“Circularity is a key differentiator in the short term, but a qualifier in the mid-to-long term,” a profound assertion stating clearly the dire need for organizations to take the BIG FIRST STEP. With consumers increasingly appreciating and valuing circular companies, more businesses are now investing in circular value chains and leveraging circularity as a strategic differentiator. The Circular Economy offers a framework for developing sustainable value chains that minimize waste and promote resource efficiency. Through this Cover Section, subject-matter experts evaluate and offer insights for companies to integrate circular economy principles into their operations and value chains, with the tenets focusing on design innovation, product life extension, and recycling and reuse strategies. Through this extensive read, readers will also get insights on overcoming challenges and leveraging opportunities in transitioning towards a circular model to achieve Scope 3 emission targets.
An Ellen MacArthur Foundation report stated that to date, discussions about and efforts to transition to a circular economy have been predominantly focused on the role of circular business models and circular product design. However, as an increasing number of organizations mature in their circular economy journey, the role of circular supply chains in operationalizing and scaling such initiatives is becoming distinctly relevant. Supply chain professionals are responsible for the sourcing, movement, and transformation of the 100 billion tonnes of materials that enter the global economy each year. With such oversight, they can be key players in scaling a resilient and regenerative circular economy.
A World Economic Forum (WEF) study aptly highlights the correlation of supply chains and circular economy. It states, “In an era defined by globalization and the pursuit of efficiency, supply chains have become essential yet vulnerable networks within the global economy. This vulnerability, exacerbated by geopolitical tensions, environmental challenges and trade conflicts, underscores the critical need for resilience — not just for risk mitigation but as a strategic imperative that can serve as a competitive advantage in an uncertain world. Integrating circular economy principles offers a solution. Circular economy principles bolster sustainability and transform these vulnerabilities into strengths. Circular economy principles help supply chains adapt to and maintain operations amidst unforeseen disruptions, fostering sustainable growth and resilience in an interconnected world.”
LEADING THROUGH TECHNOVATIONS
In recent years, there have been monumental technological advancements that have helped fight climate change. Automotive innovations have allowed electric vehicles to become commonplace on our roads. Today, every major car manufacturer has a line-up of electric vehicles for consumers to choose from. Other solutions are tied to 6G technology and the powerful exchange of data enabling the Internet of Things (IoT), which is not only transforming the world but also contributing to creating sustainable forms of technology.
Leverage emerging technologies such as blockchain, artificial intelligence, digital twins, or internet of things, to help increase visibility across the supply chain, ensuring sourcing, quality, and design professionals have enough data to make adequate decisions around circular inputs. It is essential to have clear information about the volume, material makeup, and any potential quality issues with secondary products or materials entering the supply chain as inputs to ensure their suitability for their intended use and to avoid waste. Implementing robust tracking and labelling systems (e.g. DPP) that provide comprehensive, verifiable information about the origin, condition, and history of refurbished or reused goods and components will create greater transparency to enable informed decision-making, ease the access to circular inputs, and promote trust within the circular supply chain.
Adopting low-carbon technology practices and developing and co-creating innovative and sustainable solutions for all stakeholders along the value chain could help us get closer to net-zero emissions. Moreover, transitioning towards new technologies and implementing eco-design principles across operations not only accelerates net-zero plans but also reduces operational costs and efforts.
WINDS OF CHANGE
The latest McKinsey Global Survey on environmental, social, and governance (ESG) issues reported how organizations are rising to this challenge. While environmental topics are recently the ones making headlines, just one-third of respondents rank environmental issues as their organization’s greatest ESG priority. The biggest positive is that the survey respondents report that their organizations are not just paying lip service to ESG: many say their organizations are making meaningful ESG changes that have demonstrable benefits. More than two-thirds of respondents say their organizations have achieved broad impact from their ESG efforts in the past three years, and 43% report that their organizations have captured financial value from their ESG investments over that span—suggesting that the full effects of ESG are multivariable and may take time to fully capture. For example, one-third of respondents say their organizations’ work with ESG topics has a strong positive effect on their own commitment to the organization and, in turn, to overall employee retention, consistent with the notion that ESG can underpin both value and values.
