Exit out of the climate crisis - why circular economy makes everything better

"The stakes have never been higher" - this is how Hoesung Lee, Chairman of the Intergovernmental Panel on Climate Change (IPCC), introduced the two-week deliberations on the IPCC's latest assessment report. In this report, Working Group II of the IPCC has compiled the latest findings on the consequences of global warming for humans and nature, possible adaptations to climate change and risk analyses. The analyses clearly show that things are getting tight. Quite tight. Environmental damage and signs of climate change are becoming ever more apparent, numerous ecosystems are under threat and yet in many places we are still consuming and producing as if we still had the proverbial "second world" somewhere in the basement.

In order to put a stop to climate change and reduce the burden on the environment, or at least get off lightly, measures to save CO2 and other resources must be taken as quickly as possible. We have already shown that digitalisation can take us a long way down this path. Another step in the right direction would be a structural shift towards a circular economy. The idea is not new: it was introduced in 1990 by the British economist David W. Pearce. But in order to finally realise his vision and really make a difference, everyone needs to work together - be it politicians, private individuals or large companies.

One promising way to make the future more sustainable is to switch to a circular economy. This would not only counteract the current climate crisis, but also other environmental problems such as excessive water consumption and the generation of too much waste. In its white paper "Delivering on Circularity", the German logistics group DHL therefore calls for a more circular economy - but what exactly is that?

The circular economy is a regenerative system in which the life cycle of existing materials and products is extended for as long as possible. The waste generated is minimised as resources and materials are kept in the economy for as long as possible. According to DHL, the circular economy is about five basic things: reduce, repair, resell, refurbish and recycle. In other words, it must be reduced, repaired, resold, refurbished and reused. Production and supply chains must be adapted accordingly or completely reorganised in order to create a truly circular economy. This may be an ambitious goal that definitely cannot be achieved overnight, but given the possible outcome, all efforts would be worthwhile.

As the world's population continues to grow, so does the demand for raw materials and resources - but these are all too often not available indefinitely and are slowly becoming scarce. The extraction and processing of raw materials have a significant impact on the climate and the environment: they result in higher energy consumption and increased CO2 emissions. The production of materials for everyday use is responsible for a large proportion of CO2 emissions. This could be successfully counteracted by the intelligent utilisation of raw materials, waste avoidance, reuse and ecological design.

However, this is not the only advantage that the circular economy has to offer. It also reduces pressure on the environment and increases security of supply, as raw materials are extracted and used in a more targeted manner. New production processes and value chains promote innovation and growth, reduce production and material costs, create new jobs, increase the competitiveness of companies and strengthen the bond with their customers. Customers benefit from more durable and innovative products, save costs and improve their quality of life in the long term.

According to DHL, the consumer goods sector, including the food industry, is responsible for around 25 per cent of global greenhouse gas emissions. Only the mobility sector can top this figure. The fashion and consumer electronics industries also consume large quantities of often non-renewable resources (such as rare earths and metals) and together generate over six per cent of global greenhouse gas emissions. Despite this, around 20 per cent of clothing produced is never worn and smartphones are often replaced after just two or three years. These industries also consume an extremely large amount of land (more than the combined surface area of Germany and Switzerland) and water (comparable to 40 per cent of the annual water consumption of the USA). The amount of waste produced - comparable to around 50 per cent of the waste generated in Europe each year - is also considerable.

Both industries have the opportunity to change and make a big impact. Their high visibility and global reach could make them important participants in the circular economy. As around 80 per cent of emissions are generated during production, it is essential to extend the lifespan of products as much as possible and to redirect production and supply chains in new directions. This would also enable companies to meet their customers' demands. A recent Germany-wide study by IDC, which surveyed 200 companies across all sectors, revealed that customer demand for environmentally friendly products and services in particular is ensuring that more than a third of the companies already have a company-wide sustainability approach, while a further 40 percent have at least individual programmes in place. For 44 per cent of the companies, a "consistent focus on the principles of the circular economy" is one of the major sustainability goals to be achieved by 2030.

However, the circular economy can not only achieve great things in the consumer sector. B2B companies also benefit from it, as the example of Aniel, a leading French B2B retailer of car body parts, shows. "Aniel not only uses its online marketplace to offer a wide range of new products, but now also makes remanufactured car body parts available via the marketplace," explains Marc Teulières, Executive Vice President Customer Success at Mirakl, provider of the SaaS marketplace software on which Aniel's online marketplace is based. "By centralising the product offering, Aniel is making it easier for its customers to access remanufactured products for which they would otherwise have had to spend a lot of time searching for specialised third-party suppliers."

