Davos Agenda

Here's how we can turn more industries into circular economies

A machine makes plastic parts at the Simon Manufacturer of Plastic Products in Koszarhegy, Hungary February 20, 2020. Picture taken February 20, 2020. REUTERS/Bernadett Szabo

The perceived benefits of a circular economy have been limited to environmental sustainability. Image: REUTERS/Bernadett Szabo

Kristin Hughes
Director, Resource Circularity
Francisco Betti
Head of Advanced Manufacturing and Production, World Economic Forum
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Davos Agenda

This article is part of: World Economic Forum Annual Meeting

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  • How can the world meet the growing demands for goods with fewer resources and in a more sustainable and efficient way?
  • The circular economy is not new, but few businesses have succeeded at large-scale implementation, and even fewer have considered a complete shift of the value chain.
  • Organizations can transform with a more holistic approach to circularity initiatives, creating more adaptable operating and business models and contributing to system-wide change.

Industries and governments have set ambitious environmental targets for the next 10–20 years. They aim to achieve supply-chain resilience, reach net zero and dramatically reduce waste, all while driving productivity, innovation and economic growth to meet rapidly changing consumer expectations. That’s already an unprecedented amount of change, and these visionary efforts operate in a challenging and uncertain geopolitical landscape.

Achieving such commitments will require bold change. Transforming business models and supply chains is no easy task. It requires system-wide adaptation to how we make, sell, use, reuse or recycle products and how the global economy operates overall.

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Natural resources are scarce, even in a climate-adapted, geopolitically cooperative world. In recent years, shocks across supply and value chains caused by both public health and geopolitical crises have dramatically accentuated this scarcity. So, how can the world meet the growing demands for goods with fewer resources and in a more sustainable and efficient way?

Circularity is not a new concept. In the past 20 years, businesses, industries and governments have experimented with circularity initiatives, mainly focused on recycling and waste management. Very few have succeeded at large-scale implementation, and even fewer have considered a full shift of the value chain. A recent Bain & Company survey found that ~60% of active circularity initiatives have not reached scale. Early circularity initiatives are most frequently held back by a lack of technology capabilities, inconsistent industry standards and a lack of strong connections with other players in the industry.

According to Jagjit Singh Srai, Director of Research in the Department of Engineering at the University of Cambridge: “Transformation to a circular economy will require cross-industry collaborations where systems thinking leverages advances in materials, production and digital technologies. These collaborations and technologies will underpin resource-efficient operating and business models of the future.”

Transformation to a circular economy will require cross-industry collaborations where systems thinking leverages advances in materials, production and digital technologies. Davos 2023
Transformation to a circular economy will require cross-industry collaborations where systems thinking leverages advances in materials, production and digital technologies. Image: World Economic Forum/Bain & Company

Why has circularity failed to take off? To date, companies have invested in narrow circular solutions within their own four walls. Additionally, the perceived benefits of circularity have been limited to environmental sustainability with limited consideration of the systemic benefits of resilience, resource efficiency and incremental and sustainable economic growth. Focusing primarily on recycling inputs and redirecting waste flows is an easier and more controlled option, but it limits the potential to scale circularity initiatives.

Without a holistic approach across multiple supply chains, the circularity movement has hit a fundamental barrier: the extra cost and complexity of becoming circular outweigh the added benefits. The current value proposition hasn’t convinced businesses and consumers to make circularity a reality or to undertake broader, systemic changes. Circularity initiatives to date have shown that isolated efforts are not enough; slow, incremental change is ineffective.

We believe that organisations that embark on circular transformations and create more adaptable operating and business models will be better positioned to prosper, even in times of disruption, while contributing to sustainable growth. According to Hernan Saenz, Senior Partner and Global Head of Performance Improvement at Bain & Company: “Circularity is not just about protecting the climate and our planet’s biocapacity, but about enabling massive and resilient economic growth – circular models and operations are the future, and the companies that get there first will establish a competitive advantage.”

Transforming how the global economy operates goes way beyond the first step of companies building circular networks. It requires bold thinking to reshape operating and business models, build new systems and change consumer behaviour. These broader actions, in turn, will reconfigure industry value chains and set in motion a more systemic, sustainable approach to resources worldwide, while unlocking economic growth.

Advice for policymakers

Meanwhile, governments can expedite the process by providing the right infrastructure and standards for circularity. Policymakers have an essential role to play. Most have not yet begun to install the policies and regulations required to support large-scale systems change. At times, the policies in place act as inhibitors and work against progress. For example, the rate of recycled concrete that can be used in structural work varies by country, hampering its production and use at scale.

The EU has been at the forefront of circular policy efforts creating frameworks such as the Circular Economy Action Plan (CEAP), Extended Producer Responsibility (EPR) or the new battery directive. Other countries are creating their own programmes, including the E-waste Producer Responsibility Organisation Nigeria (EPRON) and Singapore’s Resource Sustainability Act (RSA) to manage electrical waste.

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What is the World Economic Forum doing about the circular economy?

Although these programmes build momentum, achieving a systemic shift will require more ambitious and holistic initiatives that are broader in scope, interconnected among industries and aligned across countries and regions in order to create global standards, trade rules and consistent incentive structures.

Circular economy: the way forward

We're seeing industries and policymakers turn towards resource circularity to help secure, transform and diversify the supply of industry-critical materials while reducing the need for extraction and associated emissions. Industry coalitions have worked with future-focused governments to establish the incentives, policy frameworks, standards, operating models, certifications and circularity-focused capabilities that are necessary to scale. In some markets, business models have been transformed to decrease demand and increase both the recovery potential and actual recovery of these resources, partially mitigating the demand-supply gap going forward.

Forward-looking leadership teams are advised to focus on these crucial questions:

  • What are the most effective and profitable circular models to support our growth and sustainability efforts and navigate global disruptions?
  • How can organizations build a network of interconnected supply chains to enable new circular models?
  • How can we achieve systems-wide change that dramatically increases the number of interconnected circular supply chains?

The World Economic Forum, alongside partners Bain & Company, University of Cambridge, and INSEAD, have launched the Circular Transformation of Industries, a new initiative with the objective of hastening the shift to circular operating and business models, taking advantage of circularity to unlock productivity, resilience and sustainability. We are calling upon organizations to join a growing cohort of circular industry transformation leaders to partner with us on this journey to collaborate at an unprecedented scale towards a circular transformation of our industries.

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