Supply chain leaders can incorporate circular economy criteria (e.g. around sourcing durable, circular inputs) into procurement negotiations, proposals, agreements, and supplier evaluations. To facilitate the cost-effective circulation of products and materials, new processes, such as those around disassembly, can be incorporated into proposals or requests for proposals (RFPs) for suppliers that may be unfamiliar with such practices today. Creating standardized documentation within proposals that mandate processes like disassembly can also help drive the adoption of circular practices. This way all relevant considerations to enable effective operation of circular supply chains can be formally embedded into the ways in which supply chain partners operate, ensuring that everyone’s activities contribute to the common goals. For example, Danone has established long-term contracts with dairy farmers, helping alleviate short-term market volatility, thereby allowing them to adopt practices that can support regenerative outcomes. Working with the planning team to use circular inputs effectively should start from the S&OP (Sales and Operations Planning) process through production planning, as supply and demand will vary for material that is scarcer in the current marketplace.
Just like the above example, organizations in many industries are going beyond merely trying to meet regulatory requirements and view ESG as a growth opportunity. Promoting growth is the reason that respondents most frequently cite for their organizations addressing ESG topics. Let’s take a look at some of them…
Philips, a global leader in healthcare technology, aims to generate 25% of revenue from circular products & solutions and is committed for 100% of products meet the company’s EcoDesign principles (of which circularity is a key pillar). In pursuit of these objectives, Philips introduced a rental model for its IPL Lumea, a hair removal beauty device. However, this circular economy offering posed a new challenge for the company’s supply chain professionals: striking the delicate balance between high quality and operational efficiency in collaboration with partners.
To address the new challenge, Philips’ supply chain teams decided to work closely with their network partners. They developed a comprehensive ten-step protocol for approved partners that outlined procedures for inspecting, grading, sorting, cleaning, testing, repackaging, relabelling, recording product data, and releasing the refurbished Lumea devices. Furthermore, Philips provided the necessary test equipment and training, and worked with partners to harvest quality controlled parts, enhance forward-backwards compatibility, and exchange parts. The collaboration involved Philips’ supplier quality engineers, who worked closely with partners to ensure that high-quality standards were met and the refurbished devices could be rented out again.
Choosing refurbished instead of brand new Lumeas reduces the carbon footprint by 78%. Beyond the environmental gains, this model offered insights into product innovation through post-market surveillance, to enable improvements in areas such as scratch resistance. Commercially, this initiative expanded market penetration by offering a broader consumer base access to high-end Lumea devices, including those with tighter budgets, while simultaneously enhancing the rental business model’s return on investment (ROI).
Instead of repurposing plastic bottles, Lego is now looking to find bio-based and recycled substitutes for the individual chemicals that make up ABS, as well as investigating alternative solutions. "We remain fully committed to making Lego bricks from sustainable materials by 2032," a spokesperson for the company mentioned. "We are currently testing and developing Lego bricks made from a range of alternative sustainable materials, including other recycled plastics and plastics made from alternative sources such as e-methanol." The company is also exploring the potential of bioplastics, which has formed some of the flora found in Lego kits since 2018 as well as the company's recent Botanical Collection. However, Lego CEO Niels Christiansen believes no single material will be a silver bullet solution.
"We tested hundreds and hundreds of materials," he said. "It's just not been possible to find a material like that." Instead, part of Lego's solution will be a focus on incremental emissions reductions as well as a takeback scheme, which the company is hoping to develop over the next few years so that unwanted bricks can be directly reused in new sets or recycled if they are no longer functional.
IKEA has also embraced circularity by offering furniture take-back schemes and designing products for easy disassembly and recycling. IWAY, or "The IKEA Way," is IKEA's comprehensive approach to responsible sourcing of products, services, materials and components within its global supply chain. It sets strict standards and expectations regarding environmental, social, working condition and animal welfare for all its suppliers and service providers. This framework not only helps mitigate environmental damage but also unlocks significant cost savings, enhances company reputations and ensures regulatory compliance.
CHEP is exploring switching from the current ‘One-Way Trip’ approach to a ‘Managed Recovery’ one. In the latter, the customer receives CHEP’s pooled (shared and reusable) pallets directly from distribution centres and retailers; sorts them using CHEP quality standards; stores the pallets that pass the test; and returns the rest to CHEP for repair before reuse. CHEP plans to leverage Flow Optimisation software to identify potential opportunities for switching service offers from ‘One-Way Trip’ to ‘Managed Recovery’. By redesigning their network approach and eliminating the need for sending pallets in good condition back to service centres, CHEP hopes to reduce transportation costs and associated emissions, as well as the energy consumption from their service centre.