In the automotive industry, the use of remanufactured parts creates enormous ecological and economic benefits for insurance companies, body builders and car manufacturers, for example. Among other things, the joint use of new and remanufactured car parts can reduce water and energy consumption by up to 80 per cent.

Steffen Roos, Managing Partner at the digital consultancy Detecon, also sees the automotive industry as a pioneer in this area. "CatenaX and other initiatives in the automotive context are already aiming for more transparency and should help to fulfil sustainability requirements. In order to create a collaborative circular economy system, we first need to better understand the data situation. What data is available? What data is still needed? And what data should we have access to in order to be able to make factual and professional assessments of the actual impact on the various UN sustainability goals? There are already positive examples where all of this works in principle even with little data - such as the Euro pallet. But there are also negative examples, such as the "green dot", which is quite a disaster. Most raw materials labelled in this way end up in waste incineration. Concepts centred around large-scale data pools, in which article master data is maintained and exchanged, could possibly be expanded. For example, the movement and location data of goods to be recycled or repaired could be expanded. Ultimately, the core is certainly a kind of article passport for every physical and digital product, with all relevant master data. We still need to define what this is."

DHL's white paper not only calls for a joint start to the circular economy, but also offers solutions. Along the value chain of a product, DHL has identified three key drivers and ten elements that enable a successful transition from supply chains to circular supply chains. In addition to the clear increase in consumer demand and the shift towards circular consumer behaviour, supply chains must also be redesigned and new delivery models developed. The challenges here are the collection and return of old products and unused goods to the cycle and how this cycle can be designed to be as efficient and environmentally friendly as possible.

"Many supply chain and logistics providers are already working on more sustainable processes and products for more environmentally friendly operations with electric vehicles, CO2-neutral buildings and sustainable fuels," comments Florian Schwarz, Head of Sustainability at DHL Customer Solutions & Innovation. "They are also involved in environmental programmes. Deutsche Post DHL Group, for example, has committed to reducing all emissions to net zero by 2050 with its 'Mission 2050'. The supply chains of the future will therefore be decarbonised."

Complex, circular supply chains make opportunities for control and ensuring transparency even more important, but also make them more difficult. For example, the purchase of new materials must be adapted to the availability of recycled materials, and products that are already in the cycle must be taken into account in inventory management.

"Brand suppliers and manufacturers need to determine what adjustments - from design to material use to production - are required to make products circular," says Schwarz. They also need to test the new "circular" business models that are the most commercially attractive. This also includes developing systems that encourage active customer involvement, for example by incentivising the sending in of products for recycling. For a holistic implementation of the circular economy, large department stores and online marketplaces need to make their entire organisation circular, not just their production."

DHL calls on all those involved to take responsibility and set a mutually reinforcing cycle in motion:

"First of all, the four most important players must become active: Brand suppliers, consumers, governments and logistics providers. Brands and manufacturers will create circular offerings, whereupon consumers will consume more sustainably and subsequently demand even more circular offerings from brands. Logistics providers will implement the processes and governments will create incentives to steer the interplay between consumer behaviour and manufacturers' activities in the right direction," says Schwarz.

Consumers and companies definitely still have some catching up to do. Consumers have a growing interest in sustainable products, but still need to be educated more about how the circular economy works in order to understand how they personally benefit from it. On the other side, many companies are still focussing on just one thing: sales. Design, product development, production and marketing are all geared towards selling as many new products as possible. Mobile device manufacturers, for example, have a well-orchestrated onboarding process for this purpose, that swallows a lot of money. However, no one prepares consumers for the end of their customer journey, for the moment when - in their view - the smartphone has served its time. This end of the customer journey must also be a new beginning. To achieve this, companies must show their customers how they can become an active part of the cycle with simple steps and make appropriate offers.

Until now, the options for buying a refurbished, used mobile phone or sending in an old device for resale or recycling have been quite limited. Companies that make this possible are mostly young start-ups, where the idea of sustainability is embedded in the company's DNA from the outset. However, established companies also need to get involved, rethink their concepts and drive change. The circular economy can only become a reality if everyone pulls together.