Visualized: The circular economy 101
The principles of a circular economy go back 3,000 years.
Archaeological evidence shows that the Romans recycled garbage after the eruption of Mount Vesuvius in AD 79. Approximately 200 years later, people recycled glass during the Byzantine Empire. Fast-forward to today and circular economy strategies are projected to generate trillions in economic output by 2030.
But how does the circular economy work? This infographic of MSCI provides a guide to circular economies, from circular business models to circular technologies.
There is no time to lose
First, let’s start at the root of the problem, our current consumption trends:
- Raw Materials: Global extraction is projected to double by 2060.
- Textiles: 85% of clothing and textiles are thrown away.
- Waste: Global waste It is projected to increase 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, it will be necessary to change consumer behaviours, business models and policies. But the big question is how?
To answer this problem, the circular economy concept is gaining ground.
What is a circular economy?
A circular economy focuses on the idea that resources are kept as long as possible within the economic system, where materials that have gone through a complete life cycle, from production to the final stage, are returned to the economic system as input.
Above all, a circular economy It is based on sustainable life cycles.
Growth of the circular economy
In 2019, BlackRock launched an inaugural circular economy fund. Since then, it has attracted $2.1 billion in investing Several of the world’s largest asset managers have followed suit.
Policy-driven agendas also focus on circular economy change:
- Paris Climate Agreement
- UN Sustainable Development Goals (SDG 12, 11, 9, 13)
- Circular Economy Action Plan of the European Green Deal
- Durban African Declaration 2019
- China’s 5-year circular economy plan
- Circular economy strategies in Latin American countries
Given the high cost of linear economic models, governments are beginning to pay attention to the merits of a circular economy.
The positive side of a circular economy
The principles of the circular economy aligned with sustainability offer the following advantages:
- Reduction of GHG emissions: 9.3 billion tonnes of CO₂e could be avoided by 2050 if circular economy strategies are implemented in the steel, aluminium, cement, food and plastic sectors.
- Preserve biodiversity in the long term: ~50% decrease in harmful effects on biodiversity at the farm level through the application of circular strategies.
- Improve ocean health and water quality: 80% reduction in plastic entering the ocean globally through the use of recovery, recycling and reduction strategies, among others.
- Economic growth and job creation: $4.5 trillion global economic opportunity by 2030 by fostering innovation in waste reduction.
Importantly, circular strategies, technologies and companies in transition look beyond traditional economic models.
5 business models in a circular economy
From Alternative energy to recyclable and bio-based materials, the most effective circular business models are those that create obvious value.
Let’s consider five circular economy business models and where they can be applied in the supply chain. Additionally, some of the models can be adapted to any part of the supply chain.
| business model | Supply Chain Example |
|---|---|
| one. Circular Supplies/Circular Design | Product design/R&D
Procurement/purchase of raw materials |
| two. resource recovery (Recycle, Waste as a resource) |
reverse logistics
Manufacturing of materials and products |
| 3. product life extension (remanufacturing, reselling, upgrading) |
End of life
Sales and Marketing Product use |
| Four. Share | Product use
Manufacturing of materials and products |
| 5. product as a service | Logistics
Product design/R&D |
Today, circular models present opportunities in fashion, food systems, mining, and metals, among others.
How are circular economy indices created?
A circular economy theme is based on two key dimensions:
1. Smarter technologies: Provide circular technologies
- Alternatives to single-use plastics
- Digital technologies replacing resource-intensive products
2. Efficient processes in resources: Material maximization and impact minimization (eg, emissions)
- Improved packing materials
- Efficient processes that reduce land degradation and promote diversity
MSCI then identifies areas of innovation that support a circular model. Consider the following circular technologies, which are produced by companies that contribute to an “end state” circular economy theme through their products and services.
| 7 circular technologies | Example |
|---|---|
| 1. Renewable energies and energy efficiency | Replacing oil-based plastic with compostable materials |
| 2. Sharing economy | peer-to-peer hosting |
| 3. Mobility of the future | Electric vehicles |
| 4. Internet Economy | online marketplaces |
| 5. Water sustainability | Wastewater treatment systems |
| 6. Plastic sustainability | Companies using only one type of polymer for packaging |
| 7. Biodiversity | Phytotechnologies |
It also looks at circular transitions, which are companies that enable the move to a circular economy through their management of related issues.
| 3 circular transitions | Example |
|---|---|
| 1. Natural resource management | Deforestation |
| 2. Water resources management | Smart metering devices |
| 3. Plastic transition | biodegradable plastics |
As a result, MSCI has created a range of indices related to the circular economy:
- Natural resource management
- Sustainable Water Transition
- Plastics Transition
- Renewable energy and energetic efficiency
- sharing economy
It is worth noting that what is measurable today will likely only expand, considering evolving regulatory frameworks and thinking about a circular economy.
The value of a circular economy
Looking at circular economy innovation, we get three important insights:
- competitive earnings
- New economic models
- sustainable solutions
For growing number From investors, businesses and researchers, a circular economy offers a wide range of opportunities ranging from single-use plastic alternatives to water sustainability.
