The Circular Economy: How Does Your Company Measure Up?
by Rita E. Garwood Vol. 48 No. 1 2021
Many financial institutions are already offering circular economy-themed financing — and reaping the benefits. The Ellen MacArthur Foundation expects that the circular economy’s role in mainstream financing will increase in coming years. The foundation created Circulytics, a tool that enables companies to measure their circular economy performance.
Rita E. Garwood, Editor in Chief, Monitor
In early 2020, a Leasing Life article posed a question after the World Economic Forum’s annual meeting in Davos, Switzerland: “Could leasing be the unsung hero of a circular economy?” According to the article, equipment lessors are “well-positioned” to become leaders in this space.
According to the Ellen MacArthur Foundation, a circular economy provides solutions to tackle some of the biggest challenges of our time, such as climate change, biodiversity loss, waste and pollution. The circular economy is based on three principles, driven by design: 1) eliminate waste and pollution, 2) keep products and materials in use and 3) regenerate natural systems.
Central to the shift to a circular economy is innovation. The Ellen MacArthur Foundation emphasizes the “enormous creative opportunity” that exists in shifting from the “take, make, waste” extractive linear model, which relies on consuming finite resources, toward an economic model in which nothing becomes waste and everything retains value.
Many financial institutions are already offering circular economy-themed financing — and reaping the benefits. The Ellen MacArthur Foundation expects the circular economy’s role in mainstream financing will increase in coming years.
Adopting a circular economy mindset is now a top priority on corporate sustainability agendas around the globe. As regulators get on board, it will become vital to track progress toward circular economy goals.
What’s Your Circular Economy Score?
To facilitate this process, the Ellen MacArthur Foundation created Circulytics, a tool launched in January 2020 that enables companies to measure their circular economy performance. This free tool goes beyond product and material flows to include a company’s entire operation.
After completing the Circulytics assessment, companies receive a score (from A to E) along with supporting analysis that rates their circular economy performance and identifies opportunities where circular economy practices can be adopted or further embedded. Companies can use these insights to create and hone circular economy strategies for better growth.
Between January and August 2020, 604 companies participated in the first version of the assessment. More than one in five of those companies have an annual revenue of more than $1 billion, which indicates that large, vertically-integrated companies — those that can lead the circular economy transition — are using the tool.2 Circulytics 2.0 was launched on Oct. 28, 2020, and an additional 300 companies have signed up since then, bringing the total number of participants to almost 1,000.
DataTruth, which specializes in helping businesses reveal truth from data and information, provided the technical assistance to create the data platform and implement the scoring model behind the release of Circulytics 2.0. “This idea of bringing together disparate data to get to the truth about a company’s progress, in order to improve their business model and operations, is closely aligned with our own values at DataTruth,” the company said in a written statement.
With the help of DataTruth, the new Circulytics data platform can process raw data into scorecards in a matter of minutes, which will enable more companies to understand how circular they are and set improvement goals that will have a positive impact on the planet for generations to come.
Completing an Assessment
Any company can complete the survey free of charge, regardless of its size, complexity or industry. To apply, a company must complete a short application form on the Ellen MacArthur Foundation’s website. Once the foundation verifies the authenticity of the application, a Circulytics account is created on the Qualtrics survey platform and the company can begin its assessment.
Equipment finance companies interested in completing the assessment will be asked a series of qualitative questions designed to measure the degree to which a company’s enabling conditions — such as strategy and planning, innovation, people and skills, operations, and external engagement — are geared toward achieving circular economy outcomes.
During the assessment, the company will be asked to provide data on circular economy outcomes, such as the design of company products and services, the flow of materials in and out of products owned, procurement and end-of-use plans for physical assets, renewable energy usage, the circularity of water utilized internally, and, for financial institutions, the proportion of financing going toward the circular economy.
Collecting the Data
The Circulytics indicators have been designed to complement other non-financial reporting standards, so companies that have already collated data for those standards will be able to apply it, in part, to their Circulytics assessment.
As with other non-financial reporting on environmental and social impact, providing accurate responses to the Circulytics indicators will require companies to collaborate across internal business units and geographies, and with external suppliers, clients and, in some cases, governing bodies.
The Ellen MacArthur Foundation notes that this external engagement to understand where all stocks and flows are derived and end up is a significant challenge for large companies carrying out their first Circulytics assessment. But overcoming this challenge is a necessity for companies committed to understanding the full impact of their business on society, the environment and the economy.
For large multinationals with multiple product sets and hundreds of suppliers, knowing where to start is usually the initial barrier, according to DataTruth.
In some cases, companies may not have all the data requested, but the Ellen MacArthur Foundation notes that reporting gaps are expected. While data gaps will not negatively affect a company’s score, they will not add to it either. The foundation encourages companies with gaps to extend data collection efforts and complete a follow up assessment the following year to gain a higher resolution picture of their entire company’s circular economy performance.
DataTruth encourages companies to develop a pilot cohort for a submission to get a flavor of the requirements, data systems and mechanisms needed so that companies can measure circular economy performance more easily and get the most out of their submissions. Once companies know how circular they are for a slice of their company, they can start to grow this out.
Measuring circular economy metrics is like building a muscle. First, companies must understand the types of information required and how to go about identifying and gathering it, keeping in mind that some of this data may not currently exist at all and, if it does, it may not be in the format required.
DataTruth knows that gathering large volumes of data can quickly lead to exponential time and cost implications, processes that are not repeatable or scalable, and uncertainty around the integrity of the data. By working with the Ellen MacArthur Foundation on the data platform that sits behind Circulytics, DataTruth has had unique exposure of what’s required to measure circular economy performance. Now, through a collaborative exercise with large companies, DataTruth is focused on developing innovative data systems that make it easier for companies to submit their data with confidence while significantly reducing the time and cost involved.
Companies interested in measuring their circular economy performance can apply to participate at ellenmacarthurfoundation.org/resources/apply/circulytics-measuring-circularity.
For support with implementing processes and systems designed to collate the data required to measure circularity, contact DataTruth at datatruth.co.uk/contact. •
Chrysanthou, Athena. “The circular economy is leasing’s answer to running a sustainable business.” Leasing Life. Jan. 29, 2020.
“Data & Insights: An overview of the first year of Circulytics.” The Ellen Macarthur Foundation.
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