Why circular economy is the missing link in the race to net zero

A closer look at the Glasgow Climate Pact agreed at COP-26 reveals that most nations see energy efficiency and the transition from fossil fuels to renewables as key to delivering net zero emissions. 

But circular economists warn these areas only account for 55% of greenhouse gas emissions. The other 45%, they explain, is embodied in everyday products such as our cars, clothes, buildings and food. 

Transitioning from a ‘take-make-waste’ linear economy to a circular economy where waste is designed out and where products and materials are reused, cascaded and remanufactured is the only way to tackle this remaining 45%, says Peter Hopkinson, Professor of Circular Economy at the University of Exeter Business School.

“Key to this is building strategic programmes and pathways that demonstrate how innovative business models, product and service design, technology and whole system transformation built on circular economy principles can deliver new and higher levels of value creation,” says Professor Hopkinson, who is also a co-director of NICER (the National Interdisciplinary Circular Economy Research programme). “This will ultimately help accelerate the transition to net zero sustainability.”

Fiona Charnley, Professor of Circular Innovation at the University of Exeter Business School and co-director of NICER programme, a £30 million UK government-funded programme to research and innovate new circular economy business models, agrees, saying: “We need to radically change how we use resources, and by bringing together and harnessing expertise from academia, business and government we can enable that transformation.”  

So where is this transformation already beginning to happen, and what can companies do to harness the circular economy’s potential to generate value? 

A recent report from the Ellen MacArthur Foundation notes that, like with net zero targets, adopting a circular economy approach can be included in company strategy and governance in the form of mission statements, commitments, targets and plans. 

Health technology firm Philips has pioneered circular economy innovation and business models across its product portfolio, establishing a single, simple financial metric to drive change and setting an ambitious target of 25% of revenues from circular economy products, services and solutions by 2025.

Innovation and creativity can be nurtured through pilots, incubators and demonstration projects used to test circular business solutions and gain a better understanding of their benefits and how to scale. 

Ten years ago Renault began their circular economy journey by developing a remanufacturing facility in Paris which now, as the company moves rapidly into electric vehicles, has developed into an extensive circular economy ecosystem, integrating new partnerships, product re-use, mobility-as-a-service business models and renewable energy grid services within a new circular economy factory concept.

Consumer buy-in can be created through effective public awareness campaigns such as Unilever’s Get Plastic Wise and Patagonia’s Don’t Buy This Jacket campaign. 

But when it comes to complex materials like plastics, textiles, or food, the whole value chain needs to align around a shared vision. The Jeans Redesign project brought together more than 40 denim experts, from brands, retailers and manufacturers to collectors, sorters, academics and NGOs to set out minimum requirements for jeans on durability, material health, recyclability and traceability.

There are “big challenges” for business wishing to make genuine progress on sustainability, given that there’s no one size fits all approach, Professor Charnley says. 

“What we see is enormous variability in the struggle. What practices work depend on where you are in value chain, it varies by sector, so if you compare cars to fast fashion there are very different challenges and solutions. And of course there’s a big difference in moving circular economy forward between start-ups and already established linear businesses.” 

There’s also a problem with measuring the circular economy. A recent study of 7,000 business leaders by software firm SAP found that 26% of companies measure sustainability using in-house metrics, while only 12% adhered to globally proposed measures.

“You have national codified accounts in the UK but there’s a mismatch between that and what happens a level below in the value chain at the sector level,” says Professor Hopkinson. “There’s a proliferation of KPIs and it’s very confusing so people cherry pick to maximize their positive agenda. We need system-level KPIs because the circular economy is a system solution – you need a systemic approach.”

Professor Hopkinson notes that much of the progress made by circular economy lies in the business-to-business sphere. Making consumers genuinely embrace the circular economy he describes as the “$64,000 question”.

“You have to offer an arrangement that is a win for the consumer, a win for the business and a win for the environment and society,” says Professor Hopkinson.

“You can appeal to altruism and that gets you so far, but you’ve got to appeal to the consumer’s self-interest and rationality. If you can make a great deal, a great product, at a lower price or lower cost of ownership, then you’ve got a chance of shifting the dial. 

“We see some of this happening but we’ve got cultures that have grown up over many decades with the linear economy, which delivers really fantastic products usually but with little care or after thought about what happens after the first life cycle, so we’re up against a real challenge.”

Professor Peter Hopkinson and Professor Fiona Charnley from the University of Exeter Business School run an online Circular Economy Masterclass Introductory Course open to organisations and individuals looking to create and deliver commercial benefits from circular economy. Find out more here.