Today, the global economy is only 8.6% circular according to the latest report from the think tank Circle Economy, even though this economic model paves the way for a more sustainable and environmentally friendly world. By committing to the circular and ecological transition, companies are choosing to reconcile economic efficiency with preserving the planet. And they need a common language and means of measurement to continue moving in this direction. This is why the World Business Council for Sustainable Development (WBCSD), together with a group of member companies, has developed a methodology and a series of key performance indicators (KPIs) to help companies manage their circular transition.
The importance of KPIs in the circular economy
By definition, the circular economy is a regenerative economic model. This mode of production and consumption is designed to maximise the life of resources and reduce waste to help support sustainable consumption. Once companies have made the decision to incorporate the circular economy into the core of their business model, the question arises of evaluating and monitoring these results. To steer this process, circular economy KPIs have to be set up. This objective data helps companies to set objectives, evaluate their progress in various areas, and direct their actions.
Communication and its importance shouldn’t be overlooked. Companies can also share their progress with their stakeholders: Internally, to unite teams and get them to support this transformation towards the circular economy, but also externally. This information will be of interest to customers, as well as suppliers, investors, public authorities, etc.
Companies therefore need circular economy KPIs. But which ones? Until a few years ago, most companies had developed their own method. Although there were many policies, none seemed to be definitive: the Ellen MacArthur Foundation’s butterfly diagram, the reporting framework from the Global Reporting Initiative, the Cradle-to-Cradle concept…
Although this choice always depends on each company individually, one method deserves extra attention. And that is the Circular Transition Indicators method (CTI) devised by the World Business Council for Sustainable Development (WBCSD), jointly with 30 member companies and the consultancy firm KPMG.
Diane Holdorf, Executive Vice President of the WBCSD, explains the rationale: “Built for business, by business, CTI provides a simple, consistent and sector-agnostic way to measure circularity. Its transparent, quantitative and comparable indicators support companies in taking action to increase circular sourcing, identify opportunities to improve resource recovery and effectively close loops. Going through the CTI process creates real value for businesses, helping them set SMART targets1, mitigate risks and build relationships across departments and value chains. Companies that use CTI develop organisational resilience and are better equipped to respond to investors, customers and regulators’ increasing pressure for transparency, stability and measurable progress in sustainability performance."
Indicators for measuring the circular economy
This methodology means circularity can be measured at company level, but also in terms of business divisions or products and services. It is based on four main modules, each containing its own set of indicators. Overall, the assessment focuses on material flows in the company, but also on natural resource efficiency and the value added by the circular company.
Closing the loop
This first module is designed to assess the ability of a company to “close the loop” of its material flows.
This indicator assesses both procurement, design and the business model, as it focuses on all flows (in and out). The percentage of circularity is the weighted average of two key indicators: The percentage of circular inflow and the percentage of circular outflow.
Fresh water is a key element of the circular economy and is separate from material flows. This indicator is designed to reduce the demand for fresh water, while ensuring that it is available.
This module closes with a final key indicator of the circular economy: Renewable energy (solar, wind, hydro, etc.).
Optimising the loop
In this second module, the focus is more on resource efficiency.
This indicator allows companies to measure the risks associated with the use of certain materials. Critical materials are those whose supply can be uncertain, impacting the company significantly. This applies to, for example, aluminium, copper, nickel, phosphorus, lithium, etc.
This indicator focuses on how companies recover outflow (reuse, refurbishment, remanufacturing, recycling, etc.) and integrate them back into the value chain. This can be
through technical or biological cycles, each with its own different level of recovery (medium or high).
Internal water circulation
This indicator focuses on the circulation of water on site to show how much it is reused and recycled.
Valuing the loop
This third module highlights the added business value of circular material flows for companies.
Productivity of circular materials
This indicator emphasises companies’ ability to decouple their financial and economic performance from linear resource consumption. If the figure is increasing, then the policy is working.
This is a key indicator, as it assesses circular performance in terms of efficient use of resources and financial gain. It shows the value generated by circular investments.
The impact of the loop
In the latest version of the methodology, a fourth and final module has been added. This is the impact of circular strategies on the achievement of sustainability objectives. The idea is to assess the difference in impact between the company’s current level of circularity and a potential 100% circularity. This indicator focuses on the impact of greenhouse gas emissions and may be followed by other circular economy KPIs in the future.
In summary, circular economy KPIs are essential for driving a sustainable resource management policy, sharing progress with as many people as possible and encouraging everyone to accelerate their circular and ecological transition. Whether they are indicators suggested by the WBCSD or by other stakeholders committed to environmental protection, the key is to kickstart the movement. New benchmarks and standards keep emerging in this area to provide a universal framework and promote circular entrepreneurship and thus sustainable development.