The Push for Circularity: Practical Applications for Businesses

Thanks to the EU's Corporate Sustainability Reporting Directive (CSRD), sustainability reporting has taken a decisive step forward for large companies. This directive not only emphasizes the transformation of sustainability into becoming an embedded business objective, but also puts it on an equal footing with finance.

The CSRD specifies the extent and content of companies' sustainability reporting obligations. The CSRD originally concerned listed companies as well as financial services and insurance companies with more than 500 employees and a turnover of more than €40 million or a total balance of assets of more than €20 million. The reporting scope has now been broadened to include all companies that meet at least two of the following three criteria: a total amount of assets of €20 million or more, a turnover of €40 million or more and/or 250 employees or more.

As decided by the European Council on the 28th of November 2022, the Council, together with the European Parliament, published the renewed Directive (EU) 2022/2464 on the 14th of December 2022, thus entering into force. EU countries, beginning in January of 2023, now have 18 months to incorporate this renewed EU Directive into national law.

Shifting a business model towards circularity would meet these reporting standards, while providing a number of benefits to a business. However, while benefits are compelling and attractive to a business, it may not be entirely clear what actions can be taken to make a circular economy a reality. This blog post aims to outline the steps that should be considered in the process, and how businesses can get started. It will cover the following topics:

• How businesses should analyse their overall business model in regard to circularity
• What kind of integration and implementation components are involved in pursuing a circular economy
• Why material matters in the design and production phase of a product

While there is no universal solution and the exact steps will be as unique as each business, there are several building blocks that can help start a business on its journey.

You can read more about the benefits and practical applications of a circular economy by reading our guide “The Circular Economy Part 2: Practical Applications & Benefits for Businesses”

Time to Reflect

For a circular economy to become a reality, it is necessary to address one's business model. There are different methods and steps required to become circular. For example, the article Designing the Business Models for Circular Economy—Towards the Conceptual Framework identifies three variations for implementing a circular business model. What are essentially the common features within all three formats are discussed in the following five steps:

• Learn: Get started by learning about circularity and the basics of a circular economy. This may include consultation from external circularity experts to help get started and assure that the information that is being presented is correct.
• Self-Assessment: Evaluate the readiness of all parties involved to adopt circular principles while also examining expectations of value and cost from both a business and consumer perspective.
• Preparation: Identify opportunities for change from products to processes and from services and the company's ability to deliver. 
• Implementation: Organise and deploy circularity in all areas (i.e., from operation to personnel).
• Support: Empower both consumers and employees by creating a dialogue about circularity.

Collectively, these areas will help an organisation to develop an idea of where it currently stands in relation to future goals. It will facilitate the identification of areas for improvement, removal and/or addition. In general, reflection helps to develop a plan so that the tools and concrete next steps are clearer and well-understood.

The Pillars of Integration

Having understood where you are compared to where you want to take a business on its circular journey, there are several areas within a business that need to be addressed. In terms of implementation and integration, there are six main areas for circular economy principles within a business model:

1. Sales Model: A shift from selling volumes of products to maximising the productivity of assets is needed.
2. Product Design & Material Composition: A deliberate effort must be made to move away from the lowest cost of production approach, meaning materials should be scrutinised for their sustainability and products must be designed and engineered to achieve the highest quality.
3. IT & Data Management: This not only enables better tracking of materials, but also better sorting. It is particularly useful when data management is digitised, making control easy, accessible and transparent.
4. Supply Loops: Identify methods to maximise resource recovery where feasible to optimise the use of recycled materials and used components. This helps to add value to all streams.
5. Strategic Sourcing: Creating trusted relationships is critical to decoupling economic growth from the deployment of natural resources. This can be done both upstream and downstream, promoting integration and co-creation.
6. HR & Incentives: Change must also be managed from within. This requires appropriate cultural adaptation and skills development.

Although these are useful tools for laying the foundations of a circular economy, each company is unique and needs to find the right method that works best for them. This is particularly important when it comes to materials and waste management, which play an integral role in circularity.

A prime example of this implementation of these methods is that of Fraport. Find out more by reading our success story about Fraport.

Making the Most of Material

The design of a product and the materials it uses are crucial to a circular economy. There are two categories of inputs: the first is "biological materials [which] are those that can be returned to the biosphere in a restorative manner without harm or waste (i.e., they decompose naturally); and [secondly] technical materials that can be continuously reused without harm or waste".

On the biological side, various packaging solutions to curb the use of environmentally harmful materials are being developed. For example, various companies are creating packaging via the use of seaweed which typically degrades within four weeks and can be a soil ameliorant. On the other hand, technical materials may not break down, but shifting perspectives and uses can aid in their efficient reuse and recycling.

With this in mind, design in both cases should consider the nature of the material. In the context of a circular economy, this means reusing and recovering materials in use as often as possible and preventing the needless extraction and import of virgin raw materials. The aim is to design products to last as long as possible. They should also be designed to be reused and recycled.

Nevertheless, extending the life of a product may seem detrimental, as it can be argued that it may lead to fewer purchases. However, according to an article in the Harvard Business Review, this can be a "key competitive differentiator". It is argued that making a product more durable and reusable "provides a strong rationale for premium pricing". Furthermore, designing products in a circular way also helps to "maximise the recoverability of the materials involved for use in new products", which helps to reduce the need for raw material extraction.

All Steps in the Journey

There are a range of factors that a company needs to take into account when trying to implement a circular economy. To be successful in establishing a circular economy, a business must:

• Learn about circularity and identify what needs to be adopted, adapted and/or changed.
• Consider all areas of a business in relation to circularity.
• Understand the importance of materials and where they come from.

Once these fundamentals are in place, going circular can be adapted to practically any industry, as there are multiple opportunities and pathways to becoming more sustainable. Among the steps that can be taken today are:

• Educating yourself by reading about circularity and the circular economy, e.g., on our Knowledge Centre.
• Look at tools and methods that can help you on your journey, such as digitisation.
• If something is unclear, don't be afraid to ask questions. There are many experts who are willing to share their knowledge.

All in all, circularity is not just a theory, but a tangible model. The more one equips oneself with knowledge and tools, the more achievable it becomes. In the end, a circular economy is worthwhile for everyone involved as it protects the planet and the economy.