equipped to respond to building stakeholder pressure — securing success for today and for tomorrow.