THEMATIC INSIGHT

Circular Economy

msci.com

Transforming the global economy
in the face of finite resources

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Contents
04 A World Reshaped by a Circular Economy
08 What is a Circular Economy?
10

Why the Current Shift Toward a Circular Economy?

12

Circular Economy: The Importance of Scope and Framing

14

Business Models and Thematic Opportunity Areas

16

OECD vs. Non-OECD Perspectives of a Circular Economy

19

The Relationship of Sustainability to Circular Economy

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Circular Economy

Exhibit 1:
Global Materials Use to 2060
Source: OECD

Growth in materials use depends on population and economic growth assumptions

A World
Reshapedby Circularity
As the global population rises to a likely 10 billion people by2030 and 11 billion by 2050, the demand for energy, materials
and minerals has been projected to follow a similar trajectory.1
Growing populations with higher incomes worldwide have been
associated with a strong increase in demand for goods andservices, many of whose production and consumption haveshifted to emerging and developing economies that, on average,
have higher materials intensity.2 Urbanization and a rising
middle class have led to the expansion of megacities, defined
as having a population of more than 10 million inhabitants. The
number of these population centers has steadily increased,from 10 megacities worldwide in 1990 to 28 in 2014, and they
are estimated to expand to 43 by 2030.3 This trend is likely tostimulate technological advancements in robotics, artificial
intelligence, nanotechnology, future mobility, biotechnology

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Gigatonnes
100
80
60
40
20
0
2011
Biomass

2020

2030
Fossil fuels

2040

2050

Metalsand food production,4 but it also places further pressure onland use, materials and resources needed for new homes andinfrastructure, including water and sewage pipelines, railways,
roads, energy and other services. Further, in the transition
to a low-carbon future, the production of minerals, such asgraphite, lithium and cobalt, has been forecast as needing toincrease by nearly 500% by 2050 to meet the growing demandfor electronics and clean energy technologies such as windturbines, solar panels, electric vehicles and battery storage.5

2060

Non-metallic minerals

1		“World Population Prospects 2019: Highlights.”
United Nations Department of Economic and Social
Affairs, 2019.

2		

“Global Material Resources Outlook to 2060
Economic drivers and environmental consequences:
Highlights.” OECD, 2018.

3		

“2018 Revision of World Urbanization Prospects.”
United Nations Department of Economic and Social
Affairs, 2018.

4		

Lacy, P., Long, J., & Spindler, W. (2020). The circular
economy handbook. Palgrave Macmillan UK.

5		

Hund, Kiersten, La Porta, Daniele, Fabregas, Thao P.,
Laing, Tim, and Drexhage, John. “Minerals for Climate
Action: The Mineral Intensity of the Clean Energy
Transition.” The World Bank, 2020.

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Circular Economy

2050 annual demand from energy technologies
as percentage of 2018 production

Lithium
CobaltIndiumSource: The World Bank, 2020

Vanadium
NickelSilverNeodymium
Lead
Molybdenum
Aluminum
Zinc
CopperManganese
Chromium
Iron
Titanium

Annual demand from energy technologies in 2050
0
Aluminum
Graphite
NickelCopperZinc
Lead
Manganese
CobaltLithium
Chromium

%

500

450

400

350

300

250

200

150

100

50

0
Graphite

Exhibit 2:
Projected Annual
Mineral Demand fromEnergy Technologies in
2050, compared to 2018
Production Levels

1

Tons (millions)
2

3

4

5

6

It stands to reason that the global economy isunderpinned by natural resources. Everything
we use is either grown or mined and ultimately
can be traced back to the physical sources ofraw materials — food, timber, fibers, metals,
minerals or fossil resources that provide
fuel, plastics and chemicals. Naturally andeventually, all things will reach an end-oflife stage and have to be disposed. By 2050,
worldwide municipal solid waste generation
is projected to increase by roughly 70% to 3.4
billion metric tons.6 Absent a shift in policies
and consumer behavior, global material use
could rise from 89 billion metric tons in 2017 to
167 billion metric tons in 2060, according to theOECD.7The linear “take, make, use, dispose” economic
model of value creation for production andconsumption, in which raw materials are
extracted and manufactured into goods andthen used and discarded as waste, has been thefoundation of industrial development over the last
200 years. Amid mounting global concerns about
the impact of human economic activity on suchfactors as resource-price volatility, geopolitics,
supply-chain risks, natural systems degradationand systems sustainability, the concept of acircular economy has emerged as an alternative
production and consumption model.

