Circular economy in indicators

The concept of circular economy is opposed to the concept of linear economy and encourages a change in the way we consume products, the idea is to increase the life cycle, reduce the use of natural resources and the socio-environmental impact, such as the use of raw materials and generation of waste (thus promoting low-carbon economies).

Inspired by Circular Economy studies developed by the World Business Council For Sustainable Development, we extract seven recommendations that can be considered by companies that intend to develop a framework to measure their performance in circular economy.

The recommendations can compose the company’s strategic planning, and at the same time appear as a basis for implementing changes and new actions according to circularity.

The topics below must be considered the maturity of the business and developed through indicators and targets, according to the circularity risks assessed:

1. Increase circular business performance

An effective circular economy measurement framework should not only drive the company to become “more circular” but also spur financial growth. The purpose of the circular economy is also the bottom line. It is part of this concept of sustainability to raise indicators that lead to improvements in financial, environmental and social performance over time, not just the circularity itself.

For example, measuring circular revenue or circular percentage would drive strong financial performance through circularity and further encourage stakeholders to pursue the engaged strategy.

We can measure circularity within the companies’ own process, just as we can measure circularity in products and services. The economy of resources and choices for inputs and raw materials according to the circular economy concept are part of this!

Products and processes are related, and each has implications for a company’s circular economy. Both processes and products generate impacts on the environment and society. The severity and types and control of the company may vary between them according to the type of business developed, location, among other aspects.

An example of this is the application of the three scopes of the Greenhouse Gas Protocol. What a company monitors and manages in its own operations should be considered as impacts the company has on the environment, economy and society. This is directly related and must be raised for evaluation throughout the product’s life cycle.

2. Make goals and results public

Companies must be able to report their circular performance to interested parties. Metrics can be made available to employees, in integrated sustainability reports for reporting entities and investors, or in dedicated customer materials.

It is known that customers, employees are often the main target audience for circular metrics, but it is important for the company to be able to effectively communicate its circular performance with its priority stakeholders, such as regulatory bodies.

Here, the idea of communicating circularity is added to the matrix of suppliers and other parties that make up the value chain and that can act directly in the company’s processes, or even directly with the customer.

3. Scope of sustainability

Truly measuring the circularity of a company, as highlighted earlier, must consider the financial, environmental and social aspects of process and product. Measuring only financial aspects of circular activities can weigh on environmental or social responsibilities, and on the other hand, the opposite is also true.

For example, the company that promotes recycling, but at the same time uses child labor to process the waste cannot be rewarded, in this case there is a clear social debt. The same could be said of the use of reused raw material resulting from theft or theft.

The scope of measuring business circularity should consider all inputs and outputs of resources in your process.

In addition, it must be considered of paramount importance to include in the measurement the structure responsible for the circularity of the products and services placed on the market.

One cannot fail to raise the natural resources used from the circular business structure: materials (including minerals, soil, waste, etc.), energy (including air pollution and emissions) and water (including wastewater). A company that claims to be “circular” without accounting for the types and use of natural resources, in addition to all three pillars of sustainability may have its business publicly questioned.

4. Appropriate and feasible indicators

The development of circular economy indicators must consider existing standards, but they need to adapt to the reality of processes and businesses. Some flexibility must be foreseen so that the objectives are possible to be achieved. The set of indicators need to apply to companies across all industries, value chain positions, and maturity levels of the circular view.

Two companies may occupy different positions in the value chain and therefore necessarily undergo valuations with differences in order for them to be truly appropriate. For a chemical industry, measuring the condition of its effluent and that possibly generated at its customer by its product is essential to compose the circularity of its process, while in a credit company it may not be the best indicator to evaluate, considering the possible impact and the macro view of circularity.

In structures composed of more than one company or considering investments and contributions in the market, leaders in the circular economy must be highlighted without discouraging companies that are starting to circulate the journey to measure their performance over time. For example, the framework could allow companies to measure performance internally and decide whether to disclose this value in their annual reports and communications. Alternatively, the framework can normalize performance values by industry as opposed to companies in general.

The circularity of the product or service and the portfolio are closely related. Thus, the framework should allow measurement of roundness at product level, without obligation. As product manufacturers and service providers increasingly adopt portfolio approaches to drive sustainability and circularity, the circular measurement framework must embrace it. Ultimately, a company is better able to drive the circularity of its portfolio if it understands what is happening at the product level. However, taking the extra steps to understand the circularity of each product can be cost prohibitive or irrelevant for some companies. As such, companies should be encouraged to measure circularity at product or service level, but not required to do so.

5. Take steps to reach the circular economy

The aspects surrounding the circular economy are many and measuring some of them can be easier than others. Therefore, studies point out that the strategy of measuring and disclosing results must obey stages. This allows an understanding of aspects of greater relevance for the circular economy of the business, measured and monitored in the short term and subsequent integration of more complex indicators.

The study suggests that in the use of indicators according to the IIRC of the six capitals, at least financial and natural capital should be addressed in the first measurement, the next measurement should address human and social capital. Finally, manufactured capital and intellectual capital in the third measurement of the strategy.

Steps can also compose the circular structure in business performance processes. Companies can start by assessing recycling and waste diversion, then move on to product redesign, and finally to business model transformation—this process is most often seen in ventures.

6. Build on existing frameworks and standards

The measurement of circularity indicators must meet the standards and parameters relevant to the business, in a clear and direct manner. Although shareholders and investors are generally dissatisfied (according to CVM 2021 data) with the best way to compare data collected by different companies, measurement and reporting models such as the Global Report Initiative (GRI), Natural Capital Protocol (NCP ) and the International Integrated Reporting Council (IIRC) are examples of methodologies widely used by companies.

Using widely studied and disseminated standards allows the construction of new ideas in measuring sustainability and favors growth over these already established structures. Shortening paths and innovating on what is already known.

For example: the circular structure must be consistent with the GRI 306 Effluents and Waste standard and the GHG Protocol.

Companies need to understand how their business model depends on and impacts natural, social and human capital. The company’s strategy may consider using the IIRC and the six capitals as a circular performance measurement framework: Financial Capital, Manufactured Capital, Intellectual Capital, Human Capital, Social Capital and Natural Capital.

It is not necessary to refer to all six types of capital, but it would be a facilitator for the analysis of reports, according to specialists.

7. Changing culture and disseminating knowledge

A circular economy framework must promote a change in the company’s culture and disseminate knowledge that supports this change.

There are indications that companies that implement the circular economy culture from the highest levels gain in effectiveness and speed in change. Executives need to buy into the idea and demonstrate their commitment to their employees.

One suggestion would be the inclusion of circularity elements in the company’s mission and values, or even in the strategy in a clear and objective way.

At a more complex maturity one can align sustainability by linking individual compensation to individual circular performance indicators or minimally providing education and training demonstrating the value that circular initiatives create for the company.

The measurement of indicators that can compose the vision of circularity allows giving visibility to the good practices that organizations and enterprises practice in favor of sustainability and at the same time allows the reduction of the environmental and social impact of the business itself.

Measuring and disclosing the results of companies’ circular vision inspires new circular businesses, educates stakeholders such as investors in their strategies and consumers in their choices.

Ambipar Certification is accredited as a Certification Body (OCP) by the General Coordination of Accreditation (CGRE) of Inmetro, being able to grant the Green Seal to companies from different segments. This seal attests that the institution has complied with the legislation — including the requirements of the National Policy on Solid Waste (PNRS) — and that it may have waste recovery and circular economy practices.