Traditional approaches to refurbishing devices are labor intensive, with engineers manually inspecting and testing each device to determine whether they can be fixed or harvested for spare parts. The refurbishment process also holds a wealth of information about the durability and common failure modes of device components—insights that can help inform future considerations around design and product lifecycle management.
“We recognized that AI holds tremendous potential to enhance the efficiency of our sustainable refurbishment initiatives,” comments Aaron Zhang, ISSC Reverse, Repair, Refurbish Director at Lenovo. “For engineers, it could help to automate time-consuming and repetitive device inspections and even recommend personalized refurbishment options for customers. And for Lenovo research and development teams, AI promises to deliver faster access to insights gleaned from the refurbishment process.”
To enhance our refurbishment services, Lenovo harnessed the power of Lenovo edge computing solutions, internet-of-things sensors, machine learning and computer vision technology to develop an AI solution that automatically detects device issues by analyzing images of internal components.
Built using AI algorithms optimized for quality control and predictive maintenance workflows, the Lenovo solution helps engineers identify faults, find the most effective repair procedures, and select the optimal replacement parts—all in real time. As part of a phased development process, Lenovo uses the solution to optimize and improve efficiency of inspection of used devices in Lenovo’s Mobile Business Group (MBG).
Yogesh Mishra, Executive Director – Supply Chain, HUL, during an interview, mentioned, “Sustainability is deeply integrated into our supply-chain practices. We've implemented energy management systems to monitor and optimise energy consumption, reducing greenhouse gas emissions and enhancing operational efficiency. Initiatives like the Boiler Digital Twin, which utilises agricultural waste, curb environmental impact and support local communities by providing sustainable livelihoods.”
He added, “We're focused on establishing a Supply Chain Nerve Centre to enhance decision-making and visibility across our operations. This will act as an enterprise brain to drive faster decision-making, providing end-to-end visibility and enabling global optimisation across plan, source, make, and deliver instead of localised decision-making. Additionally, we're committed to adopting future-oriented manufacturing practices and continuous improvement initiatives to achieve significant cost savings and operational efficiencies. Innovation and continuous improvement are at the core of our supply-chain strategy, enabling us to optimize processes, enhance agility, and deliver superior products and services promptly to our consumers.”
SEVEN ORGANIZATIONAL TRAITS TO GAIN ‘ESG MOMENTUM’
Embedding ESG in an organization manifests in well-considered, focused ESG initiatives that are core to the business model. While embedding ESG is complex, the value that ESG efforts can protect—and create—can be compelling. Here are 7 commandments or Traits that organizations can imbibe to gain ESG momentum…
Approach ESG from a growth perspective. The organization’s priorities exceed merely conforming to industry standards or regulatory requirements and aim toward unlocking new opportunities.
Strive to connect with external stakeholders and to be accountable to them. According to the survey, the higher the external engagement is on their board’s and CEO’s agenda, the more progress the organization has made with its ESG impact over the years.
Identify specific stakeholder priorities for which the organizations are uniquely placed to excel. These leading organizations identify and concentrate on the specific stakeholder priorities for which their organizations are uniquely placed to excel rather than diffuse ESG efforts across many avenues.
Empower a specific executive in the C-suite to work with the CEO in defining and achieving ESG ambitions. This executive is empowered to define ESG ambitions and strategy with the CEO, ensure collaboration among the other members of the executive team, and orchestrate initiatives across the organization.
Build a central ESG team—which is not the same as building a large team. Bring together talent from across the organization to help meet ESG goals. These teams can manage ESG-strategy-and target-setting processes, coordinate delivery of initiatives and ESG reporting across the organization and ensure that ESG considerations are embedded into employees’ day-to-day behaviors. They also coordinate across functions so that efforts are not siloed within one department.
Make considered efforts to embed purpose into multiple aspects of their business. By embedding purpose into organizational culture, the survey suggests, organizations can build an appetite for change that can bolster ESG initiatives.
Tie ESG metrics to compensation, using KPIs to gauge progress on ESG objectives. Embedding key ESG impact metrics into leaders’ and employees’ incentives can demonstrate, both internally and externally, that ESG is a priority for the organization. It also helps ensure accountability for initiatives. An effective ESG incentive structure uses clear metrics, based on meaningful KPIs that gauge progress on key ESG objectives.