Vanadium
Molybdenum
SilverNeodymium
Titanium

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6		

Kaza, Silpa, Yao, Lisa, Bhada-Tata, Perinaz, and Van Woerden, Frank. Whata Waste 2.0: A Global Snapshot of Solid Waste Management to 2050.
Washington, DC: World Bank Publications, 2018.

7		

OECD. Global Material Resources Outlook to 2060: Economic Drivers andEnvironmental Consequences. Paris: OECD Publishing, 2019.

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Circular Economy

Source: Rachel Meidl

Responsible
extraction

or resource effici
ign f
enc
Des
y

Material manufacturers
Material selection
Agriculture

Education a
nd
em
b

ostin
Com
p

Resilience

GrowthSkillswa

ert

Repair
Reuse

Distribution
Distribution
warehousing
Retail and wholesalesteResource efficiency

Wa

Collection
Remanufacturing

ity
bil
ura
rd
n fo
Desig

8 msci.com

Employment

Recycling

and restructuring the supply chain. For instance,
digitalization is a driving force behind a number of
new industries; and a transition to a circular future
through resource optimization can be enabled,
supported, and accelerated through a digital
economy.10

Convertors
Brand owners
Manufacturers

rinciplesf CE pgodinedIncineration

A circular economy is defined as a system thatis restorative and regenerative by design, onethat builds economic, natural and social capitalwith the goal of decoupling global economic
development from finite resource production
through technical and biological cycles.8 It aims
to keep products, components and materials attheir highest utility and value throughout theirlife cycles by closing or decelerating material
loops in several ways. This is achieved throughrepair, reuse, refurbishment and remanufacturingof end-of-life products; the recycling of postconsumer material and waste into secondary
raw materials; the extension of material loops
through eco-design; and the narrowing of theseloops through resource efficiency initiatives.9
Furthermore, a transformation toward a circular
economy potentially presents an opportunity toreimagine ways to reduce material and resource
usage by rethinking traditional business models
and processes, reevaluating product design

Manufacturing

Sourcingg

What is a
Circular Economy?

Exhibit 3:
Circular Economy

an

de

nergy

re c over

,d
isa
ss
em
bly,
reuse
, repairA report published during the 2018 World Annual
Forum in Davos found that the world economy is
only 9.1% circular, and this is trending downward
annually, with the current global circularity gap
at 8.6%.11 Adapting to a circular economy is a
gradual process, and requires the recalibration
and alignment of products, processes andbusiness models within the economic system,
including energy production, resource utilization,
manufacturing and production, sales, collection,
reuse, repair, sharing platforms and environmental
regeneration. For a circular economy to gain
traction and have lasting impact, it implicitly
needs informed companies and consumers,
technological innovations, supportive legislation
and backing from public authorities.

yUse
New leasing and sharedeconomy business model
Procurers and contractors

The overall system’s health and balance ina circular economy involves an efficient andeffective economy at all scales — for businesses,organizations, governments and individuals,
globally and locally. Transitioning to a frameworkof circularity represents a systemic shift thatbuilds long-term resilience, generates businessand economic opportunities while boosting
competitiveness, and provides environmental andsocietal benefits.

8		

“Towards the Circular Economy: Economic and business rationale for an
accelerated transition.” Ellen MacArthur Foundation, 2015.

9		“International Trade and the Transition to a Circular Economy.” OECD, 2018.

10		“Circular goes digital.” Deloitte.
11		“The Circularity Gap Report 2021.” Circle Economy, 2021.

