The concept of a circular economy (CE) has gained significant traction in recent years as companies aim to reduce waste, improve efficiency, and meet rising stakeholder demands for sustainability. A circular economy seeks to eliminate waste by keeping products, materials, and resources circulating in the economy for as long as possible.
Measuring a company‘s "circularity" through relevant metrics is a critical first step to identify opportunities and benchmark progress. While interest is high, many business leaders struggle with where to start. In this comprehensive guide, we will demystify circular economy metrics by:
- Defining circular economy and the business case for measuring circularity
- Providing an expert overview of the top 10 circularity metrics
- Detailing how to actually collect circularity data
- Discussing additional important metrics like carbon footprint
- Summarizing key takeaways for putting insights into action
Let‘s dive in.
What is Circular Economy and Why Measure It?
Circular economy refers to an industrial system aimed at eliminating waste through superior design and processes. Companies strive to keep products, components, materials, water, and energy circulating in the economy to preserve value.
Transitioning from the dominant linear business model of "take, make, waste" to a circular model delivers compelling business benefits:
Cost Savings: More efficient use of materials and resources boosts productivity. Repairing, reusing, and recycling cuts procurement costs.
Future-Proofing: Proactive management of ecological impacts enhances resilience against rising costs of resources/waste disposal and strengthens social license to operate.
Competitive Edge: Leading in sustainability attracts top talent and investment capital while meeting consumer demand. Circular capabilities can also unlock product and service innovation.
Compliance: Tighter regulation on ecological impacts is expanding globally. Measuring and improving circularity facilitates compliance.
Revenue Growth: New circular business models focused on services, rentals, and product-life extension represent a $4.5 trillion economic opportunity by 2030 according to Accenture analysis.
However, companies struggle to assess circularity, identify priorities, and track improvement without consistent measurement. Leading organizations have developed circular economy metrics across these 10 key categories:
Top 10 Circular Economy Metrics
1. Resource Productivity
Resource productivity calculates the economic value extracted from material resources. It is calculated by dividing total sales revenue by mass of virgin material input.
Resource Productivity = Total Sales / Virgin Material Input (mass)A higher resource productivity ratio signifies greater circularity and material efficiency. An automaker procuring less virgin steel to produce the same number of cars would see this metric improve.
2. Percentage of Recycled Input Materials
This metric examines the percentage of recycled/reused materials used as production input out of total materials. A higher percentage indicates greater circularity.
% Recycled Input Materials = Mass of Recycled Materials / Total Material Input * 100Fashion retailer H&M seeks to use 100% recycled input materials by 2030. As of 2019, 57% of their materials met this goal, up from 35% in 2018.
3. Product Recyclability
While actual recycling rates are ideal, product recyclability measures design for disassembly and use of recyclable materials. Easier to recycle products enable circularity.
Companies can also spur recycling by enabling consumer take-back programs. Outdoor apparel maker Patagonia offers store credit for returning used products.
4. Circular Water Consumption
This metric calculates the percentage of water from reused/recycled sources out of total consumption. With water scarcity rising globally, reusing wastewater multiple times preserves this precious resource.
% Circular Water Use = Recycled Water Consumption / Total Water Use * 100 Consumer goods giant Unilever replenishes nearly 60% of the water it uses at sites in water-stressed areas through recycling and rainwater harvesting — avoiding over 5 billion liters per year.
5. Circular Water Discharge
While essential to measure water intake, accounting for useful discharge matters too. This metric examines the percentage of water output safe enough for industrial reuse or released to natural systems without adverse impact.
% Circular Discharge = Circular Water Discharged / Total Water Use * 100Companies must invest in appropriate treatment infrastructure to enable circular discharge.
6. Renewable Energy
The percentage of total energy consumption from renewable sources like wind, solar or hydroelectric signals transition from fossil fuels.
% Renewable Energy = Renewable Energy Consumption / Total Energy Use * 100Walmart, the world‘s largest company by revenue, met its goal of 50% renewable electricity across operations in late 2021, up from 35% in 2018.
7. Product Rentals & Leasing
Renting products and equipment through "product-as-a-service" models cuts waste by intensifying asset utilization. Companies can estimate related environmental savings using lifecycle assessment data.
Outdoor equipment rental service Artery estimates their model has achieved over 500 tons of avoided greenhouse gas emissions and elsewhere enabled over €3M of avoided production impacts.
8. Product Repairability
Repairability measures the ease and degree to which products can be serviced and repaired. Design attributes like modular components and repair manuals enable longer product lifetimes and circularity.
Under the French repairability law, electronics and appliances must disclose a repair rating out of 10.