As WEF report mentions… The path forward calls for a fundamental reimagining of how products are designed, produced and consumed. To do this, organizations should start with a thorough audit of current practices, developing a strategic vision for circularity and implementing pilot projects to test and refine circular initiatives. This is a journey that requires a shift in mindset, from viewing waste and end-of-life products as problems to seeing them as opportunities for value creation and innovation.
With these compiled insights from WEF & McKinsey, we now have subject-matter experts’ thought leadership for others to drive the ESG Momentum!
‘It Is Important to Ensure Capacity Building of Suppliers’
“The holistic sustainability cannot be achieved without the inclusion of suppliers and in order to fulfil sustainability imperatives of organization, working in collaboration is the key,” asserts Nishtha Gupta, Group Head – Sustainability & ESG, Suzlon, during this interview…
What are the main challenges in integrating advanced technologies into supply chains? What are some of the best practices for overcoming these challenges?
Nishtha Gupta, Suzlon
The challenges are in terms of know-how, adaptation to changes and cost. The best way for tackling such challenges will be not just to engage with suppliers but to consider them as nosiness partners and provide all requisite support to upgrade suppliers’ competency. It is important to ensure capacity building of suppliers and provide all tools and technical knowhow to ensure alignment of Suppliers to expectations and commitments of an organization. The inclusion of suppliers and MSMEs is essential to work aggressively towards decarbonization targets of organization and with vision of Net Zero Commitments at national level. The holistic sustainability cannot be achieved without inclusion of suppliers and in order to fulfil sustainability imperatives of organization, working in collaboration is the key. The times are changing which requires us to work along with stakeholders for handling common challenges for reducing Scope 3 emissions without which Net Zero Journey cannot be achieved. Furthermore, collaboration can also help in creating demand for procuring more sustainable materials, thereby bridging a gap between demand and supply. A cohesive and collaborative effort in this direction by one and all across all sectors can be instrumental drivers in achieving Net Zero targets well before the target timeline.
What role do technologies like AI and IoT play in sustainability projects across various sectors?
The global trends and paradigm shift towards AI and IoT have shifted levers to automation and ensuring data accuracy. The focus is now more on monitoring and timely responding to situations wherein sustainability goals and KPIs are not met. The availability of data across all locations and timely monitoring helps in ensuring tracking data across all locations at national and global level. Furthermore, it helps in energy optimization by more than 20-35% across all sectors and can also be used to adjust climate control systems based on weather forecasts and predicted occupancy. AI and IoT can help in reducing waste, improving efficiency, and increase productivity by minimizing losses and taking more informed decisions. AI can help in reducing greenhouse gas emissions (Scope 1 and 2) by more than 10-20% and thereby making a significant contribution towards decarbonization targets and net zero goals.
Can you highlight a case where predictive analytics significantly improved sustainability outcomes?
The predictive analysis allows organizations and sustainability team/s to fix up the gaps and challenges, thereby ensuring sustainability objectives are being met. The strategy and roadmap for mid-term and long-term can be assessed and all bottlenecks especially for Net Zero Journey and with an aim towards Circularity and Water Neutrality can be handled with measurable outcomes denoted by change in performance assessment indicators aligned with sustainability visions, goals and commitments of organization.
Using AI and IoT, the challenges as foreseen in managing ESG metrics across all BUs at an organizational as well as site level has now become quite easy as well as reliable. The data transparency and disclosures can also be assured considering the granularity of datasets and visibility at KPI level.
‘Collaboration Among Stakeholders is Crucial for Scaling Sustainable Initiatives’
“In today’s interconnected global economy, the demand for transparency and sustainability in supply chains has never been greater. In the quest for sustainability, technology plays a pivotal role in transforming supply chains into efficient, transparent, and resilient ecosystems. Traceability, the ability to track every step of a product’s journey from raw materials to the final consumer, is emerging as a vital tool for ensuring sustainable supply chains,” emphasizes Dr. Raj V. Amonkar, Professor and Chair IT & Operations, Goa Institute of Management (GIM), during this interview…
According to you, what challenges are companies facing in shifting gears to more sustainable alternatives?