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Circular Economy

Why the Current Shift Toward
a Circular Economy?
Although the concept of circularity and thecascading of material and energy flows has beenmaturing for well over half a century, it recently
has become more prevalent in the corporate

toward individualized goods and services continue
to challenge the existing linear model and ismotivating society to advance to a morecircular economy.

world and in global political frameworks
This
is due in part to emerging circular models suchas home- and car-sharing services and depositrefund programs for products, as well as “zerowaste” and decarbonization goals. Industries andgovernments are encountering progressively more
complex external elements that affect businesssuccess, supply-chain resilience, consumer
behavior and economic or political conditions.14
Influences such as continuing population growth,
rapid waste generation and disposal, global power
shifts to emerging markets, supply and demand
imbalances and changes in consumer preferences

In today’s resource-constrained world, with
rapid population growth, shifting demographics,
urbanization, digitization and electrification(all magnified by heightened concerns about
environmental, social and economic degradation),policymakers, businesses and societies havealigned strategies around two landmark pillarsof ambitious international collaboration. These
are the United Nations Sustainable Development
Goals and the global climate targets of theParis Agreement. Also, recent events suchas China’s National Sword Policy,15 which.12,1310 msci.com

imposed unprecedented import restrictions
on plastic wastes and recyclables, extreme
weather events disrupting production of criticalgoods and manufacturing feedstocks and the
COVID-19 pandemic all have exposed systemic
vulnerabilities in linear business models andtested the resilience and adaptability of global
supply chains.16, 17, 18, 19 These incidents havepushed circularity to the forefront of business andgovernment agendas by illustrating the practicalappeal of circular economy principles. While these
events have catalyzed governments, brands andindustries to restructure and transform strategies,
they also have created opportunities forreadjusting long-term planning and investments ininnovative and disruptive ways, approaches thatare more transparent, adaptable and socially andenvironmentally aware.

12 Arruda, Erick H., Melatto, Rosângela A.P.B., Levy, Wilson, and de Melo Conti,
Diego. 2021. “Circular Economy: A Brief Literature Review (2015-2020).”
Sustainable Operations and Computers 2: 79-86.
13 Murray, Alan, Skene, Keith, and Haynes, Katherine. 2017. “The Circular
Economy: An Interdisciplinary Exploration of the Concept and Application in a
Global Context.” Journal of Business Ethics 140: 369–380.
14 Weetman, Catherine. A Circular Economy Handbook. How to Build a More
Resilient, Competitive and Sustainable Business. London/New York: Kogen
Page Limited, 2020.
15 For over two decades, China imported the vast majority of recyclables andwaste from North America, Europe and other developed nations. Due toconcerns of environmental degradation, the Chinese Ministry of Ecology
and Environment enacted the “National Sword” policy that went into force inJanuary 2018. The policy placed restrictions on the import of most plastics,
wastes, and other materials. A total ban on imported waste went into effectJanuary 1, 2021.
16 “China Notification.” World Trade Organization Committee on Technical
Barriers to Trade, 2017. Wong, Steve. 2017. “New World Order.” Recycling
Today.
17 Ghadge, Abhijeet, Wurtmann, Hendrik, and Seuring, Stefan. 2020. “Managing
Climate Change Risks in Global Supply Chains: A Review and Research
Agenda.” International Journal of Production Research 58: 44-64.
18 Ebad Sichani, Majid, Anarde, Katherine A., Capshaw, Kendall M., Padgett,Jamie E., Meidl, Rachel A., Hassanzadeh, Pedram, Loch-Temzelides, Ted
P., and Bedient, Philip B. 2020. “Hurricane Risk Assessment of Petroleum
Infrastructure in a Changing Climate.” Frontiers in Built Environment 6: 104.
19 Sodhi, Manmohan S., and Tang, Christopher S. 2021. “Supply Chain
Management for Extreme Conditions: Research Opportunities.” Journal of
Supply Chain Management 57: 7-16.

