• Luke Bywaters, Manager |
  • Ioanna Papanikolaou, Manager |
  • Neil Hewitson, Partner |
8 min read

In this short blog for infrastructure asset owners, we outline why they require a circular economy strategy; how the circular economy can be applied to infrastructure; and the benefits available to infrastructure asset owners from applying it.

Why UK infrastructure organisations require a circular economy strategy

The circular economy presents an opportunity to deal with several challenges facing infrastructure owners, providing options to consider for: 1. Decarbonisation; 2. Resilience; 3. Asset lifecycle performance and 4. Waste. The circular economy should not be considered as an upcoming burden for the sector, it's in fact an opportunity to reduce cost, expedite innovation and better manage performance and risk in our infrastructure.

  1. Climate change is already happening – just this summer the UK has experienced record temperatures of over 40°C, and one of the most severe droughts on record. By 2050, the world stands to lose around 10% of total economic value from climate change(The economics of climate change , Swiss Re). Infrastructure asset owners are particularly exposed to the effects of climate change and the twin challenges of adaptation and mitigation this presents. The Taskforce on Climate-related Financial Disclosures (TCFD) estimates the value of manageable assets at risk will be as high as $43 trillion by 2100(TCFD Booklet FNL Digital March-2020). The infrastructure sector is responsible for more than half of the UK’s total carbon emissions - the use of resources is a key contributor to these emissions. A system-wide transition to a circular economy is a vital element of plans to tackle decarbonisation. According to the World Economic Forum (WEF), a switch to renewable energy and greater energy efficiency are the lower-hanging fruit measures which can meet up to 55% of global emission targets. However, the remaining 45% will need to be addressed via circular economy strategies. A focus on resources is essential to mitigate infrastructure climate change impacts.

  2. Price and availability of resources are becoming more volatile due to a range of geo-political factors, with infrastructure organisations facing growing scarcity and inflationary supply chain pressures. In the infrastructure sector, this has contributed to a number of supply chain insolvencies, the need to delay capital and renewals projects and increased project costs(ICE Presidential Roundtable summary: What impact will inflation have on global infrastructure pipelines?).

  3. In the UK, a fifth of civil engineering output is spent on infrastructure repair and maintenance. An end-to-end circular asset management strategy enables infrastructure owners to develop a proactive management and maintenance approach to its assets to improve durability and asset performance.

  4. This lack of durability and end to end asset strategy, also often results in waste at the end of an asset’s life. Construction, demolition, and excavation activities are responsible for 63% of waste in the UK (120 million tonnes) according to 2016 Defra waste statistics. (Our waste, our resources: a strategy for England) (Zero Avoidable Waste in Construction)

Moving infrastructure organisations from a linear, to circular economy

To answer how the infrastructure sector makes it happen, it is useful to start with the three principles of the circular economy: elimination of waste, circulating products and materials and regenerating nature(Ellen Macarthur Foundation – What is a circular economy?). These can be achieved by narrowing (using less resources), slowing (using assets for longer), closing (recycling or re-purposing at the end of life) and regenerating (improving natural ecosystems).

Delivering ESG and sustainable finance

The circular economy is being embraced as a huge opportunity in sectors such as consumer products, but the infrastructure sector is still lagging in adopting circular principles.

Yet, infrastructure asset owners are uniquely placed to embrace circularity in their organisations by designing their business and operating models with a circular economy mindset from the outset.

Having the right data to make CE decisions is important. To identify circular economy opportunities, infrastructure owners should start with a circularity assessment that considers resource inputs, and outflows. This will establish a resource consumption baseline and highlight circularity opportunity areas.

