Indicators for the measurement of Circularity
The measurement of circularity is an increasingly topical subject. Indeed, Circular Economy often takes on different tones than the models we are used to, and it can be complicated to measure its impact and effectiveness quantitatively. Given the variety of systems to which these evaluations are applied, it is important that the chosen indicators are constructed taking into consideration the size of the system to be analyzed: an indicator can be defined as effective when it is adequate to measure the variables identified in the specific context of interest, also called implementation level. Three levels of implementation can be defined: micro, meso and macro, which require consideration of even completely different aspects and data.
The micro level considers an individual organization and its performance in terms of circularity, in comparison only to organizations in the same sector and/or its current situation. Some tools proposed at this level focus on analyzing the circularity of a single product within an organization: an example is the Material Circularity Indicator (MCI) developed by the Ellen MacArthur Foundation. Other indicators identified at this level focus on further aspects, such as Circulytics, also developed by the Ellen MacArthur Foundation, which focuses on the strengths and weaknesses of an organization as a whole from a circular perspective, supporting enterprise-wide decisions for an increase in the value of an organization’s brand.
The meso level represents an intermediate stage of analysis, usually assessing industrial symbiosis, or sets of organizations belonging to the same sector, or even groups of companies linked by a limited territory. Often at this level, the same indicators as at the micro level are used for individual organizations, enlarged to the specific field of investigation.
Finally, we have the macro level, which corresponds to cities, regions, nations or the entire global economy. At this level, the data required are significantly larger than those identified for a single organisation, while the analyses performed are more complex, both due to the volume of data and the multiplicity of systems considered: it is necessary to resort to databases, to use conversion factors in order to aggregate data in a coherent manner, and it is often necessary to make approximations where data are lacking or completely absent. In any case, international communities are working to develop new indicators to measure the specific level of analysis: they are intended to give a general picture of a large area at a certain point in time, but their level of specificity will be less than that of a single organization or product. An example of these efforts is the Bellagio Declaration, which aims precisely to build a shared system, based on seven principles, to monitor progress in terms of the Circular Economy, both at the national and European level, aiming at harmonizing the efforts made by the numerous actors in the sector.
In general, although many existing indicators measure the many facets of the economic system, there is one that perfectly encapsulates the circularity of a system: it is the Circular Material Utilization Rate. It is defined as the ratio of the material reused to the total material used in the system considered.
Globally, this indicator is measured annually by Circle Economy and published through the Circularity Gap Report. At its first measurement in 2018, the level of circularity in the global economy was 9.1%. In the following years, due to a combination of factors including the global COVID-19 pandemic, the war in Ukraine, and rising commodity prices with supply difficulties, the global circularity rate has fallen to a worrying 7.2% in the latest Circularity Gap Report of 2023.
This negative trend is mainly due to increased consumption accompanied by only a modest increase in reuse and recovery. We recover less than 8% of the resources we take from the earth every year and the use of materials is accelerating at a faster rate than population growth: in short, we are going in the opposite direction to that indicated by the European Green Deal.
At the Italian level, although in recent years we have not seen that decoupling between GDP and material consumption that the Circular Economy should bring, many circularity indicators have seen a tangible improvement, even in relation to other EU states. In the European Union, the circularity rate was 12.8% in 2020, while Italy was particularly virtuous with a rate of 21.6%, fourth at European level behind only countries historically active on these issues, such as the Netherlands (30.9%) and Belgium (23.0%), as well as France (22.2%).
What is the purpose of measuring circularity?
Measuring circularity is increasingly a relevant issue for companies, both because it provides insight into possible areas where action can be taken to improve circularity and be more sustainable, and because it is based on data that will still need to be collected and analyzed by companies according to the latest developments on sustainability reporting. In fact, in December 2022, the Corporate Sustainability Reporting Directive (CSRD) was approved, which introduces new rules for sustainability reporting, including greater detail for all the part pertaining to circular economy.
This directive is one of the cornerstones of the European Green Deal and the Agenda for Sustainable Finance and is part of a broader EU policy to ensure that companies respect human rights and reduce their impact on the planet. In fact, the directive extends to a much wider range of companies the obligation to disclose information on sustainability issues, in terms of environmental impact, social rights, human rights and governance factors. The directive applies to both large companies and SMEs. This directive also introduces a much more detailed section regarding circular economy, which will require information with respect to the use of resources; the implementation processes adopted; the performance of companies in terms of the circular economy, going to measure in input and output flows that have followed circular economy principles; and finally the financial impact of the transition to the circular economy. More details on all the required information can be found directly in EFRAG’s report.
For this reason, it is now more important than ever to define a methodology for collecting and analyzing this information, which is also why Tondo decided to develop two tools to measure circularity at the company and product level. The tools are proposed with an interface that is intuitive to use and guided in the information to be provided, remaining tools based on solid and already extensively tested methodologies. The tools, which are currently being beta-tested with a few companies that have shown interest, will be available for use by all interested companies from the end of 2023.
Circularity Measurement Tool
The company-wide circularity measurement tool consists of 71 indicators, and maps six key areas of the company, namely: material resources and components; energy and water resources; waste and emissions; logistics; product/service; human resources, assets, policy and sustainability. The indicators and calculation methodology are derived from the UNI/TS 11820 technical specification. The tool, based on this very standard, provides the overall level of circularity at the company level and for each of the six key areas noted above. A not insignificant advantage is, in view of the compulsory sustainability reporting for companies from 2024, to begin to structure the collection of all the necessary data and the calculation of the level of circularity which will also be in the near future certifiable by third-party entities.
The indicators present are divided into “core” (8), “specific” (52) and “rewarding” (11), and in order to calculate the index it is not necessary for the company to compile all the indicators, but it is sufficient for all the “core” indicators and at least half of the “specific” indicators to be calculated for each of the company’s six key areas.
In contrast, the tool dedicated to calculating circularity at the product level is based on an internationally recognized methodology, the Ellen MacArthur Foundation’s Material Circularity Indicator. By inputting the necessary data, a product’s level of circularity is calculated, starting with raw material flows, inputs and outputs related to the product, product-specific energy, water consumed, and packaging.
Although the tools are designed to be simple and immediate tools to use and understand, collecting and entering the data may not always be so easy, which is why Tondo, if needed can support companies to fill out the two tools appropriately, guiding them in using the tools and collecting the necessary data.
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