EcoVadis is glad to welcome this guest blog post from one of the experts at Nexio Projects, a member of the EcoVadis training partner program.
Today, the global economy is only 8.6% circular — just two years ago, it was 9.1%. The opening statement of the Circularity Gap Report 2020 could not be any clearer: With only 8.6% of the world being circular — and a negative future trend — we currently lack the ability to capture the full potential of this business model. This is a major opportunity missed, since a circular economy is not only the most sustainable option, but also the most profitable in the long run.
Resource Shortages: What Leads to Them and What Doesn’t
While many companies claim to be circular, the Circularity Gap Report clearly indicates that we are still entrenched in a “take-make-waste” economy. And there are three key obstacles to creating a circular economy: The high rates of resource extraction, ongoing stock build-up and low levels of end-of-life processing. These are highly interrelated.
However, contrary to common belief, the fact that we extract large amounts of natural resources does not in itself pose a sustainability issue. In his book, The Blue Economy, Gunter Pauli argues that the world has an overabundance of resources, provided they are reused and recycled. This is why, he stresses, we shouldn’t rely on new natural resources and instead we should extract resources from the existing material flow currently circulating in our economy.
Unfortunately, at present, the world is still lacking decent end-of-life processing and this may become the leading cause of resource shortages. Plus, if we stock up on products not when we actually need them but with an intention of using them in a distant future, we’re effectively parking useful resources. And this becomes another trigger leading to resource shortages.
Looking for even more insights on how to make sense of circular economy in the supply chain? Check out this webinar recording.
What’s Holding Us Back?
Though challenges remain, many companies have already taken first steps toward sustainability -- and, if it’s not already part of their strategy, recycling materials and waste is the next thing they should do. The main obstacles preventing them from going this way are the ever-rising competitive pressure, low-cost rivalry and increasing warranty expectations from consumers.
In addition, much of the impact remains in the supply chain. Before the final stages of production, a product’s ecological footprint can be determined by up to 70%. This poses an issue, as suppliers of raw materials and semi-finished products often lag significantly behind in terms of circularity. Thus, large scale initiatives and inter-company collaborations are a prerequisite for making a transition toward true circular economies. The current situation leads to sizable losses in cost savings and efficiencies, resulting in missed opportunities for growth and profitability across the supply chain.
Circularity Success Through Collaboration
As mentioned above, it is often the restrictions on one party by another that withholds us from becoming circular. In order to overcome this challenge, we should break down silos, invest in partnerships and make use of digital advantages.
Shifting a product or business area to a circular model requires collaboration of multiple parties -- both internally such as product design, engineering, marketing, operations -- and externally with procurement and supply chain teams, and the relevant supply partners such as for materials or outsourced manufacturing. None of these functions can achieve full circularity without full collaboration of the others.
Only limited success can be achieved within a single functional silo. Companies that will benefit the most from a circular economy will be those that look for opportunities that impact the very core of their operating models and those who seek to build a network of partners. Large multinational buyers often have 50,000 or more suppliers and need ways to identify the best supply partners for circular initiatives. Many use sustainability ratings, such as EcoVadis Rating, to identify the suppliers whose sustainability performance shows they are candidates for such sustainable innovation and collaboration. Corporates can also greatly benefit from collaborations with front-running businesses, governments, NGOs and academics to collectively boost the capacity and capability of sustainability.
Lastly, digital technologies should accelerate sustainability initiatives and promote circularity. IoT, radio-frequency identification and analytics are critical for embedding circularity across operations and company networks. These tools are best-suited to track resources, monitor products and gain insights into product end-of-life. By following products in every stage of their creation, usage and disposal, we will be able to identify critical issues within the supply chain and focus on improvement areas.
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