Driving Out Cost and Impact with Circular Economy Thinking

Not only has the ‘circular economy’ a nice ring to it, if you’ll excuse the pun, but it’s a term arguably with a greater utility than more familiar concepts mining similar subject matter, and thus more likely to encourage new ways of thinking about business sustainability.  Through reference to circularity, it implies a more objective–driven approach than either industrial ecology or life cycle management.  And by staking a claim to economy, it surveys a wider territory than resource efficiency, as well as conveying its relevance to the commercial bottom line, echoing the pressure of rising resource prices.


So, a nicely coined term, but will it have a currency that prompts business to fresh insights, and help to secure improvements in its sustainability by facilitating green (or greener) manufacturing?  I hope so.  With the implicit ambition of applying the ‘more from less’ principal of resource efficiency at the level of the economy as a whole, it reflects that we all have a contribution to make.


The actors in value chains all play a part in concert, and value chains themselves interweave and influence one another - to the extent that striving only to close the loop for a specific product or company can prove counter-productive or impracticable.  Recognising the goal to be a shared one, we should be encouraged also to examine how best to achieve circularity for complete value chains, as well as their interactions.


However, the first step towards greener manufacturing remains a local one. Cutting out waste and cost in the consumption of energy and materials, and sourcing the most efficient and renewable energy sources and raw materials for our processes.


The second is recognising and responding to the interplay up and down the value chain, changing material specifications, altering use characteristics and lifetimes and ensuring recovery can be achieved at end of life in order to deliver a better overall outcome.


Circular economy thinking leads us to a third step - designing new products to employ alternative materials. Including secondary materials from other value chains, facilitating re-manufacture, potentially by other parties, and ensuring that component materials and wastes can be most effectively recycled or recovered elsewhere at end of life.


With the insight of the wider perspective, we can expect to be challenged to make changes that might seem counter-intuitive.  In some cases, a closed loop for a specific material may deliver a sub-optimal outcome because of inherent friction, and the energy and other materials that are required to be consumed in order to allow this to take place. It would be preferable for the loop to be an open one, with another party or parties making use of the material to greater overall benefit.  Overall, circularity increases, with the material kept economically active, and with reduced consumption of other resources.


Inevitably, discussion of the circular economy leads to a focus on key materials, those in short supply and critical for some sectors, where the objective of maximising functionality per unit of resource consumed is most acute.  Here, if we don’t approximate to a closed loop circular economy, costs may soar, with a risk of service failure, and/or of less efficient and desirable alternatives.


However, not only is the principle readily applied to less scarce resources, renewable and non-renewable, imported and domestic, recycled or virgin, but the sustainability and cost benefits may be more considerable because of the scale of the value chain.  In all cases, the efficiency of production can be measured against a denominator of circularity in terms of resource depletion as well as other key sustainability impacts or benefits, including social and financial, as well as environmental, metrics.  We should ask how circular is our economy today, and how fast can we make progress against that benchmark.


Written by Simon Aumonier, Partner, ERM

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