Think of a circular economy as an industrial system that is restorative or regenerative by design. After use, the circular model returns products to be reused, recycled, or repurposed. This approach differs from a linear model of turning raw materials into products that are only used once before being wastefully discarded.
In a circular economy, things are made and consumed in a way that minimizes the waste of natural resources and lowers carbon emissions. A circular economy recaptures “waste” as a valuable resource to manufacture new materials and products. Organizations using this model reduce material consumption by redesigning materials, products, and services to be less resource-intensive. A circular economy can include material harvesting, repackaging, reusing, and recycling to efficiently reduce a company’s waste footprint and thus close the circle on circular economics.
To achieve a circular economy, companies must first develop a comprehensive view of emissions data across their extended supply chain. Developing such a baseline at the supplier and category level is essential to identifying the greatest opportunities and developing an effective action plan.
Companies then leverage data provided by suppliers and third-party data sources. Independent data is needed to gauge supplier sustainability, verify the impacts of emissions on ESG and compliance goals, and provide estimates when suppliers lack the knowledge to provide accurate, detailed carbon data. One respected data source is EcoVadis, which provides business sustainability ratings for public and private enterprises to monitor and improve the sustainability performance of their trading partners. Other sources provide category-level estimates of carbon emissions.
This effort must include sub-tier suppliers, where the bulk of an organization’s immediate suppliers’ emissions are likely to be generated. This adds complexity, as it greatly extends the number of suppliers involved and likely includes small suppliers that have looser controls and little or no ability to calculate carbon emissions.
Baselining carbon emissions remains a difficult, imperfect process. This is compounded by suppliers’ challenges assessing their own carbon emissions and that of their suppliers. To maximize baseline accuracy while minimizing effort, companies should focus on larger suppliers of more carbon-intensive and heavily purchased categories. This reduces strain on procurement staff as well as suppliers.
With a verification framework in place, many large companies have made impressive strides toward reaching net-zero emissions. For example, luxury goods maker Moët Hennessy estimates that Scope 3 emissions make up 93% of its total carbon footprint. Moët Hennessy has launched a project called “Golden Seeds” to ensure that liquids extracted in its harvesting processes can be reused and recycled across other operations.
Similarly, auto manufacturer Volvo reuses surplus green hydrogen from its steelmaking process to power filling stations and hydrogen-fueled vehicles. Volvo has several active partnerships for battery-charging and hydrogen infrastructure projects across the US and Europe to increase the adoption of hydrogen power and reduce carbon emissions.
Meanwhile, Safran, a key aerospace and defense supplier to the US, now recycles 60% of raw materials used in its titanium and nickel alloys. Safran achieved this milestone in France, at the first European manufacturing plant to successfully adopt recycling in the production of aeronautical grade alloys. The plant employs a clever circular economy by producing new titanium ingots wholly from scrap metal collected from the company and its subcontractors.
Upstream Scope 3 emissions are, on average, 11.4 times higher than direct emissions. In the raw materials sector, they average less than 30% of total emissions, but in the finished good sector, they often contribute more than 75%. For example, 83.3% of Nestle’s emissions are generated by the supply of ingredients and packaging. The production of Apple’s products with suppliers accounts for 70% of its emissions.
[For more from the author on this topic, see “Using a Circular Economy to Slash Supply Chain Emissions.”]