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Circular Economy

Circular Economy:
The Importance of
Scope and Framing
As research and interest in a circular economy
gather pace and the notion of circularity
becomes integrated in national agendas, varying
interpretations across organizations and sectors
have added complexity to the development
of distinct and consistent guidelines. Despite
growing interest, introducing the circular economy
into policymaking and governance has been
limited so far, and circular strategies likely need
to be better defined, understood and measured
to translate them into concrete policy goals.20
The circular economy directives and policies of
the European Union (EU) exemplify the multiple
interpretations that have been adopted into avariety of national laws by its member states. The
framework for a circular economy needs to be
applicable from local to global levels, within bothpublic and private sectors.
The scope of circular economy strategies
comprises circularity at the process or productlevel (including different stages of the life
cycle, but ideally systemwide), service-oriented
arrangements (sharing platforms such as homeand car-sharing services among other models)21
or operational or institutional practices andpolicies. Circularity may convey benefits such as:
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reduced extraction of virgin natural resources;
resource security and regeneration; resilience;
adaptation to innovation; avoided risk (either price,geopolitical or reputational); improved relationships
with consumers, suppliers, employees and local
communities; and can be a natural progressionof an ESG agenda. However, the way industries,
organizations and governments define and apply
the concept of a circular economy varies greatly.
Early circular economy strategies were designed
primarily around waste management, waste-toenergy, waste diversion and recycling programs.22
Driven by concerns about waste facilities nearing
capacity, Germany was the first European country
to systematically confront issues with solid
waste, using circular economy principles throughmanufacture liability laws that shift responsibility
to producers, meaning their products have tobe designed to minimize waste, ensure waste
recovery and reuse in both production anduse.23 This served as a model for European
environmental legislation.24 Although early circular
economy strategies to solving waste issues areachieved through landfilling, incineration andexport arrangements, there is now a growing
awareness worldwide of the validity of suchactivities as a part of a circular agenda.

Even today, circular economy activity remains
mostly associated with waste management, due
to growing end-of-life considerations. However,that viewpoint is gradually beginning to shift,with countries interpreting and adopting otherelements of the circular framework. Germany,
as a heavy-industrial economy, has focused ona raw materials strategy, integrating circularity
through a top-down emphasis on resource
efficiency.25 Initially concentrating on recycling
and incineration, Japan is assessing material
flows of resources, looking at productivity andfootprint, to determine how to refine existingprocesses to improve remanufacturing products
through recovering, disassembling, repairing andsanitizing components for resale at “new-product”
performance, quality and specifications.26, 27 The
Netherlands relies on innovation in materials andbusiness models and uses public procurement
requirements for circular products and services.28
Finland’s strategy leverages a bio-economy, using
renewable biological resources for the productionof food and feed, products and energy. France
embraces eco-innovation as a part of its circular
economy framework.29
China, a pioneer in the circular economy, hasbeen evolving its national policy since theearly 2000s, regularly introducing legislation to
improve the effectiveness of its outcomes.30
With an initial emphasis on industrial ecology,
China’s objective was waste repurposing — using
waste and byproducts from one company as aresource for another entity. More recent versions

include a strong innovation agenda, eco-designand extended producer responsibility initiatives,
where generators are required to ensure products
are recycled or recovered. Although the U.S. does
not have national circular economy legislation,companies and state and local governments
are designing elements of circularity into theirbusiness models through recycling targets,
deposit-refund systems and other methods.

20		Lacy, Peter, Long, Jessica, and Spindler, Wesley. The Circular Economy
Handbook: Realizing the Circular Advantage. London: Palgrave Macmillan,
2020.
21 Han, Junghee, Heshmati, Almas, and Rashidghalam, Masoomeh. 2020.
"Circular economy business models with a focus on servitization."
Sustainability 12: 8799.
22 Weber, Thomas, and Stuchtey, Martin (Eds.). 2019. “Pathways Towards a
German Circular Economy: Lessons from European Strategies Preliminary
Study.” Acatech-National Academy of Science and Engineering.
23 Ogunmakinde, Olabode E. 2019. "A review of circular economy development
models in China, Germany and Japan." Recycling 4: 27.
24 Hiebel, Markus, Bertling, Jürgen, Nühlen, Jochen, Pflaum, Hartmut,
Somborn-Schulz, Annette, Franke, Matthias, Reh, Katharina, and Kroop,
Stephanie. 2017. Studie zur Circular Economy im Hinblick auf die
chemische Industrie (study commissioned by the German chemical industry
association (VCI)). Fraunhofer UMSICHT
25 Kazmierczyk, Pawel, Geerken, Theo, Bahn-Walkowiak, Bettina, Vanderreydt,
Ive, van Veen, Janneke, Veneziani, Marco, De Schoenmakere, Mieke,
and Arnold, Mona. 2016. “More From Less: Material Resource Efficiency
in Europe; 2015 Overview of Policies, Instruments and Targets in 32
Countries.” European Environment Agency.
26 Bangert, Helene. 2020. “Japan’s Circularity: A Panorama of Japanese Policy,
Innovation, Technology and Industry Contributions Towards Achieving theParis Agreement.” EU-Japan Centre for Industrial Cooperation.
27 “Circular Economy Vision 2020 Compiled.” 2020. Ministry of Ecology, Tradeand Industry.
28 “A Circular Economy in the Netherlands by 2050.” 2016. The Ministry of
Infrastructure and the Environment and the Ministry of Economic Affairs.
29 Iles, Joe. 2018. “Which country is leading the circular economy shift?”
Circulate, An Ellen MacArthur Foundation publication.
30 Fan, Yupeng, and Fang, Chuanglin. 2020. “Circular Economy Development
in China — Current Situation, Evaluation and Policy Implications.”
Environmental Impact Assessment Review 84: 106441.

