How do businesses measure their progress towards the circular economy?
Businesses around the world have started to implement circular economy models and pilots in response to the positive economic opportunities highlighted in numerous pieces of research. As more and more organisations begin to explore to implement changes to their practices, it creates a further need for innovation in how they measure success.
Since the Ellen MacArthur Foundation published its Towards the circular economy report series (2012-14), uncovering a $1 trillion economic opportunity for businesses transitioning towards a circular economy, there have been a number of reports and research echoing and reinforcing those findings, including the Foundation’s own Growth Within, and research from Accenture, Deloitte, WRAP as well as various others. There is close to unanimous agreement that circular economy models brings benefits both to the economy and the environment.
However, individual companies are accustomed to using a variety of metrics and tools in all aspects of their business to assess, track and measure progress and development in specific areas and at a company level.
In May 2015, the Foundation and Granta Design announced the findings of the two year Circularity Indicators project, and released a web-based assessment tool that, for the first time, allowed businesses to track their circular economy progress.
The main indicator produced was the Material Circularity Indicator (MCI), which focuses on the product level and takes into account the amount of virgin, recycled and reused materials and components in the production process, how long and how intensely the product is used relative to its industry (taking into account repair and maintenance), the destination of the product and parts after use, and how efficiently the product can be recycled. Presented as a value between 0 and 1, where higher circularity is indicated by a higher number, the tool was designed to allow businesses to track the progress of their individual products towards a circular economy.
As the concept continues to gain traction globally, demand for circular economy measurement tools has increased since the MCI was first released, and it isn’t a simple task. “The toughest challenge is the paradigm shift for companies that are used to measuring reductions in use and impact, who now need to shift towards measuring the increasing value and impact of their products and businesses as metabolisms”, Adrian Wain, business advisor at UL EHS Sustainability told Circulate.
Wain describes the MCI has a strong starting point, but highlights the additional need for businesses to have tools that expand beyond a 0 to 1 value, and provide the kind of feedback that enables improved performance.
Moreover, businesses also need to factor in the impact of circular economy pilots and models on the overall success of their business. For example, switching from a one-time sale approach to a product-as-a-service model can create more value for a business overall, but might not show up in the standard quarter-by-quarter sales reports.
The complexity of the shift doesn’t make it easy for internal business evaluators, Wain commented that, “there is an understanding of circular economy and a direction of travel, but companies don’t truly know yet what their new KPIs should be”.
Measurement as a means of improvement and optimisation is still very much in an experimental phase, but it is increasingly being supported by the evolution of digital technologies, the Internet of Things and availability of completely new data sets.
It can also draw on the success stories of other fields. Accounting for externalities and attaching value to natural capital is a significant challenge, but a number of businesses and organisations have taken on the challenge and made real progress, both in measuring and demonstrating the economic benefits of better practice.
No single tool is ever likely to be able to calculate the full scope of the impacts of the shift, rather the circular necessitates the evolution of new modes and understandings of the concept of business success.