Data sharing as a driver for your circular business model

Join the movement towards a transformative economic model - the circular economy. This concept challenges the traditional linear model by aiming to maintain and maximize the value of products and resources through efficient resource management.

Circular economy in brief: WHY should I care?

The circular economy is gaining attention as a compelling alternative to the linear economic model. A major objective is maintaining and maximizing the value of products and their resources, parts, and materials through proficient resource management. Design thinking, product life extension, systems thinking, and different looping strategies (maintenance, reuse, remanufacture, and recycling, for instance) all contribute significantly to the development of sustainable and circular business models.

The efficient and responsible recovery and reintroduction of materials into technical and biological cycles serve as critical pillars in transitioning away from solely relying on non-renewable, fossil-based resources – which poses challenges due to scarcity and environmental impacts. Societies and companies can rise out of this challenge by incorporating circular economy concepts into their business strategies to gain competitive advantages.

The circular economy promotes innovative business models that prioritize renewability, long product life cycles, optimal reuse, and recycling, among other circular strategies. This approach diverges from linear economic practices, which often lead to negative impacts like resource depletion and valuable materials wasted in landfills. Instead, by embracing circular principles, organizations can collaborate to eliminate waste, increase resource productivity, and stay within planetary boundaries.

Eight materials responsible for 20% of greenhouse gas emissions

A report by the World Business Council for Sustainable Development (WBCSD) emphasized that eight materials are responsible for 20% of global greenhouse gas (GHG) emissions, 95% of water use, and 88% of land use. These material flows are prevalent in primary crop production, animal husbandry, construction, and manufacturing industries.

The impacts of these material flows, which fulfill our everyday needs in the food supply, housing, goods, transport, and public infrastructure, present an exciting opportunity to apply circular economy principles. Making these flows circular will significantly impact GHG emissions and many other aspects of society.

European Union in the transition towards a circular economy

The European Union aims to transition to a modern, resource-efficient, and more competitive economy over the coming decades. As part of the European Green Deal, the European Commission released in March of 2020 the second version of the Circular Economy Action Plan to foster product circularity, emphasizing key value chains such as textile, construction, food, and electronics.

Another key element in the Green Deal transition is the Ecodesign for Sustainable Products Regulation (ESPR), which sets requirements for:

• Circular materials
• Durability, Reusability, and Reparability
• Energy and Resource Efficiency
• Carbon footprint
• Digital Product Passport
• The long-term goal is to apply these requirements to all products sold within the EU.

The Digital Product Passport (DPP)

Data-sharing tools can enable the sharing of product and material information along the supply chain, supporting the tracking and tracing of information. The Digital Product Passport (DPP) announced by the European Commission under the ESPR has the potential to unlock a circular economy. The DPP will be mandatory for all products regulated by the ESPR entering the EU market, with implementation starting in 2026/2027, according to the communication paper released by the European Commission in March 2022.

DPPs are structured collections of product-related data conveyed through unique identifiers. Stakeholders in a supply chain can access information on sustainability, circularity, and values for circular business models. This includes raw material producers/extractors, end-of-life (EOL) actors, authorities, and consumers.

The new ESPR signifies the importance of this data in supporting sustainable product production, services, repair business models, well-informed decision-making, and compliance verification. The DPP also has the potential to achieve goals beyond the ESPR, streamlining reporting operations and facilitating data sharing to enable circularity. This empowers businesses, consumers, and public procurers to make better-founded decisions for sustainable procurement.

LEARN MORE IN OUR COMPREHENSIVE ARTICLE. Digital Product Passports (DPP): what, why, and how?

The DPP's function includes facilitating access to product data for various stakeholders within a product system. In line with this objective, the European Commission is determined to make a significant amount of DPP-reported data available in a centralized database known as the European data space for smart circular applications.