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Circular Economy
Exhibit 4:
Five business models to facilitate a circular economy
Source: Rachel Meidl

2
Resource recovery:
RecycleCircular Supplies/
Circular Design

3
Product life extension: Remanufacture

3

1

3

Product life extension: Resell

Product
Design / R&D

Procurement /Raw Materials
Acquisition

Material and
Product
Manufacturing

Sales &
Marketing

Logistics

Product life extension:
Repair/upgrade

Product Use

Various production processes

42Resource recovery: Waste
as a resource, recycle

5

Reverse
Logistics

End-of-lifeEnd- -life

Share

Minimize waste leakage
and negative externalities

Product as a service (can be applied
at any level in the supply chain)

Business Models
and Thematic
Opportunity Areas
The uptake of various business models of circularity has differedacross geographies, industries, governments and products. It is easiest
for circular economy business models to gain traction when they canembed into existing supply chains and create obvious value. Examples
would include: circular supply chains that use alternative energy, biobased and recyclable materials; recovery and recycling of primary andsecondary goods and raw materials; value-retention processes suchas product life cycle extensions; sharing or collaborative consumption
platforms; and product-as-a-service solutions. Circular business
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models open the way to coalesce multiple
principles for value creation beyond financial
values, ultimately including environmental andsocial considerations. These models have muchpotential to generate new business prospects,
limit material costs and price volatility, reduce
dependency on imports and increase resource
security, minimize greenhouse gas emissions andimprove social benefits such as enhanced qualityof life and new jobs.31
There are numerous opportunities in highly
promising thematic areas for increased circularity;
areas such as mining and metals, food systems,
plastics and other packaging materials, the built
environment and infrastructure, electronics,
transportation, energy and fashion and textiles.
Consumer-facing industries such as packaging
and fashion and textiles have seen more activity
and commitments around circularity.32, 33 In
September 2020, for example, a group of morethan 10 of the world’s largest food retailers
announced that more than 200 of their suppliers,
operating in over 80 countries, had joined thecommitment to reduce food loss and wastefrom their supply chains.34 Circular opportunities
can extend beyond industry boundaries,
especially when a life cycle perspective requires
collaboration to maximize recycling andremanufacturing.
Similarly, deeming waste a valuable resource
allows society to extract maximum value. Thiscan be done through electronic waste (e-waste)
repair, recycling and recovery, waste-to-compostand soil-enhancing conversion technologies in thefood value chain or reuse of materials in secondary
markets that purchase refurbished products,

components and materials. For example, the EU’s
Waste Electrical and Electronic Equipment (WEEE)
Directive promotes reuse, recycling and otherforms of recovery and sets the criteria for the sale,take-back and proper disposal of WEEE.35 Penalties
for non-compliance depend on country-specificregulations and can include fines, distribution bans,
personal liability and corporate reputational risk.
Although the inclusion of a waste hierarchy in acircular system is crucial, focus on circularity todate has largely centered on recycling.36 From acircular hierarchy perspective, the priority should
be maximizing the use of resources to extract
optimal value — whether by minimizing extractionof virgin raw materials or disrupting traditional
business models through innovation. Doing sowould allow practitioners to redefine and reengineer processes, products and services for
system-wide innovation while minimizing negative
impacts and creating positive outcomes for
specific circular scenarios.