Dr. Raj V. Amonkar, GIM
Challenges are many when it comes to shifting gears to more sustainable alternatives. Some of the most prominent ones are:
High Initial Costs and ROI Uncertainty: Transitioning to renewable energy sources, energy-efficient equipment, or sustainable raw materials demands significant capital expenditure. Although these investments can lead to long-term savings, the initial costs can be daunting, particularly for SMEs. Additionally, there is often uncertainty around the RoI as the benefits of sustainability initiatives may take time to materialize.
Technological and Innovation Barriers: For industries that are heavily reliant on traditional energy sources or processes, such as manufacturing, transportation, or agriculture, finding viable sustainable alternatives can be difficult. While technologies like renewable energy, electric vehicles, and waste-to-energy systems exist, they may not yet be accessible or scalable for all companies.
How can companies assess suppliers on various ESG parameters? How can technology adoption drive significant change in this regard?
Companies use ESG scorecards to evaluate supplier performance across multiple parameters. These scorecards typically include quantitative and qualitative metrics on environmental sustainability, labor practices, and governance issues. Suppliers can be audited periodically, and on-site inspections may be conducted to ensure compliance with ESG criteria.
Digital platforms that aggregate supplier data from various sources, including certifications, audits, and real-time performance metrics could be adopted. These platforms could streamline supplier management and make it easier to compare ESG performance across different suppliers. Advanced data analytics can also provide insights into how ESG factors affect overall supply chain performance, helping companies make better sourcing decisions.
How do you foresee the sustainability landscape moving from here on?
The sustainability landscape is set to evolve rapidly in the coming years, driven by increasing regulatory pressures, consumer expectations, technological advancements, and global commitments to combat climate change as follows:
Stricter Regulations and Accountability: Governments worldwide are tightening regulations on emissions, waste, and resource usage, especially following agreements like the Paris Accord and the push for net-zero emissions. Companies will need to align with stricter sustainability reporting standards, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and global ESG frameworks. This regulatory momentum will force businesses to adopt more sustainable practices or face penalties.
Consumer-Driven Sustainability: Consumers, particularly millennials and Gen Z, are increasingly choosing brands that align with their values, including sustainability. Transparency and ethical sourcing will become non-negotiable, with businesses expected to provide proof of their sustainable practices. This shift in consumer behavior will push companies to not only green their operations but also their supply chains, enhancing traceability and accountability.
Technology as a Key Enabler: Technology will play a central role in driving sustainability forward. Innovations like artificial intelligence (AI), blockchain, and the Internet of Things (IoT) will help businesses track and reduce their environmental footprint, enhance energy efficiency, and optimize resource management. Circular economy models will become more prominent, emphasizing recycling, waste reduction, and product life cycle extension.
Collaborative Approaches: Collaboration between governments, industries, and stakeholders will be crucial for scaling sustainable initiatives. Partnerships across sectors, including collaborations with NGOs and academic institutions, will foster new solutions and drive collective action for global sustainability goals.
Are there any data collection and reporting challenges that companies are facing? How can they circumvent them?
There are many challenges in data collection and reporting. Some of them are:
Data Inconsistency and Fragmentation: Many companies struggle with fragmented data collection processes, particularly when ESG data comes from multiple sources such as suppliers, vendors, and different departments. This often results in inconsistent, incomplete, or inaccurate data, making it difficult to get a holistic view of sustainability performance.
Complex Supply Chain Data: Collecting data across an extended supply chain, particularly on Scope 3 emissions (which cover indirect emissions from suppliers and product use), is a significant challenge. Suppliers may lack the tools or willingness to share detailed sustainability data, leading to gaps in reporting.
Technological Gaps: Many companies lack the necessary technological infrastructure to automate data collection and reporting. Manual data entry processes increase the risk of errors and limit real-time insights into sustainability performance.
STEPS TO OVERCOME THESE CHALLENGES…
Leverage Digital Tools: Adopting digital tools like blockchain, IoT, and AI can streamline data collection and enhance accuracy. IoT devices can provide real-time monitoring of environmental factors (e.g., energy use, emissions), while blockchain ensures transparency and traceability across the supply chain.
Foster Supplier Collaboration: Companies can circumvent supply chain data challenges by working closely with suppliers to promote transparency. This can be done by integrating sustainability expectations into supplier contracts and using digital platforms that facilitate real-time data sharing across the supply chain.
Invest in Training and Capacity Building: Training internal teams and suppliers on ESG data collection and reporting tools will ensure accurate data input and alignment with sustainability goals. Capacity building can also help reduce the reliance on manual data collection, minimizing errors.
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