Currently, companies are confronted with a changing market landscape. The temporal disruptions of supply chains, more volatile raw material prices, a wave of sustainability regulation, and a growing number of eco-socially conscious customers and investors. As a response, many companies started their transformation towards a circular economy by implementing circular economy projects, pilots, targets, and pillars in their sustainability strategy. While those establish the basis and foundation of the change that is needed, a broader transformation in management, strategy, target setting, and operations as well as up and downstream of a company’s value chain are necessary.
Companies face many obstacles they must overcome, as they often lack knowledge about the circular economy and its impact on the business model. Therefore, they need support and guidance to incorporate circularity into every aspect of their operations. The Circular Economy Rating (CE Rating), developed in cooperation between WWF Germany and Taival Advisory is a holistic tool that gives the company a clear picture of where they currently are in their CE journey, what their circular maturity is, and provides recommended steps for improvement.
Key incentives for the path to a circular company
The incentives to determine the status quo of the transition
In every industry, challenges and solutions emerge during the transition. By being aware of its own status quo, a company has a starting point for its transformation journey and this enables them to start on the path toward circularity with more clarity. We identified three reasons why companies are carrying out the circular maturity rating:
- The circular transformation is demanded by different external factors and stakeholders including regulations, unstable supply chains, customer demands, and innovative competitors.
- The sustainability team needs help to understand and quantify both the current circular measures, being driven by different departments and business units – the biggest gaps that need to be filled in order to improve further.
- The sustainability team wants to use the results of the CE rating as a communication tool to help top management and employees realise the importance of and increase the company’s commitment towards circularity.
Key findings during the circular transformation
For companies from different sectors, similar or even the same business areas were identified as gaps and relevant action areas for the transformation. Improvement potential and challenges concerning industry-specific internal and external factors vary. However, every company needs to transform every level of the organisation when implementing a circular economy.
What are the challenges companies face during their transformation? What solutions could be helpful?
Internal structures, strategies, management, and operational processes need to be adopted and prepared for the transformation. On an external level, the implementation of the transformation happens along the value chain together with suppliers, customers partners, and other initiatives. Lastly, the execution and performance of circular activities must be measured and improved. Along those three areas, many issues and challenges can occur. We identified ten cross-sectional challenges and factors. In the table below, we list some of them and suggest improvement areas and related actions that can overcome these roadblocks.
4 challenges and solutions during the circular transformation:
Lack of targets:
An ambitious and holistic target setting is necessary. Targets are often not set because data is missing on the status quo and potential achievements are not measured. Additionally, companies wait for regulations to set targets. If targets are defined, they sometimes lack significance and ambition. Targets are essential for the complete company to align and work towards the same overall goal.
Target setting System:
The development of a comprehensive target system that includes key dimensions of CE (circular inputs, zero waste production, materials lost, and circular products) is necessary. The targets are expressed in percentages to be significant. Holistic targets are linked to performance management and cover the strategic and operational levels.
Missing employee awareness and understanding:
Internal communication of CE has to reach every employee. They should understand the concept of CE and see its potential to integrate it into their everyday tasks.
It is essential for the employees and company to develop a joint terminology and understanding of CE and what it means for the company’s mission and activities. Capacity building is achieved by providing easy access to relevant CE documentation and establishing a company-wide circularity training program.
Linear product development:
For the product life cycle to be circular, the process starts with product development. A circular design is necessary to allow the product or service to be part of a circular economy. Circular guidelines and requirements for development are necessary to guarantee circulation.
Circular Product design guide:
A mandatory circular design guide as part of every product development process allows for the continuous creation of circular products and services. The development of the product is the most important life cycle stage which determines if it can become circular.
Lack of cooperation of suppliers:
Suppliers often refuse to disclose information on materials and products and to adapt circular inputs as well as design criteria. They need to be open to change but often lack the knowledge and don’t see the necessity.
The development of an end-to-end view and vision for the value chain will increase the understanding and improvement of material flows. This leads to higher transparency. Real and dedicated value chain engagement, structured supplier relationships, and close collaborations are necessary. The suppliers need support in implementing CE criteria and complying with the circularity requirements for materials and products.
Each company needs to join the transformation to a circular economy since it is an efficient measure to reduce emissions if applied correctly. When undergoing a transformation and paradigm shift, guidance is essential for a holistic and structured integration of circular change. The overall goal of the CE Rating is to give companies guidance in the transition and to help them understand the opportunities and action areas. The most essential action points for a successful circular transformation are as follows:
In the transformation to a circular economy, it is important to understand a few essential aspects when creating the pathway. First, in order to define the path of a transformation a company must know what its starting point is, which can be defined by the circular maturity rating. Second, the company needs to define the desired target state, which in this case would be becoming a fully circular company. When those two questions have been answered, the path, next steps, building blocks, and capabilities can be defined and developed for the circular transformation. The CE Rating guides through the answers to those three questions.