9. Product Warranty Periods
Generally, companies that expect products to endure for years or decades offer longer warranties. It serves as a proxy for overall durability and circular design.
Sunglasses brand Waterhaul%20plastic%20that%20Waterhaul%20produces.&text=The%20beauty%20of%20our%20closed,sunglasses%20returned%20will%20be%20recycled.) uniquely offers a lifetime warranty given use of durable ocean plastic.
10. Circular Economy Goal Progress
Finally, companies must track progress towards internal targets around circular practices like recycled content, emissions reduction, or product takeback.
Fashion chain H&M exceeded its 2025 goal of using 30% recycled materials by 2018. It has since raised the bar higher to 100% by 2030. Demonstrating improvement over time, even if targets shift, builds credibility.
While not exhaustive, these 10 metrics provide a robust starting point to begin understanding and benchmarking circularity. Let‘s examine how to actually measure them.
How Should Companies Measure Circularity Metrics?
Ideally, firms track the above metrics consistently across operations andproducts to yield comparable time-series data. This enables detailed insights into what‘s working and what needs improvement.
Major challenges include tracing data throughout complex supply chains and ensuring rigorous lifecycle analysis models. Let‘s explore solutions.
Engage Suppliers to Access Granular Data
Manufacturers rely heavily on materials and components sourced from suppliers globally. Tracing sustainability attributes for accurate circularity measurement requires engaging suppliers to share primary data.
Strategic buyers must emphasize circularity metrics in supplier questionnaires and specifications. This signals their importance to vendors. Integrating requirements into supplier contracts further compels data accessibility.
Emerging digital solutions like responsible sourcing platforms and product passports also enable tracing material flows across supply chains for circularity insights.
Adopt Circular Economy Software
While core enterprise systems capture some operational data, new software solutions help managers automatically compile, analyze, and benchmark relevant circular metrics.
For example, Circulytics from the Ellen MacArthur Foundation assesses company-level circularity across Facilities, Operations, Inputs, Products and Supply Chains. The cloud-based tool transforms fragmentary data into coherent circularity scores and heatmaps to identify hotspots.
Similarly, Circular Tree offers both product-level lifecycle and company-level circularity assessment software to inform strategic decisions.
Leverage External Consultants
When internal teams lack specialized expertise in circular economy frameworks, methodologies, and benchmarking — external consultants add value.
Management consultancies like Quantis: measuring-circulytics/) possess leading technical capabilities for lifecycle assessments and calculating circularity. They help clients implement data collection processes and interpret reports to craft sustainability roadmaps.
Nonprofits like the Circular Economy Innovation Partnership (CEIP)also guide organizations just beginning and help spot savings opportunities. The CEIP estimates their typical assessment results in a 5-10% productivity boost.
Additional Important Metrics
While circular economy indicators reveal how effectively companies preserve and circulate resources, two other metrics provide critical context:
Carbon Footprint: Assessing full value chain greenhouse gas emissions through a complete product lifecycle measures decarbonization progress and where to focus efforts. It also indicates how boosting circularity reduces carbon impacts. Walmart drives a Project Gigaton initiative encouraging suppliers to cut one billion metric tons of emissions through materials efficiency, renewable energy and more.
ESG Reporting: Reporting broader Environmental, Social and Governance metrics is essential for investors, regulators and other stakeholders seeking sustainability performance insights. GRI Standards and SASB metrics help guide standardized disclosure. Learn more in our ESG Reporting article.
While complex, measuring circularity, emissions and ESG performance enables strategic business decisions towards using all resources responsibly.
Key Takeaways and Next Steps
Implementing circular economy principles across business models, operations and supply chains requires a commitment to rigorous, consistent measurement. Rather than feel overwhelmed, companies should:
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Start Simple: Focus first on 2-3 priority metrics like recycled content use or product recyclability. Identify easiest access to reliable data.
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Set Targets: Develop 3-5 year goals to drive circularity improvement. Continually track progress over annual reporting periods.
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Engage Suppliers: Strategic buyers should emphasize circular data requirements in supplier selection and contracts. Digital traceability solutions also unlock visibility.
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Consider Software: Specialized circular economy software like Circulytics compiles, benchmarks and identifies hotspots to inform strategy.
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Use Consultants: If internal teams lack technical skills or bandwidth, leverage external expertise to establish processes and interpret circular reports.
While the circular transition necessitates some investment, the long-term benefits for costs, risks, reputation and revenues warrant full C-suite buy-in. Take the first step by starting to consistently measure the circular economy metrics that matter most. The insights will prove invaluable.