DNV.se

Business Assurance - Viewpoint

How are companies transitioning towards the circular economy?

Leaders: Impact and Approach

Business person analysing performance

Internal drivers dominate transition

Among the leaders (96 companies, 12.1% of the total sample), 84.4% have already made circular economy core to their current business strategies to create economic value while mitigating environmental impacts. The main transition drivers are the ability to support and enhance sustainability strategies (70.8%) and cost savings (69.8%). These are followed by brand reputation (49%) and consumer demand, engagement and retention (35.4%). Leaders seem more tuned into the full potential of circular economy business models with 29.2% (vs. 16.6%) indicating that these can open new revenue streams.

More advanced on product and business model innovation

The two most prevalent circular economy business models among the leaders are resource recovery (84.9%) and product life extension (72.2%). These are followed by adopting a circular supply, i.e. replacing traditional resources with fully renewable, recycled or alternatives, (56%) and newer models such as product as a service (40.5%) and sharing platforms (40.2%). Leaders are implementing circular economy business models at a much higher rate than the average sample. This is especially prevalent for newer/less adopted models such as products as a service (e.g. lease, pay per use) and sharing platforms (e.g. car sharing, house rental).

Supply chain is the most common target

Creating a more sustainable supply chain (67.7%) is by far the most implemented action by leaders in order to achieve a more circular approach. This is followed by product design considering environmental and resource impacts during the entire product lifecycle (60.4%), reduced use of virgin raw materials (57.3%) and technology investments (53.1%).

More systematic approach to corporate metrics and measurements

Leaders are more systematically applying corporate level metrics and measurements. A total of 54.3% have determined the initial level of circularity, i.e. establishing a baseline, and 68.8% have set specific goals and targets. Performance indicators have been defined by 60.4%. However, even leaders seem to largely use internal measurement frameworks (78.6%) rather than applying those established by Ellen MacArthur Foundation and the World Business Council for Sustainable Development (WBCSD).

Main barriers are lack of incentives and definitions

The main transition barriers faced by leaders during design and implementation are lack of attractive regulatory and economic incentives for sustainable design (41.9%) and common technical and legal definitions of waste and circularity (35.5%).
Leaders differ from the average in that they see low awareness, skills and capacity within the organization (11.8%) as less of a barrier and they tend to involve partners in their circular economy initiatives at higher rates. A total of 50% work with recyclers and maintenance service operators, 45.7% with companies in their supply chains, 24.5% with specialized logistic providers and 23.4% with technology providers.

Cost saving and reputation top list of benefits

In terms of benefits derived from implementing circular business models, 63.8% experience cost savings, 54.3% improved public image and brand reputation and 48.9% improved ability to comply with legal and regulatory requirements. There are two areas in particular where leaders demonstrate maturity compared to the average. A total of 41.5% (vs. 21.6% average) have opened new revenue streams, while 50% (vs. 32.6% average) have gained a competitive advantage.

Communication of performance is more widespread

Leaders communicate the performance of circular products or initiatives at higher rates. The corporate sustainability report was used by 48.9% while 46.8% communicated through the corporate website and/or other institutional communication channels. A total of 34% shared information through a product label.
While leaders also communicate third-party verification of a product or initiative at higher rates, the use of channels is largely the same. A total of 46.2% share verified claims in their sustainability report, 45.1% use the website and 27.5% communicate through the product itself. The value added to circular projects by third party organizations is recognized by 49.5% who say it increases trust towards customers and final consumers. A total of 47.1% indicate it helps demonstrate compliance toward regulators and 46.4% say it increases trust in the initiative’s effectiveness toward owners/top management.

Rely on more experts and digital solutions

Circular models demand multidisciplinary competences. Leaders involve higher numbers of experts within all disciplines in the project teams working on their circular economy projects (especially internal resources, where strategy, as well as and operations and supply chain, were represented by 73.4%).
Leaders rely more heavily on digital solutions to support their circular economy projects. The most prevalent digital technologies are information and data management (46.9%), traceability solutions and IoT platforms (32.3%) and business decision support (29.2%). A total of 22.9% use platforms for asset and information sharing, 20.8% use smart and digital design solutions (20.8%) and 19.8% apply mechanisms to incentivise circular behaviours. Digital marketplaces are applied by 15.6%.