How to monitor the transformation towards circular society?

Although the term "circular economy" is familiar to many, the methodology for assessing a business's level of circularity remains uncertain. Decision-makers require quantitative data to ensure that decisions are based on factual information. Looking ahead, our goal is measuring the actual circularity, so that strategic decisions, policies, and business models can be based on circular economy metrics, enabling us to make a meaningful impact and shift towards a fully circular society. 

But let´s start from the beginning. What are circular economy indicators, what is circular economy and why does this matter? Global consumption of materials such as biomass, fossil fuels, metals, and minerals are expected to double over the next 40 years, while annual waste generation is expected to increase by 70% by 2050 (UN, 2015). The principles of a circular economy underscore the importance of recognising that our resources are not infinite and that we need to maintain a balance between economic interests, social aspects, and environmental protection. Since more than half of the total greenhouse gas emissions and over 90% of the loss of biodiversity and water stress originate from the extraction and processing of resources, the European Green Deal has launched a coordinated strategy to create a climate-neutral, resource-efficient, and competitive economy (Fetting, 2020). Expanding the circular economy from a few pioneers to include major economic players will be crucial for achieving climate neutrality by 2050 (European commission 2020). 

The concept of "circularity" is linked to the relationship between the environment and the economic system, a responsible use of resources in a closed loop, aiming to achieve balance between consumed resources and released waste. Despite the ambiguous concept, there is a need for specific methods to measure CE progress. The transition to a circular economy is described by the EU Parliament as the core of a sustainable society. According to EU initiatives on circular economy, the entire society should be restructured to share, borrow, reuse, and repair products and materials as much as possible to create continued value. 

Starting from 2024, the European Commission will require companies to adopt European standards for sustainability reporting (European Parliament 2023). Circular economy will be an essential part of the reporting process. This will apply to large companies and listed small and medium-sized enterprises (SMEs) within the EU, as well as companies outside the EU with significant operations in the region. Standardised measurement is crucial from several perspectives, and large-scale transparent reporting is necessary to support the transition to a circular economy. First, standardised measurement is needed to assist companies in their decision-making. Second, transparent reporting is important to ensure companies' work is honest and avoids "greenwashing." Ongoing research and monitoring are needed for companies to follow up on these indicators since standardised guidelines are lacking. 

What are circular economic indicators? 

Circular economic indicators are metrics used to assess the economy's circular performance. These indicators focus not only on traditional economic measures, such as growth and GDP, but also on aspects like resource use, waste management, and recycling. By integrating such factors, circular economic indicators provide a more holistic view of the economy's sustainability and efficiency. 

The OECD's Inventory of Circular Economy Indicators is a comprehensive collection of 474 indicators gathered between 2018 and 2020. These indicators, primarily from European sources but also including data from North and South America, are used by governments at various levels to monitor and evaluate circular economy strategies. The inventory classifies the indicators into five main categories and aims to be a dynamic tool to support the development of circular economy strategies and measurement frameworks (OECD 2020). 

The circular economic indicators are utilised by governments, organisations, and businesses to assess and monitor their transition to a circular economy. By analysing these indicators, decision-makers can identify areas in need of improvement and develop policies and strategies to promote circular economy practices. Furthermore, companies can use these indicators to measure the effectiveness of their circular business models and optimise their processes. 

Strategies and challenges in defining and applying circular economy indicators 

Researchers have focused on finding a universal solution where CE is translated into clearly defined action plans supported by specific indicators. Elia (2017) reviewed and analysed the available tools and methods, demonstrating that none of the indicators and methods alone could monitor the transition and progress within CE. In their review of methods and indicators for assessing resource recovery from waste to promote a circular economy, Lacovidou (2017) highlighted the need for clearly defined action plans supported by specific indicators. Moranga (2019) explored indicators for CE and their use in measuring various strategies and extents of circularity. They present a classification framework for categorising indicators based on the strategies they measure (for example, the conservation of materials, products, components, functions, etc.) and how they measure them (for example, with or without Life Cycle Thinking, LCT, and their effects on environmental, social, and economic dimensions). Their study compares quantitative micro-indicators from the literature with macro-indicators from the EU's "CE-monitoring framework". The results show that most indicators focus on material conservation, especially recycling, but there is also a lack of indicators that measure the conservation of functions instead of products. Aiming to provide a comprehensive overview of CE indicators, Pascale (2021) analysed articles published between 2000-2019 and subsequently identified 61 indicators measuring circular economy. The researchers first grouped indicators according to three sustainability dimensions (macro, micro, and meso) and then based them on the three core principles of circular economy (3R: reduce, reuse, recycle). Their study offers detailed information on how these indicators are weighted, normalised, and scaled, providing readers with an understanding of indicators as a tool for application. While Moranga et al. (2019) categorised and analysed existing indicators, De Pascal et al. (2021) focused on providing a broader overview and detailed analysis of various indicators and their application. However, a remaining challenge is that although researchers have developed a theoretical framework to identify, classify, and group indicators, there are few practical examples of how these indicators can be used and integrated into the operations of small and medium-sized enterprises. It is particularly challenging to apply these indicators in the day-to-day operations of businesses. 

The role of research and education in implementation of circular economy indicators 

During the project Agile Circular competence network the focus is benchmarking, sharing and applying best practices through network-like cooperation and continuous learning. Circular economic indicators constitute an important part of the transition to a more sustainable and efficient economy. By using, evaluating, and analysing these indicators, we can move towards a more sustainable future for both people and the planet. However, there is very little data on how indicators can be adapted for Nordic-Baltic enterprises. Therefore, research on circular economic indicators is crucial for several reasons. Firstly, it allows for the quantification and measurement of progress towards a circular economy, which is essential for monitoring and evaluating the effectiveness of various measures and policies. Secondly, the research provides insights into which areas need prioritisation and which methods are the most effective for facilitating the transition to a circular economy. Finally, research can help increase awareness and understanding about the circular economy, thereby enhancing engagement and participation from various stakeholders. 

Without a quantifiable flow of information on activities within the circular economy, the transition from linear to circular supply chains and business models will be hindered due to lack of measurable evidence for circularity (Jaeger, 2020). According to Loizia (2021), this is because there are still significant gaps in measuring circularity, and today there is an effort to "measure something that isn't there" without quantification and measurable data. This means that without data on waste streams, the life cycle of production lines and services, and other key elements, there cannot be a targeted and smooth transition towards a circular economy (Luoma, 2022). The presence of clear measurement points and standards from key players within the circular economy implementation across all sectors (e.g., companies - such as the fashion industry, private sector, etc., urban environment - urban planning and development, national level - circular cities and national strategies, etc.), is crucial for the progress of circular thinking to adequate changes in everyday life (Papamichael, 2023). 

During the third day of the Spring School, students, researchers, and business presenters were central to the learning experience. The program provided a platform for engaging discussions on circular economy indicators and sustainable practices. Students and researchers discussed the importance of sustainability and circular indicators and identified gaps in current practices, which helped in understanding what future engineers need to know. Workshops conducted by users for different circular mapping tools taught practical implementation, and panel talks explored the similarities and differences between LCA and circularity measurement. This day marked also the beginning for Arcada students to gain deeper into circular indicators. Throughout the spring, we started the collaboration with Finnish enterprises to gain a more comprehensive understanding of how these indicators can be utilised to measure companies' capabilities in Closing the Loops.

Paula Linderbäck, Principal Lecturer in Circular Economy, Arcada 

Ossi Martikka, PhD, Chief Specialist, LAB University of Applied Sciences

Lea Heikinheimo, PhD, Principal Lecturer, LAB University of Applied Sciences