February 11, 2022

How circular is your business?

Discover how well your business is performing with circular metrics

Writeup by Caterina Gandini

With the rise of new reporting standards and legislation on sustainability reporting, more and more businesses are looking at ways to measure waste and resource use and implement circular economy metrics for their reporting and strategy. However, businesses face challenges in implementing metrics due to a lack of data and knowledge gaps. The vast number of indicators and metrics on circularity make it difficult for companies to select the right one for them. 


We're here to help. With the expertise acquired by testing and assisting in the development of some of the existing circularity frameworks, Circle Economy can help you in the process of selecting and applying metrics for your businesses. Circle Economy has published two white papers exploring the application of the CTI and CIRCelligence indicators frameworks as well as an overview paper on the opportunities and challenges that businesses face when applying circularity metrics. 


On December 16th, 2021, the metrics team at Circle Economy explained how to implement circular metrics and how to make businesses future-proof  during a webinar, How circular is your business? Jacco Verstraeten-Jochemsen, Lead Business Solutions at Circle Economy, provided an interactive keynote guiding the audience through the six steps of applying metrics to businesses and highlighted the challenges that companies can face at every step of the process. The webinar also offered an explanation to why measuring circularity is of vital importance in these times. Below, you can find a summary of the key insights, as well as answers to the questions posed by the participants during the webinar. Or, if you like, watch the webinar via this link.


Why did we start measuring? The current linear economy is only 8.6% circular. Material use and carbon emissions continue on an upward trend. In terms of sustainability and circularity, the global engine of change is stuck in reverse; we are still heading in the wrong direction. Both the Circularity Gap and the Emissions Gap remain dangerously wide. Since the boom of the Industrial Revolution, businesses have driven the linear economy to deliver high standards of living and tremendous wealth in some parts of the world. In today's resource-constrained world of rapid population growth and urbanisation, businesses need to emulate the speed of the Industrial Revolution in their shift from a linear to a circular economy.


In order to achieve this, business will require measurements and metrics other than the ones that we developed for the linear economy. The webinar uncovered the six steps necessary to apply metrics for the circular economy  as a business and highlights the main challenges faced during every step of the process. 


Step one: Scope needs


Why does your business need metrics in the first place? The reasons for employing metrics are varied and depend on where you are on your innovation journey. Businesses that are at the beginning of their journey might need metrics to create awareness and set a baseline for measuring future progress or to identify opportunities that circularity offers for their business or their sector. Businesses may also use metrics to dive deeper into the various opportunities and assess and compare their potential in order to start building concrete business cases. Businesses that have already done this might require metrics to validate where they are and communicate their results to shareholders and other stakeholders. 

There are different types of indicators. Circle Economy has divided the metrics in three main categories, which can be useful to satisfy the different needs highlighted above: 

  • Headline indicators: they are used to set the overall goal (i.e. the percentage of circularity of the business).
  • Performance indicators: they describe the specific role of partners and suppliers in changing the value chain.
  • Process indicators: they are used to measure how the processes already in place can contribute to improving circularity.
  • Impact indicators: describes what impact the business is creating. 



Step two: Select solution 


The number of circularity metrics has increased in recent years. Some metrics compete but mostly they have different strengths and weaknesses. Therefore, it can be difficult for you to navigate the landscape of circularity metrics and select the right metric(s) to meet identified needs. 

Figure one: Overview of the seven mainstream circular metrics and their main focus and application.


The webinar presented a few examples of metrics indicators, underlying their strong points and their shortcomings in terms of maturity, data availability and required expertise. 