Fostering and embedding a circular economy strategy is needed to materialise the circular opportunities identified from the circularity assessment. The five principles for infrastructure and construction clients as set out by UKGBC8 can be used as the foundation for developing a circular infrastructure strategy:

  • Design asset for optimisation (longevity/flexibility / adaptability/assembly, disassembly, recoverability)
  • Maximise reuse (including refurbish and repurpose)
  • Use standardisation or modularisation
  • Assets as a service
  • Minimise impact and waste (design and construct responsibly)

The commercial and procurement approach is a potential lever for infrastructure organisations when it comes to moving from linear to circular economy thinking. Undoubtedly, asset owners will have concerns about warranty and risk when it comes to some emerging circular business models such as product-as-a-service, the risk allocation needs to be carefully balanced between owners, designers, and contractors. Design and building contracts may present an opportunity to support circularity due to a greater whole-life perspective, compared to breaking up the works into smaller packages. However, the opportunities and risks will in many cases be unique to each project and require case-by-case consideration.

Supply chain contracts should also be reviewed to ensure that the wider value chain is incentivised to embrace circularity, with clear KPIs associated with circular business models. Capturing data as part of the ongoing monitoring of the asset management activities is improving across the sector - the quality and accessibility of this asset data will facilitate the identification of further opportunities to embed circularity.

The benefits of embracing circular economy including reduced cost, expedited innovation, asset performance, decarbonisation, and resilience, need to be communicated to all stakeholders, such as investors and the public that is using the assets. A system-wide perspective, engagement and buy-in is needed to maximise benefits. The transition to circular economy is underpinned by embedding the right culture to meet the organisation’s CE strategy. The first step would be to raise awareness through training, expert panels, employee-led initiatives, and rewards.

There is also an opportunity for Government to lead by example, by incorporating a circular economy approach within its net zero strategy, decision making, and reporting. The Public Accounts Committee (PAC) recently stated that all fiscal and infrastructure programmes must be stress tested against net zero, it has also asked BEIS to publish data to evidence decarbonisation progress to date compared to its net zero commitments. Furthermore, Government was ordered in July 2022 by the High Court, to publish an updated net zero strategy by March 2023. A Circular Economy approach will be fundamental to achieving net zero and therefore should form a key part of the Government approach to net zero and decarbonisation.

Circular economy benefits for infrastructure organisations

The benefits for infrastructure asset owners from embracing circularity are wide-ranging. A circular built environment is estimated to create a 6% overall decrease in acquisition and maintenance costs, compared to a standard building9. Re-using materials, assets, and reducing waste has an immediate financial benefit for the organisation and can also protect against inflationary and scarcity-driven supply chain pressures. Collaborating with other organisations locally in a circular economy context, will allow for more efficiencies and security in terms of timely delivery of materials and best practice sharing.

Financial depreciation of materials in the built environment accounts for an estimated €2.1tn of lost value each year. Emerging thinking in this area has tested the trading of futures contracts related to the value of building materials at the point of deconstruction. This has been tested in a German retail fitout context where it reduced the whole life cost of ownership by more than 5% over 10 years. Creating buildings that are more adaptable to alternative uses has been shown in a test case to increase its internal rate of return by 3% over 50 years10.

The effects of climate change can be better mitigated by reducing the need for using virgin materials. This will improve the environmental performance of the organisation and help meet any legislative and regulatory commitments around sustainability. A circular built environment could reduce global carbon emissions from building materials by 38% in 2050, due to a reduced demand for steel, aluminium, cement, and plastic. Having a circular organisational mindset and business model can improve the resilience of the organisation by ensuring that the assets are fit for purpose and that circularity is embedded in the design and construction.

Talent retention is also more likely, as employees will recognise that they are working for a purpose-driven organisation that takes practical actions to reduce their environmental footprint. Providing meaningful employment and being an attractive employer is expected to improve the business performance and the end user / public perception of the organisation.

Finally, infrastructure organisations can completely transform their business model to tap into new revenue sources. As an example, Yorkshire Water is piloting whether their water pipes can be used to carry fibre optic cables12, If successful, this will reduce the need for telecommunication companies to build new infrastructure, and instead they can invest on extending the life of critical water infrastructure whilst at the same time benefiting from a reduced capital expenditure in reducing fibre optic cables.

The circular economy presents huge opportunities for infrastructure owners and organisations. Please get in touch with our circular infrastructure experts to find out more how we can support you to transition to a circular economy business model, and lead collaboration across your value chain.