The last few years have seen the circular economy become a trending topic in the manufacturing and finance worlds.
Manufacturers saw the benefits of removing waste through extracting the maximum value from resources. At the same time, finance rubbed their hands in excitement when examining the economic windfall that could result from a zero-waste model.
In our research, nearly all (98%) of US and Canadian discrete manufacturers impacted by green manufacturing trends had adopted a circular economy – as it could create a net benefit to their organization and have a positive impact on the business within the next two years.
However, with coronavirus hitting the world and creating a real global economic downturn, what does this mean when it comes to the investment required? Especially considering our research says that 77% of North American firms face undertaking substantial transformation to take advantage of the circular economy.
According to an open letter spearheaded by the Real Circularity Coalition and signed by a host of global experts, world leaders should back the transition to a real circular economy in any recovery measures triggered by the fallout from the coronavirus pandemic.
The circular economy should appeal to you and your business if you are looking to provide better value to the customer and society while reducing costs and protecting resources. The circular economy could also support financial stability through managing risks in your supply chain.
If you’re a CFO, particularly in a sector like manufacturing, you should consider that circular strategy will be necessary going forward to appease customers and the business at large, as they can strengthen your financial position.
Making the circular economy business case
The circular economy could deliver an exciting economic opportunity, particularly in a time when businesses are looking to recover from coronavirus and build up their supply chains to be more resilient and stable than before. It aligns with sustainability aims and forces you to take a good hard look at the products and services you offer in terms of driving out waste.
According to the World Business Council for Sustainable Development (WBCDS), there are three significant benefits that you can drive through the circular economy. It may be particularly important as businesses look to recover and make themselves more resilient to shock.
- A company may accelerate financial growth by creating additional revenue. This could come from existing products and services, spurring innovation of new products and services or reducing operating costs.
- Competitiveness may be enhanced by strengthening relationships with customers and employees. You will want to distinguish yourself further from competition or aligning strategy with the company’s mission.
- A business may mitigate risk in adopting circular strategies. You will do this by avoiding pitfalls of the current linear model or adapting its business model with evolving value chains
Measure the circular economy’s impact on your business
As a CFO, it is your job to examine and quantifying the financial opportunity that comes from adopting circular economy strategies and projects.
Circular economy products, services or processes will undoubtedly affect your cash flow, so you will need to account for these – think for example, what it’ll mean to servitize and become a service-based business instead of a single-transaction business. It could also affect assets and liabilities.
You may need to consider developing an environmental profit and loss (EP&L) report which could help you make the business decisions that can help you reduce the environmental impact of your supply chain, production processes and sourcing of raw materials.
It was Puma’s parent company Kering that published the world’s first EP&L statement in 2011. Kering open-sourced its methodology, linking it to natural capital protocol – a cross-sector initiative aimed to develop a global methodology for environmental accounting.
Other ways to measure circular strategies include a circularity index created by the Ellen MacArthur Foundation, the Natural Capital Protocol, and as part of PWC’s Total Impact Measurement and Management (TIMM) framework.
The circular economy could offer great benefits, particularly as you look to redefine and sharpen your business after a coronavirus pandemic.