Why waste it?

Global use of extracted materials has reached 100 billion tonnes a year – and over 90% is wasted^[1]. Closing this loop and encouraging the growth of circular economy strategies is an opportunity for all

Recent headlines such as 'The world will run out of EV batteries by 2025'^[2] and 'Lithium is in short supply^[3], have the potential to send car manufacturers and investors into a mild panic.

Is it possible that the roll out of electric vehicles (EVs), one of the cornerstones of the energy transition as we envision it, could come to an abrupt due to raw material shortages?

The answer is yes – if we don't prepare for extensive reuse and end-of-life recycling of components and battery-grade minerals. Thankfully, battery makers such as Swedish Northvolt^[4] are already preparing such recycling facilities at scale.

However, rethinking our value chains is not restricted to EVs, and it is one of the most fundamental and far-reaching undertakings we can embrace as a society. At present, just 8.6% of the global economy is circular^[5], and research by ING shows only a few companies are considering circular models for serious investment.

Just 7% of our respondents to a recent ING survey on the topic say that redesigning products and services to be more environmentally friendly is a priority for them over the next two years, and only 17% plan to prioritise the reuse and recycling of raw materials. Overall, companies have made little progress in pivoting towards the circular economy, with these initiatives ranking among the lowest priorities for investment and attention.

So, why the hesitation?

Closing the loop

Staying competitive while transitioning to net zero is a key concern for companies, who realise the simplest, cheapest option is not always the best for the environment. Linear business models are typically based on a 'take, make and waste' approach.

The risk of being outpriced by competitors with less sustainable products is the top focus of climate-related risk modelling and assessment, suggesting many are struggling to turn sustainability into competitive advantage. This being the case, it's easy to see why more established, linear practices prevail.

But it doesn't have to be this way. Many businesses are discovering value in vintage markets, including Trivium Packaging, a recyclable metal-packaging supplier. Trivium makes good use of the highly recyclable properties of metal. In their "Buying Green Study" Trivium found that 86% of younger consumers are willing to pay more for products in sustainable packaging^[6].

Looking beyond the lifecycle

Crucially, the circular model helps mitigate the energy-intensive production of steel and aluminium, explains Jenny Wassenaar, Trivium's chief sustainability officer. To fully appreciate the benefits of this approach, she says, it's important to step away from the cradle-to-grave lifecycle assessments that are typically used to measure a company's environmental impact.

"We worked together with the World Business Council for Sustainable Development to develop a new framework, SPHERE^[7], a more holistic approach, because we understand lifecycle assessments are too limited," she says. "They don't account for many aspects that are important from a sustainability point of view. If you're only working on lifecycle assessment, you're driving blind."

The downside to typical lifecycle assessments is that they only measure the impact from resource extraction to the use and disposal phases, often ignoring other, hard-to-measure factors, such as the benefits of reuse models, or the impact of improved shelf life or recycled packaging materials in the waste stream.

But companies have a responsibility to consider all these metrics in their journey towards greater sustainability – and they should be using their purchasing power to help their suppliers do the same. By integrating circular models into their own operations, they can create a domino effect through the supply chain, driving a circular transition in their Scope 3 emission sources.

Time to act

If companies aren't convinced by the environmental and economic benefits of a circular economy, government legislation may soon make the decision for them. Earlier this year, the state of California enacted an aggressive law targeting single-use plastic packaging and foodservice ware^[8]; similar plans have been implemented in India^[9] and are under consideration in the UK^[10].

Perhaps the most far-reaching strategy comes from the EU's European Green Deal, which includes an ambitious circular economy action plan as one of "the main building blocks" of its sustainable growth agenda^[11]. It describes initiatives to improve product durability and reusability, increase recycled content in products, restrict single-use, counter premature obsolescence, and ban the destruction of unsold durable goods.

But the EU knows it needs more than good intentions to drive a circular economy; it also needs capital. It has established several funding programmes to support the transition, but the financial sector has an important part to play in providing seed funding to get projects off the ground.

Some banks are already seizing the opportunities, made all the more compelling by research suggesting that circular-economy strategies can mitigate investment risk and drive higher risk-adjusted returns^[12]. Improving the quality and consistency of data on circular initiatives will attract further interest, and, with several major banks including ING putting their weight behind the circular economy through sustainable finance mechanisms, many others are sure to follow.

It's clear that scaling up the circular economy is a major job to be done in the journey to net zero. If done well, it could provide the foundational blueprint for a system that gives back to the planet more than it takes. In a world of increasingly constrained resources, that's a lifeline we can't afford to ignore.