  • The Circularity Gap Metric: This metric was created to spotlight the damage created by the linear economy, with only superficial detail on underlying dynamics. While it is the only science-based metric, this metric comes with some specific challenges relating to data availability, to the low level of maturity and to the specific expertise required to apply it. 
  • CTI V2.0: This is a self-assessment framework, as companies can apply it themselves. It is also known to be pragmatic and relatively user-friendly, due to the fact that it was co-developed with the input of many business representatives. However, part of the value chain is excluded from the framework (so called: gate-to-gate) as it does not account for upstream and downstream activities.
  • GRI 306: The Global Reporting Initiative (GRI) provides standards for sustainability reporting on a range of economic, environmental and social impacts. GRI updated its waste reporting standard 306 to include circular economy principles. As part of a much wider sustainability reporting framework, its main focus is on reporting progress to stakeholders: substandard 306 is indeed geared towards reporting about waste generation throughout the value chain. It is expected to gain traction in the coming years, but right now it has not yet seen much adoption. 


Step three: Collect data 


Companies tend to lack data on material flows. This type of data is a complex interaction of extraction, energy use, procurement, production data and more. This creates a real challenge for businesses, who will have to build the expertise to gather material flow data.


The main challenge that arises at this step of the process is thus the lack of readily available data. There are already some solutions available to gather the necessary data such as public data, shared data, or even open data or blockchain; but many companies have not engaged with these strategies yet. Indeed, while corporations are used to measuring and reporting annual turnover and profit, information on waste production or emissions is often not readily available. 


The following table summarises the need for shared data for each of the previously presented metric frameworks. As shown in below table, the only metric that requires only in-company data is the Circle Assessment Tool. Most of the others require gathering data across the supply chain: this can prove to be rather challenging for the businesses because it is dependent on the willingness of business suppliers to provide this type of information.  Finally, the GRI 306 sub-standard and the Cradle-to-Cradle Certified standard additionally require for shared data and the outcomes of the measurements to be reported externally.  

Figure two: Overview of the data required by the main seven mainstream circular metrics


The first step you will have to take to tackling the problem of data availability is to gather data from your business suppliers. We suggest to adopt one of the following strategies in order to incentivise business partners to collect and share the necessary data:

  1. Leverage evaluation moments or contract renewals with business suppliers
  2. Develop a moonshot product and value chain: the most cooperative some suppliers will follow and will be willing to share data.
  3. Join forces with other companies in the sector and develop a new standard form or informal industry standard - suppliers will understand the necessity of moving forward.

Step four: Compute and analyse


After having collected all the necessary data, it must be processed according to the preferred framework. Because the field of circularity metrics  is still in development (and will remain so for some time) , not all frameworks lead to the same results. The main challenges that businesses might encounter during this step of the process concern the level of the metric’s maturity and the expertise required to apply it.


  1. Maturity. Metrics can be ranked from those that were only tested on a theoretical level to those that have been widely tested and standardised. Circle Economy has developed a framework that allows you to evaluate and communicate the maturity of a metric: the Methodology Readiness Level (see Figure three). Nevertheless, even some of the most tested metrics are still not fully mature and you should expect some hick-ups or odd results when you apply them.
  2. Expertise. Metrics can also be ranked on the level of expertise required to apply them. Businesses should assess what kind of expertise they have  in-house and what expertise they would like or need to bring in through a third party before selecting a metric.

Figure three: Mainstream circularity  metrics classified according to their Methodologies’ Readiness Level.

Figure four: Overview of support required to apply the seven mainstream circularity metrics

Step five: Translate into action


Now the fun starts! Metrics can be used to translate the information acquired into concrete strategies. Circle Economy’s approach to develop circular strategies based on a solid data analysis consists of using metrics for three main steps:

  1. System Mapping: Mapping the resource flow through the value chain with the aim of identifying hidden flows and areas of improvement.
  2. Visioning: Identifying the best opportunities for improvement.
  3. Opportunity Analysis: Calculating the potential of individual opportunities.

As you can see, we are applying metrics to guide our clients through several steps of the innovation journey, which can imply that you will need to make use of a variety of metrics - some more suited for baseline assessments while others are more relevant for impact assessment or reporting. 


Step six: Evaluate and monitor 


Finally, it is vital to turn measuring into monitoring, to continue to learn and evaluate the progress and maintain oversight on the process. Plan regular moments to decide whether it is time for a next step in your innovation journey and if so, start again at Step one.


