Visualize: Circular Economy 101
The principles of the circular economy go back nearly 3,000 years.
Archaeological evidence shows that the Romans recycled trash after the eruption of Mount Vesuvius in AD 79. Nearly 200 years later, people recycled glass during the Byzantine Empire. Fast-forward to today and circular economy strategies are expected to be created trillions in economic output by 2030.
But how does the circular economy work? This infographic from MSCI provides a guide to circular economies – from circular business models to circular technologies.
no time to waste
First, let’s start at the root of the problem, our current consumption trends:
- Raw materials: Global extraction is expected to double by 2060.
- Textiles: 85% of clothing and textiles are discarded.
- Waste: Global waste is expected to rise by 70% by 2050.
- water: 80% of global wastewater is not treated or reused before returning to the ecosystem.
To change consumption patterns and reduce waste, consumer behaviours, business models and policies must change. But the big question is how?
To answer this problem, the concept of circular economy is gaining momentum.
What is a circular economy?
The circular economy is centered on the idea of holding resources for as long as possible within the economic system, in which materials that have undergone a full life cycle, from production to the final stage, are returned to the economic system as input.
Above all, the circular economy is based on sustainable life cycles.
circular economy growth
In 2019, BlackRock launched its first circular economy fund. Since then, attracted $2.1 billion in investing. Some of the world’s largest asset managers have followed suit.
Policy-driven agendas also focus on circular economic transformation:
- Paris Climate Agreement
- United Nations Sustainable Development Goals (SDG 12, 11, 9, 13)
- Circular Economy Action Plan for the European Green Deal
- Durban Africa Declaration of 2019
- China’s 5-year circular economy plan
- Circular Economy Strategies Across Latin America
Due to the high cost of linear economic models, governments began to pay attention to the advantages of a circular economy.
The upside of the circular economy
Circular economy principles compatible with sustainability offer the following advantages:
- Reduce greenhouse gas emissions: 9.3 billion tons of carbon dioxide could be prevented by 2050 if circular economy strategies were implemented across the steel, aluminium, cement, food and plastic sectors.
- Long-term preservation of biodiversity: A 50% reduction in adverse impacts on biodiversity at the farm level through the application of circular strategies.
- Improving ocean health and water quality: An 80% reduction in plastics entering the oceans globally using reclamation, recycling and reduction strategies, among others.
- Economic growth and job creation: $4.5 trillion global economic opportunity by 2030 by spurring innovation in waste reduction.
Most importantly, circular strategies, technologies, and transformation firms look beyond traditional economic models.
5 Business Models in a Circular Economy
From alternative energy to biomaterials and recyclables, the most effective circular business models are those that create clear value.
Let’s look at five business models for the circular economy and where they can be applied in the supply chain. In addition, some models can be adapted to any part of the supply chain.
|business model||Example of a supply chain|
|1. Round Supplies / Round Design||Product design / research and development
Procurement / acquisition of raw materials
|2. resource recovery
(recycling, waste as a resource)
Manufacture of materials and products
|3. Extend product life
(remanufacture, resale, upgrade)
|end of life
Sales and marketing
|4. Participate||Product use
Manufacture of materials and products
|5. Product as a Service||logistics
Product design / research and development
Today, circular models present opportunities in fashion, food systems, mining and metals, among others.
How are circular economy indicators created?
The topic of the circular economy is built on two main dimensions:
1. Smarter technologies: Providing Circular Technologies
- Single-use alternatives to plastic
- Digital technologies that are replacing resource-intensive products
2. Resource Efficient Operations: Maximizing materials and minimizing impacts (eg emissions)
- Improved packaging materials
- Effective processes reduce land degradation and enhance diversity
Next, MSCI identifies areas of innovation that support the circular model. Consider the following circular technologies, produced by companies that contribute to the “end state” theme of the circular economy through their products and services.
|7 circular techniques||Example|
|1. Renewable energy sources and energy efficiency||Replacing oil-based plastics with compostable materials|
|2. The sharing economy||Peer-to-peer accommodation|
|3. Navigating the future||electric car|
|4. Internet Economy||Online Markets|
|5. Water sustainability||sewage treatment systems|
|6. Plastic sustainability||Companies that use only one type of polymer for packaging|
|7. Biodiversity||plant techniques|
It also looks at circular transformations, which are companies that enable the transition to a circular economy through their management of related issues.
|3 circular transitions||Example|
|1. Natural resource management||Elimination of Forests|
|2. Water Resources Management||Smart Meters|
|3. Plastic transmission||biodegradable plastics|
As a result, MSCI has created a set of indicators related to the circular economy:
- stewardship of natural resources
- sustainable transformation of water
- plastic transmission
- Renewable energy and energy efficiency
- sharing economy
It should be noted that what can be measured today is likely only to expand, given the evolving regulatory frameworks and thinking around the circular economy,
The value of the circular economy
By looking at innovation in the circular economy, we emerge with three important insights:
- Competitive profits
- new economic models
- sustainable solutions
For a growing number of investors, companies, and researchers, the circular economy offers a wide range of opportunities ranging from single-use plastic alternatives to water sustainability.