To compete in a circular economy, companies must keep abreast of evolving metrics and related disclosure. We look at some of the upcoming developments and how they may impact your business.
As companies transition from linear to circular business models, metrics play an invaluable role. They provide a foundation for steering circular performance. This not only helps to meet emerging reporting and other disclosure requirements; it also stimulates circular innovation in product design, procurement, manufacturing and distribution. Most companies are at a relatively early stage in measuring circularity, using the Circular Transition Indicators (CTI) and other frameworks for guidance. These assess material use, re-use, refurbishment practices and recycling, and show the proportion of output that is truly circular. However, indicators are evolving at quite a pace, in recognition that time is running out to reverse climate change and build business models that no longer take from the planet’s scarce resources, pollute the earth or release greenhouse gases.
Anticipating the next steps
The CTI framework is updated annually. The latest version, CTI v2.0, was launched in February 2021 and includes additional indicators on water circularity and circular revenue, as well as help on navigating the bioeconomy and integrating such efforts into circular metrics. Further developments are likely to bring new indicators and methodologies for specific products and sectors, plus updates and expansion of training, webinars and online guides.
The organizations driving circular metrics are especially keen to help companies integrate circularity into every aspect of their business, and find ways to better support them in this journey. In 2022, the CTI will broaden to include carbon emissions impacted by circular interventions, so bringing together the worlds of circularity and carbon reduction.
Towards convergence and standardization
To date, few businesses present a comprehensive and transparent view of their circularity. With a number of circular metric frameworks available, with varying purposes, it can be hard for investors, consumers and other stakeholders to compare companies’ performance. Organizations may struggle to accurately assess circularity, due to suppliers and other partners using different measurements and definitions of a circular economic model.
For instance, some metrics, such as the Cradle-to-Cradle Certified, are suitable as ‘headline’ indicators for reporting and certification. Circulytics, on the other hand, from the Ellen MacArthur Foundation, are more appropriate for rating. The CTI have a broad usage including reporting and performance measurement. We’re therefore likely to see frameworks converging in the coming years, to standardize terminology, approaches and methods. The CTI and Circulytics are already aligned on definitions and terminologies like “inflow” and “outflow”.
The CTI is also establishing a common language with the Global Reporting Initiative (GRI). The latter has recently established a newly updated waste reporting standard, GRI 306: Waste 2020, requiring companies to disclose their waste related impacts along the value chain – and describe how they’re trying to prevent waste. By measuring waste more accurately, companies can set clearer circularity targets and monitor progress. These are just a few examples and we can expect to see further examples of collaboration and convergence in the coming years.
Whichever metrics your company chooses, it’s important to embed them into every part of the organization and use the resulting insights to advance circularity in those areas that make the biggest difference. The World Business Council for Sustainable Development (WBCSD), which is behind the CTI, sees metrics as a vital tool in accelerating the circular economy.
Developments in circular metrics should continue to inspire new ways to design out waste and pollution, keep products and materials in use for longer, and regenerate the natural environment. By staying in close touch with leading thinking – and seeking appropriate advice and guidance – your company can create a more sustainable and winning business.
Here at KPMG we’ve been privileged to work with WBCSD as co-authors of the CTI and are excited to be at the forefront of this exciting movement. If you want to make your organization circular – faster, then please get in touch.