Transitioning to a circular economy

Another long-term trend is the transition to a circular economy, which is likely to move faster with an increasing move to digitization and automation than in previous transformations. As we read earlier in the chapter, we are already consuming 1.75% of Earth’s resources, and we are not regenerating nearly enough to live within the constraints of the planet. In our current way of living, finite raw materials are extracted or non-virgin plastics are used, the products are manufactured, products are shipped to a distribution point, the customer buys and uses the products once, and at the end of the product’s lifetime, it is discarded with limited reusability or recycling – the process is linear. In a circular economy, we move from a linear process to a circular one. We stop producing waste in the first place. Nature itself – the circle of life – inspires the circular economy concept. Species are born, grown, decline, and die. Our remains rot in the ground and are eventually regenerated, continuing the cycle.

We have reached a yearly global consumption rate of 100 billion tons of materials. Currently, the global economy is only 8.6% circular, leading to an extensive circularity gap. (Our world is now only 8.6% circular n.d.) Less than 10% of materials such as minerals, fossil fuels, metals, and biomass used in a year are refurbished, repurposed, or recycled. Out of the 100 billion tons, 91.4 % or 91.4 tons follow a linear model. It is abundantly clear that we cannot continue consuming these finite resources at this rate and dispose of them without any afterthought. We need to switch from linear to circular practices and turn theory into practice. You could argue that the transition to the circular economy has the potential to be a big game changer, but many aspects need to be right first: it requires robust ecosystems and infrastructures, and skills that can support the refurbishing, remanufacturing, and recycling processes. Legislation is needed that enforces a second life for products, new business models, and a mentality shift across the whole of society toward usage models and not consumption models.

Figure 1.15 illustrates the difference between the linear economy and the circular economy. In the linear economy, we continue to deplete Earth’s natural resources, and once they have reached their end of life, they end up in a toxic landfill somewhere instead of being recycled. In the circular economy, we take a minimal amount of finite resources and create a regenerative process flow that continues to live as long as possible:

Figure 1.15 – From a linear economy to a circular economy

All industries need to shift from a linear model to a circular model and become more regenerative in every aspect of their value chain. Concerns about climate change mean the transition to a circular economy is gathering pace (Jensen 2022). The Ellen Macarthur Foundation (What is circular economy? n.d.) has defined three principles driven by design. These principles are rapidly gaining traction and are often referenced as the circular economy’s core pillars.

These three circular economy principles are listed as follows:

• Designing out waste and pollution
• Keeping products and materials in use
• Regenerating natural systems

In addition to these three principles, it also requires good biological and scientific skills to understand the basic chemical processes and use of materials, as well as careful designs for a second life. With increased societal pressure and strengthened political support, the circular economy will be a dominant force to be reckoned with in the next decade, as we transform from a linear model to a circular model (Jensen 2022). For example, the EU aims to transition to a circular economy to make Europe cleaner and more competitive (Circular economy action plan 2020). This new action plan announced initiatives along the entire life cycle of products. The primary target is for the resources being used to stay within the EU economy for as long as possible. The new action plan requires promoting circular economy processes, targeting how products are designed, encouraging sustainable consumption, and preventing waste.

My previous employer predicts that within a decade, in the 2030s, the circular economy will be the only economy (Johnson and Steutermann 2019). Switching from a linear to a circular economy requires our supply chains to use minimal virgin material and produce zero waste. Expectations from investors, customers, employees, and governing bodies are evident (Johnson and Steutermann 2019). In Chapter 9, Sustainability by IT, we will dig into many great circular economy examples where IT unlocks excellent opportunities for a more sustainable future.

For many companies, taking the initiative on climate boils down to risk. Failure to meet emission goals can bring unpleasant consequences from regulators, shareholders, employees, customers, and suppliers. As Larry Fink, CEO and Chairman of Blackrock, stated in his corporate letter to corporate CEOs and investors in his company: “The transition to a net-zero economy will change company’s business models at the core. There is not a single company that won’t be affected and if for those that don’t adapt will see their business endure and valuations diminish rapidly.” Companies need to start focusing on profits through purpose instead of profits aside from purpose. Those companies that fail to adapt and innovate are often doomed to failure.