Transitioning towards a circular economy model

By Darren Perrin

The current linear economy model prevailing globally cannot be sustained, its effects are no longer acceptable. There is a pressing need to shift towards a circular economy and close the loop on the economic cycle as part of a suite of necessary measures to address climate change and that natural resources are no infinite, and we are currently living beyond our planetary boundaries which cannot be sustained. Across the GCC region, national and regional strategies, new regulatory frameworks, and action plans are being developed that will support mandate this transition, which will significantly affect businesses across all sectors and throughout their value chains. Operational status quo will not be sufficient and success in this rapidly evolving environment, requires organizations to evaluate their resilience and how they can start integrating circular economy principles into their operations. By embracing a well-planned and thorough transition process, businesses can establish themselves as pioneers in the emerging circular economy, reduce and mitigate any exposure to the negative impacts of such change, and benefit from the economic, social, and environmental opportunities it presents.

Why transition?

The linear economy approach is responsible for the greatest environmental challenges faced by the world today. Continuing with the traditional linear economic model - take, make, dispose - is no longer viable. This approach leads to resource depletion, biodiversity loss, waste and harmful losses and releases, all of which collectively are causing considerable damage to the capacity of the planet to continue to provide for the needs of future generations. Additionally, global population growth, coupled with high consumption levels, is putting pressure on existing linear business models. As finite resources dwindle, increasing production levels in linear business becomes difficult and costly. The implications are particularly severe for GCC countries, which must drastically alter their consumption patterns. For instance, Qatar has one of the highest per capita CO₂ emissions globally, while the UAE and Saudi Arabia produce more than twice the global average waste per person. The region is also highly vulnerable to the impacts of climate change, including rising sea levels, flooding, and freshwater scarcity. Recognizing this unsustainable reality, national circular strategies, policies, and action plans are currently being developed to support and drive the transition to a circular economy.

There is an urgent need for change, and an increased understanding in the region and globally that a transition towards a circular economy is based on rethinking design, and how society’s needs (welfare, housing, nutrition, healthcare, mobility, etc.) can be serviced without increasing product production and wasted utilities. Transitioning to a circular economy offers a compelling solution. It builds resilience by reducing dependence on scarce resources and mitigating supply chain risks. It also creates new economic value and unlocks potential by fostering innovation, new business models and creating jobs in sectors like recycling, remanufacturing, and sustainable design. Promoting efficient resource use, reducing environmental impact, and enhancing overall economic sustainability, a circular economy provides multiple direct and indirect benefits across various sectors. By embracing circular principles, businesses can not only mitigate environmental risks but also seize new economic opportunities.

When to transition?

Assessing an organization's level of strategic resilience is a crucial first step, as it confirms the necessity of a transition and supports its successful implementation by identifying the key risks to mitigate. Strategic resilience must be assessed from two perspectives. First, the organization's resilience from changing conditions because of climate change crisis (e.g., rising sea levels, flooding, more intense heat waves). Second, its resilience to the global adoption of new sustainable and circular economy approaches across different sectors and value chains (e.g., new regulations, evolving business models, changing consumer behaviors).

To evaluate an organization's strategic resilience and identify key risks, both its vulnerability level and the degree of exposure to those vulnerabilities must be assessed. Vulnerability refers to the organization's sensitivity or predisposition to adverse impacts, coupled with a limited capacity to cope and adapt. The vulnerabilities to which the organization is most exposed constitute its key risks. This evaluation framework should be applied throughout the organization's entire value chain, examining resilience across operational, financial, organizational, social, and technological dimensions.

Addressing these key risks requires detailed consideration on how a company’s current business model and operations can be adapted to reduce its exposure and/or level of vulnerability through the application of circular principles and alternative business models, and/or alignment with evolving supply chains throughout different sectors value chains.

How to transition?

Shifting from a linear to a circular model can be challenging and complex as it often requires rethinking an organization’s supply chain processes, business models and resource management strategies. Enablers need to be in place around governance, education, technology, and innovation etc are required. To support in this shift, the International Organization for Standardization (ISO) has recently introduced a new series aimed at setting global standards, guidelines, and frameworks for the circular economy. For a smooth and successful transition, four critical steps must be followed.