Numerous organizations across industries, particularly original equipment manufacturers, have expressed concerns regarding the sensitivity of the data they are expected to share. This includes information that could impact their competitive position, such as disclosing supplier details, raw material sources, and pricing of products and supplies. It's worth noting that not all data points are relevant to all actors in the value chain. Therefore, access rights to the DPP should be granted on a need-to-know basis, considering their function in achieving specific ESPR goals. This approach ensures legal consistency in coherence with the Data Act when published in the Official Journal of the European Union while also adhering to the European Accessibility Act for product data relevant to consumers.

Collaborative efforts are needed to fully realize the potential of data-sharing tools for circularity. The next steps include examining supply network complexities, addressing reporting burdens, prioritizing metrics, formalizing data points, and consulting the IT industry for technical requirements.

Data sharing leveraging a circular economy

Data and digital technologies are increasingly recognized as valuable tools for the global economy. Companies have embraced the growing digital transformation as an essential element. Simultaneously, many companies have realized the imperative of adopting circular business models to benefit the planet and enhance resilience in the face of resource scarcity.

Digitalization presents opportunities for the transformation to a circular economy, as the utilization of data, digital tools, and infrastructure can facilitate adherence to numerous circular economy principles. Moreover, digitalization and data utilization enable informed consumer choices and product differentiation.

In the scope of circular economy principles, efficient use of materials and resources can be achieved through aligning the supply and the real-time demand, which contributes to avoiding waste generation and reducing the resource use intensity.

Using the Internet of Things (IoT), for instance, producers can collect real-time data to monitor the product's usage and predict maintenance, hence promoting the extension of the life cycle of their products. Keeping track of the product's composition along the life cycle is an excellent example of how recycling and other closing-the-loop strategies can be enabled. Data from the usage of these products allows the companies to improve redistribution and optimal allocation of resources.

Data sharing also enables strong decision-making and development of new circular business initiatives for all the value chain actors, such as manufacturers, consumers, suppliers and retailers, logistic-related actors, and recyclers. Sharing data between these players, i.e., actors involved in the beginning, middle, and end-of-life, is an essential driver for closing the resource loop.

Another critical aspect of data sharing is creating transparency with the value chain stakeholders. Companies can report their circularity performance through annual reports, which can be shared with consumers, investors, and legal authorities.

The new Corporate Sustainability Reporting Directive (CSRD) is an excellent example in which a broad scope of companies is required to report their sustainability initiatives.

Check out our two articles explaining ESG reporting and presenting a step-by-step on how to write an ESG report to get a better understanding of the topic.

Circular economy data-sharing challenges

As with all endeavors, data sharing in a circular economy is a pathway that contains some barriers. It has been found that the main ones are:

• Difficulty in processing data due to lack of interoperability, as data comes in different formats depending on the source. For instance, companies encounter challenges in using data from suppliers as no standards for collecting, processing, and storing data are defined.
• Gap of data-related skills and other competencies necessary to collect, process, and store data.
• Lack of cooperation between companies and/or departments.
• Implementing strict GDPR requirements makes sharing data within and outside the company more difficult.
• Sensitiveness of data, as companies tend to face it as a competitive advantage and, therefore, are reluctant to share it with other companies.

Reliable and up-to-date data is necessary for advanced circular economy strategies like refurbishment and recycling, but it is currently largely unavailable. As the example of the DPP, the barriers to data sharing above-mentioned are prominent impediments to achieving the circular economy ambitions in the European Union. Therefore, special attention to these aspects is necessary to unleash the whole potential of data for the circular economy.

How can data sharing enable your circular economy model?

The primary goal of adopting circular business models is to transform the traditional linear flow of resources into continuous loops, ultimately giving rise to circular systems. Circular business models create new opportunities for collecting, utilizing, and sharing material and traceability data along the entire value chain. Existing circular business models are being shaped toward a collaborative approach to sharing data between stakeholders.

Data plays a pivotal role in circular business models, driving various facets of innovation. It serves as a powerful driver for designing new products, extending the life cycle of products, and enhancing the overall customer experience. For instance, leveraging circular product design can aid in assessing the potential for disassembly and recycling in the product's end-of-life (EOL). Integrating data into systems and implementing data-driven services opens the door to creating longer-lasting customer relationships. On the customer side, granting access to real-world usage data empowers them to make better decisions regarding product usage patterns, discouraging wasteful behavior and guiding them toward effective maintenance practices.