31 Velenturf, Anne P., and Purnell, Phil. 2021. “Principles for a Sustainable
Circular Economy.” Sustainable Production and Consumption 27: 14371457.
32 “Are you ‘Looped In’? Circular Economy Leaders Share Their Latest
Solutions.” 2021. Dow sponsored content on Sustainable Brands.
33 “A New Textiles Economy: Redesigning Fashion’s Future.” 2017. Ellen
MacArthur Foundation.
Nicholos, Katie, and Martins, Kaela. 2021. “Packaging Sustainability: RetailState of Play.” Retail Industry Leaders Association blog
34 “World’s Leading Food Retailers and Providers Engage Nearly 200 Suppliersin Cutting Food Loss and Waste in Half.” 2020. Champions 12.3 press
release.
35 “Directive 2012/19/EU of the European Parliament and of the Council of
4 July 2012 on Waste Electrical and Electronic Equipment (WEEE).” 2012.
Official Journal of the European Union 55: 38.
36 https://www.weforum.org/agenda/2019/11/build-circular-economy-stoprecycling/msci.com 15

Circular Economy

OECD vs. Non-OECD
Perspectives of a
Circular Economy

Additionally, failure to account for the informal sector39 in non-OECD
countries could widen the gap between socioeconomic classes and affectthe economies. The informal sector’s almost two billion global workers
from small-scale and large enterprises form a significant portion of theworld’s economy and are at the front lines of enabling a circular economy.41
In 2016 alone, the informal waste sector collected 27 million metric tons ofpolyethylene terephthalate (PET) plastic waste and kept it from ending up
in landfills or migrating to oceans. This means more than half (about 59%)of all the plastic material collected for recycling globally is carried out by the
informal waste sector.42 Protecting the right to economic prosperity of thosein the informal sector must be considered so they can generate social andeconomic benefits for their local communities. Recognizing and incorporating
informal workers into circular economic models is important to enable therequired systemic shifts that can build long-term resilience, generate businessand economic opportunities and provide environmental and societal benefits.

The progression toward a circular future has specific implications for developing
economies. Their consumer preferences and consumption cycles may bemisaligned with the priorities of high-income societies. The notion of circularity
can be perceived as “OECD-centric” and potentially opposed to the economic
growth priorities of developing nations, which may not yet be receptive totheories about reduction, prevention and elimination of waste. Basic needs suchas access to safe and secure food and water may take precedence over ideas
about circularity, even if it promises more sustainable long-term solutions. With
over a billion emerging-market consumers, many of whom are experiencing arise into the middle class, residents in developing economies may naturally seek
an opportunity to consume and improve their standard of living.
Exhibit 5:
Panel C. Components of informal employment as a percentage of total employment: the informal sector, formal
sector and household sector (percentages, 2016)
Source: International Labour Office

85.8

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68.2

61.2

25.1

In households

Total

Americas

Arab States

Europe andCentral Asia

20.8

Developed

Asia andthe Pacific

Africa

17.1

14.4

50.5

36.1

40.0

18.3

Total

Americas

15.6

68.6

59.2

71.9

In the formal sector

18.9

19.5

Developing & Emerging
In the informal sector

19.4

Europe andCentral Asia

21.7

Total

Europe andCentral Asia

Americas

Arab States

Asia andthe Pacific

20
0

36.8
30.0

40

Asia andthe Pacific

49.6

53.8

59.0

63.9

60

69.6

68.6

62.8

71.9

71.4

63.9

85.8

80

AfricaShare of informal
employment (%)

100

The shipment of waste across jurisdictional boundaries for treatment,
recycling, recovery or disposal, is prevalent throughout developed economies
and raises issues of environmental and social justice. When waste
management in OECD economies relies on export, the system primarily
benefits the higher-income countries, as it fails to incorporate true costs suchas environmental and social impacts in the receiving countries, along withemissions of transboundary movement and actual end-of-life management ofwastes.43 Decades of consistently low recycling rates for certain materials, theconsequences of China’s National Sword Policy, and an overreliance on waste
exports to offshore markets is expanding the idea of the circular economy to abroader perspective. A systems-level approach quantifies and understands therisks, trade-offs and unintended consequences, from a life cycle perspective,
across the entire value chain. This is what leads to long-term system balanceand global sustainability.

World
Including agriculture

39		The informal sector is broadly characterized as individuals engaged in the production of goods or services with the primaryobjective of generating employment and incomes to the persons concerned. The informal sector is a part of a country’s
economy that is not taxed or monitored by any form of government.
41“Women and men in the informal economy: A statistical picture.” 2018. International Labour Office, Geneva.