Understanding, mapping, and assessing the current model

Understanding the organization’s existing model is foundational for developing a comprehensive strategy. To achieve this, it is beneficial to assess all key business elements that make up the current model and evaluate the current circularity performance. Additionally, mapping the organization’s value chain serves as a critical starting point for identifying opportunities throughout these areas. This holistic mapping approach clarifies the context in which the organization operates and its readiness to adopt circular practices, enabling more informed decision-making.

Defining a circular economy strategy

The organization should start by clearly defining its goals – what it aims to achieve by transitioning to a circular economy. Establishing these goals early in the solution development process allows for the integration of circularity aspects into the solution's design. Clearly articulated goals are crucial for developing a comprehensive circular economy strategy that informs the organization's vision, mission, objectives, actions, and performance metrics. Transitioning to a circular economy necessitates a shift in mindset and incorporating the six principles of circular economy – system thinking, value creation, value sharing, resource stewardship, resource traceability, and ecosystem resilience – into the strategy development process. This is essential for facilitating a successful transition.

Implementing an action plan to transition towards circularity

Once a circular economy strategy is established, the next step is to create an actionable transition plan that aligns with this strategy, facilitating the shift from the current state to the desired future. This transition plan should outline objectives, timelines, actions; the required enablers such as governance, funding, education, and expected targets measured by key performance indicators (KPIs). The scope of actions contributing to a circular economy can be categorized as follows:

• Value-adding actions: circular design, circular sourcing, circular procurement, and industrial symbiosis.
• Value retention actions: reducing, reusing, repurposing, refurbishing, remanufacturing, repairing, and sharing to intensify usage.
• Value recovery actions: reverse logistics, recycling, resource and waste management, material recovery, and energy recovery.
• Ecosystem regeneration actions: removal of harmful substances, remediation of soil and water bodies, mitigation and adaptation to climate change impacts, protection of biodiversity, and regenerative practices.
• Additional overarching actions: education and research, innovation, awareness-raising, collaboration, legislation, and digitalization.

Reviewing and monitoring for continuous improvement

Effective measurement and monitoring of circularity and its impacts are essential. After implementing the strategy, the organization should evaluate and measure the results of the initiated actions to assess its circularity performance in relation to the established KPIs. This evaluation must be meaningful, ensuring that the collected data is both relevant and sufficiently accurate for its intended purpose. By tracking and analyzing material flows, energy consumption, waste generation, and value creation, the organization can identify opportunities to enhance efficiency, foster innovation, and strengthen resilience. Additionally, this enables clearer communication of circularity achievements to external stakeholders, demonstrating the organization’s commitment to sustainability and positive impact.

Globally, circular economy metrics and indices are still in their infancy. For example, the European Circular Material Use Rate is a measurement tool created by the European Union to monitor the circularity rate evolution over the time by only assessing the percentage of recycled materials used in the economy. Identifying key circular economy metrics across focus areas (e.g., utilities, emissions, education, innovation, nature, waste, etc.) and aggregating them into a singular circularity index would allow a comprehensive circular economy performance monitoring across of all key circular economy principles.

Linear economic models are facing increasing scrutiny, highlighting the urgent need to shift towards a circular economy. In the GCC region, national strategies, new regulatory frameworks, and action plans are being introduced to mandate this transition, which will significantly affect businesses. To thrive in this evolving landscape, organizations must consider what role they play in a circular economy, assess their current operations and business model and its vulnerability and level of resilience to these changes, identify key risks posed by these changes, and begin incorporating mitigation measures and circular economy principles into their operations. By adopting a well-structured and comprehensive transition process, businesses can position themselves as not only leaders in the emerging circular economy, but capitalize on the vast economic, social and environmental opportunities it offers.

Transitioning successfully from a linear to a circular economy model requires strategic and technical expertise, insights, and a robust implementation plan that can manage the different stakeholders within often a complicated ecosystem across the value chain. Roland Berger stands ready to assist through our comprehensive suite of services which range from baseline assessment, strategy development, implementation support, training. This recent experience has been gained from our knowledgeable global teams, translating best practice into local action supporting our clients to understand and transition to more circular operations. With our exceptional credentials in sustainability, we also assist with green energy and ESG strategies and execution plans.