The following content is sponsored by MSCI
Visualized: The Circular Economy 101
The principles of a circular economy trace back as far as 3,000 years.
Archeological evidence shows that Romans recycled trash following the eruption of Mount Vesuvius in 79 AD. Roughly 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 from MSCI provides a guide to circular economies—from circular business models to circular technologies.
No Time to Waste
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 discarded.
- Waste: Global waste is projected to rise 70% by 2050.
- Water: 80% of global wastewater is untreated or reused before returning back to the ecosystem.
To change consumption patterns and reduce waste, consumer behaviors, business models, and policies will need to change. But the big question is how?
To answer this problem, the concept of a circular economy is gaining traction.
What Is a Circular Economy?
A circular economy is centered on the idea of resources being kept as long as possible within the economic system, where materials that have undergone an entire lifecycle, from production to end stage, are returned to the economic system as an input.
Above all else, a circular economy is based on sustainable life cycles.
Circular Economy Growth
In 2019, BlackRock launched an inaugural Circular Economy fund. Since then, it has attracted $2.1 billion in investment. A number of the world’s largest asset managers have followed suit.
Policy-driven agendas are also focused on the circular economy shift:
- Paris Climate Agreement
- UN Sustainable Development Goals (SDG 12, 11, 9, 13)
- European Green Deal Circular Economy Action Plan
- 2019 African Durban Declaration
- China’s 5-Year Circular Economy Plan
- Circular economy strategies across Latin American countries
Given the steep cost of linear economic models, governments are beginning to pay attention to the merits of a circular economy.
The Upside of a Circular Economy
Circular economy principles aligned with sustainability offer the following advantages:
- Reducing GHG emissions: 9.3 billion tonnes of CO₂e could be prevented by 2050 if circular economy strategies are applied across the steel, aluminum, cement, food, and plastic sectors.
- Preserving long-term biodiversity: ~50% decrease in harmful effects on farm-level biodiversity through applying circular strategies.
- Improving ocean health & water quality: 80% reduction in plastics entering the ocean globally by using reclamation, recycling, and reduction strategies, among others.
- Economic growth & job creation: $4.5 trillion global economic opportunity by 2030 through spurring innovation in waste reduction.
Importantly, circular strategies, technologies, and transition companies are looking beyond traditional economic models.
5 Business Models in a Circular Economy
From alternative energy to bio-based and recyclable materials, the most effective circular business models are ones 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|
|1. Circular supplies/Circular design||Product design/R&D
Procurement/raw materials acquisition
|2. Resource recovery
(Recycle, Waste as a resource)
Material & product manufacturing
|3. Product life extension
(Remanufacture, Resell, Upgrade)
Sales & marketing
|4. Share||Product use
Material & product manufacturing
|5. Product as a service||Logistics
Today, circular models present opportunities in fashion, food systems, mining and metals, among others.
How are Circular Economy Indexes Created?
A circular economy theme is built on two key dimensions:
1. Smarter technologies: Providing circular technologies
- Single-use plastics alternatives
- Digital technologies that replace resource-intensive products
2. Resource efficient processes: Maximizing materials and minimizing impacts (e.g. emissions)
- Improved package materials
- Efficient processes that reduce land degradation and promote diversity
Then, MSCI identifies areas of innovation that support a circular model. Consider the following circular technologies, which are produced by companies that contribute to a circular economy theme “end-state” through their products and services.
|7 Circular Technologies||Example|
|1. Renewables & energy efficiency||Replacing oil-based plastic with compostable materials|
|2. Sharing economy||Peer-to-peer accommodation|
|3. Future mobility||Electric vehicles|
|4. Internet economy||Online markets|
|5. Water sustainability||Wastewater treatment systems|
|6. Plastic sustainability||Companies using only one type of polymer for packaging|
It also looks at circular transitions, which are companies that enable the shift to a circular economy through their management of related issues.
|3 Circular Transitions||Example|
|1. Natural resources management||Deforestation|
|2. Water resources management||Smart metering devices|
|3. Plastic transition||Biodegradable plastics|
As a result MSCI has created a range of Circular Economy related indexes:
- Natural Resources Stewardship
- Sustainable Water Transition
- Plastics Transition
- Renewables & Energy Efficiency
- Sharing Economy
It’s worth noting that what is measurable today will likely only expand, considering the evolving regulatory frameworks and thinking around a circular economy,
The Value of a Circular Economy
Through looking at circular economy innovation, we yield three important insights:
- Competitive earnings
- New economic models
- Sustainable solutions
For a growing number of investors, companies, and researchers, a circular economy provides a wide scope of opportunities ranging from single-use plastics alternatives to water sustainability.