42 “Breaking the Plastic Wave Thought Partners: A Comprehensive Assessment of Pathways
Towards Stopping Ocean Plastic Pollution.” 2020. The Pew Charitable Trusts and SYSTEMIQ.
43 World Bank. World Development Report 2020: Trading for Development in the Age of Global Value Chains. Washington, DC:
World Bank, 2020.

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Circular Economy
Exhibit 6:
Sustainability: A systems-level approach
Source: Rachel Meidl

SocialSocial-environment
Environmental JusticeSocial-economic
Fair Trade

Quality of Life

Local and Global Natural Resources

Workers’ Rights

Unemployment Rate

StewardshipRespect for the Individual

Legislation and Regulation

Equal Opportunity

Climate Change

Business Ethics
Social & Community
Sponsorships

Education

Crisis Management

The Relationshipof Sustainability toa Circular Economy

Standard of Living
Outreach Programs
Human Rights

Environment

Economic

Energy Consumption

Consistent, Profitable Growth

Natural Resources

Cost Savings

Permit & License Compliance

Risk Management

Environmental Management

R&D Spending

Air Emissions

Total Shareholder Return

Pollution Prevention

Organizational Value

Water/Chemical usage and Discharges

Profit Margin
Employment Distribution by Sector
Revenue by Sector

Environmental-environment
Energy and Resources Efficiency
Subsidies/Incentives for use of
Natural Resources
Global Energy Issues

Sustainability
An integrated approach toenvironmental, social & economic
impact issues (internal and external)
leads to long term, sustainable balanceand profit growth

In recent years, the term sustainability has been frequently
associated with a circular economy. Sustainability is an integrated,systems-level approach that factors in environmental, social andeconomic aspects of a product, material, process or technology
and assesses how they interact. Sustainability should be anunderlying principle of a circular economy, and circularity can bea means to achieve sustainability, but not all systems that include
circular flows are intrinsically more sustainable.44 Circularity inand of itself does not necessarily create a sustainable outcome,nor is it a panacea for resource efficiency or economic prosperity.
Recycling, although a key category of circularity, can be a costly,
energy- and resource-intensive process that imposes higher
overall life cycle impacts than alternative methods. Similarly, not all
sustainability pathways contribute to circularity. In regions of theworld that lack recycling infrastructure, modernized technologies
or financial resources, the lowest-carbon option, and perhaps
the most economical choice, may be to manage waste in secure
landfills where methane gas can be converted to power, heat or
fuel or waste-to-energy plants that use existing co-processing
infrastructure. Sustainability is far more complex than a singularfocus on environmental preservation, opting for presumed circularand eco-friendly options or switching to alternative energies.

44 Charter, Martin. (Ed.). Designing for the Circular Economy. London: Routledge, 2018.

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Circular Economy

The potential conflicts between sustainability and a circular economy can beaddressed through a more holistic approach. This approach can form the basis forassessing the range of impacts of a product, material, service, process or technology.
Systems-level thinking and properly scoped life-cycle-based assessments are a key
tool for measuring the sustainability of circular solutions. They can help identify risks,
add understanding of trade-offs, avoid unintended externalities that are currently notpriced and ascertain a range of opportunities.

Circularity: An Engine
for Creating Opportunity
The transition to a circular economy, by definition, brings disruption and change to all
aspects of society and the global economy. However, as we have shown, it is also a
potential engine for creating opportunity across industries and governments. Balanced
policies, systems-level thinking, innovative models and enabling new technologies all
can help society operate in a more sustainable, robust and resilient way.

20 msci.com

MSCI would like to thank Rachel A. Meidl, fellow in energy andthe environment at Rice University’s Baker Institute for Public
Policy, for useful discussions and insightful analysis of thismegatrend. Her insights greatly facilitated the preparation ofthis document.
Rachel A. Meidl LP.D., CHMM, is a strategic thought leader
with over 24 years of regulatory, public policy, advocacy andtechnical experience in industry, academia, government andinternational relations in the areas of energy, environment,
waste management, circular economy and sustainability. She
previously was appointed deputy associate administrator for
the Pipeline and Hazardous Materials Safety Administration, anagency of the U.S. Department of Transportation; and prior tothat, was the director of regulatory and technical affairs at theAmerican Chemistry Council in Washington, D.C. She holds a
doctorate in law and public policy from Northeastern University.

msci.com 21

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