The principles underpinning data-driven value creation find their place within circular business models. Data can power the value creation in circular business models by enhancing information transparency and accessibility, enabling discovery and experimentation to deliver innovative solutions, facilitating prediction and optimization, supporting rapid adaptation and learning, enabling product and service customization, fostering a deeper understanding of customers, and supporting more accurate definition of personas (the target customer). However, fully harnessing the advantages of data often necessitates a shift in the underlying business model. Notably, data's significance is particularly pronounced in supporting the management of resources and activities in a circular system.

A promising circular business model is based on Product–Service Systems (PSS), in which physical products and complementing services are offered to maximize the value delivered to the customer. In this model, the producers usually retain the ownership of products, potentially contributing to performing strategies such as repair and maintenance, reuse and redistribution, refurbishment and remanufacturing, and recycling. Harnessing data for PSS encourages companies to optimize product design and life cycle management.

Independently of the circular business model type, the value of data remains closely tied to the activities it supports rather than the business model itself. Multiple models might incorporate a shared core activity, whether managing essential resources, extending the product life cycle, or transitioning from a product-based approach to a service-oriented one.

Which data should I pay attention to enhance my business model?

Before collecting data, it is crucial to determine what data is needed and its uses. As the world is filled with uncountable data types, collecting as much data as possible without a defined strategy is a task that demands a lot of resources. Therefore, companies need to predefine their data collection, focusing solely on the ones that will aggregate value to their businesses, depending on the expected uses.

The data that usually has value for circularity purposes are material-related, product-related, and customer-related data, and all require extensive collaboration with multiple actors across the value chain.

Material-related data concerns the design phase and all materials consumed to manufacture a particular product. Examples of material data are the material content, quality of the raw material and its origins, energy consumption data, packaging data, life cycle assessment-related data, as well as environmental impacts of the materials.

Such data helps companies to measure their sustainability impacts and find mechanisms to improve it but also indicates whether and to which extent the product can be reused, remanufactured, or recycled.

Product-related data is about the product's performance, use, and conditions after leaving the manufacturing facility. They can be used to predict failure, enhance design from data associated with maintenance, and determine business models based on PSS using data from sales, back-track prices, and rental frequency. Even data associated with logistics, such as costs and emissions, can be used to optimize the whole supply chain.

Customer-related data is about buyers' and users' preferences, habits, characteristics, and behaviors. Such that helps the producers to accurately design solutions that will better fit their customer's needs, which is not only optimal financially but also in terms of resource use. Defining a persona, i.e., the target group of a value proposition, is an outcome of a smart use of customer-related data.

An example of data for a circular economy is the indicators defined by the European Commission to keep track of the progress towards a circular economy.

The indicators are set in five thematic areas subdivided into 11 indicators in total:

1. Production and Consumption

• Material consumption
• Green public procurement
• Waste generation

2. Waste Management

• Overall recycling rates
• Recycling rates for specific waste streams

3. Secondary raw material:

• Contribution of recycled materials to raw materials demand
• Trade of recyclable raw materials between EU countries and the rest of the world

4. Competitiveness and Innovation

• Private investments, jobs, and gross value-added
• Innovation

5. Global Sustainability and Resilience:

• Global sustainability from a circular economy
• Resilience from the circular economy

So, why care about circular economy?

One of the key pillars of the circular economy is the efficient and responsible recovery and reintroduction of materials into technical and biological cycles. This shift away from non-renewable, fossil-based resources is crucial to combat the challenges of scarcity and environmental impact.

By embracing circular economy concepts, societies, and companies can gain a competitive edge by prioritizing renewability, long product life cycles, optimal reuse, and recycling.

This departure from linear economic practices, which often result in resource depletion and materials wasted in landfills, allows organizations to collaborate in the elimination of waste, increase resource productivity, and operate within planetary boundaries.

Join the circular revolution and unlock the potential for sustainable growth and profitability. Embrace the circular economy and create a future that benefits your business and the planet.

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