Now that the six steps have been covered, one fundamental question remains to be answered. Why should your business care about metrics? One answer lies in the upcoming implementation  of the EU’s Corporate Sustainability Reporting Directive (CSRD). 

  1. This Directive will apply to nearly 50,000 of the largest companies in the EU, expanding the number of companies that currently have to report on sustainability according to the Non-Financial Reporting Directive (NFRD). 
  2. A big difference from the NFRD is that the CSRD integrates the concept of ‘double materiality': this difficult concept can be crudely summarised as the requirement that businesses will not only have to report on sustainability risks and opportunities that impact their business, but also describe how the company affects the environment and society around it. 
  3. Moreover, it integrates more detailed standards on what must be reported on.
  4. Furthermore, sustainability will be part of the businesses yearly financial report with third-party assurance, rather than a separate sustainability report. 
  5. Finally, the information on sustainability will have to be digitally tagged in order to be easily traced online. 


For the first time, circularity will be a mandatory topic to report upon. The importance that measuring circularity will have in the near future must not be underestimated. Due to the fact that value chain data is a necessity for reporting on the circular economy, it is expected that the need for the bigger companies to report will trickle down to their suppliers, partners, investors and customers, to the extent that it will even influence companies from other continents that have strong trade relations with Europe. Therefore, we urge all businesses to start engaging with suppliers and collecting material flow data in order to be prepared for upcoming changes.


Questions


What does it mean that the Circularity Gap Metric is science-based?

The Circularity Gap Metric was developed using methodologies that were published in scientific literature. In particular, the ambitious study 'How Circular is the Global Economy?' by Haas et. al. was employed to design the science-based indicator. The Circularity Gap Metric is, among the metrics we have seen applied by businesses, the only circularity metric that is really grounded in academic research. 


What is the difference between a standard, an indicator, and a metric? 

There are various definitions to be found for these terms, but this is how we defined them: an indicator is a number with a corresponding unit of measurement used to measure a specific aspect. The indicator turns into a metric when there is a clear methodology behind it that tells the user how to apply it, for instance by describing clear system boundaries. It is important to note that a methodology can lead the user in the application of more than one indicator, in which case you could also describe it as a metric framework. When a metric becomes prominent in an industry, it becomes a standard. It can be an informal standard, widely used because it is a best practice, or it can become an officially recognised standard , documented by ISO, GRI, or other standard-setting bodies.  A measuring standard is however different from a reporting standard, which rather than establishing how to measure a specific aspect of the business, it standardises the process of reporting on it.


What is the level of alignment between different frameworks?

The level of alignment between different frameworks is quite low. The developers of the most well-known frameworks—Circulytics, CTI and GRI—have collaborated on the alignment between their metrics. However, the level of integration they achieved was limited to the key logic of inflows and outflows in which to measure circular material content.In addition, they were concerned with acknowledging and describing the similarities of their frameworks without aligning on the methodology, definitions or terminology of their own frameworks too much. There is thus a low level of harmonisation between different circularity metrics. Jacco expects that new European Union legislation will change that; nevertheless, businesses should start collecting data on waste production, emissions, product composition and nature depletion. This will give you a head start with the application of any metric, given that the input data for all frameworks is relatively similar. 


How can my business prepare for the CSRD? 

Circle Economy can provide assistance with the application of the above-mentioned metrics frameworks. If this will be enough for reporting purposes under the CSRD is not known yet, as they are yet to publish the first details on the standards that will describe what needs to be reported upon. The CSRD will enter into force as a whole in 2026. However, the first elements will become mandatory in 2023. This means that companies must start gathering data and preparing for reporting starting from 2022—that is: now. 


What is the applicability of these frameworks to the producers of materials or components? 

The answer depends on the chosen metric/indicator. Some of them, like the GRI sub-standard, are meant for whole businesses, while others are easier to be applied to a single product. Obviously it also depends on the specific needs of the producer.



Circle Economy newsletterS

Subscribe now
GDPR Permissions and Content Preferences:
Thank you for signing up!

To complete the subscription process, please click the link in the email we just sent you.
Oops! Something went wrong while submitting the form.