The circular economy is a system of production and consumption that involves recycling, sharing, reusing, and refurbishing existing materials and products as long as possible. Digital technologies are heavily intertwined within the circular economy, and together, the circular economy and digital technologies are regarded as disruptive forces in business and society at large. Consequently, company executives, industry researchers, and academics have begun to study the relationship between the two concepts. However, current studies indicate a lack of sufficient knowledge about how digital technologies may help businesses increase their resource flows and value generation to support a circular economy.
This leads us to ask the question: can the move to digitalisation in an industry or society usher in a truly circular economy?
Digital technologies comprise a range of computing tools, environments and applications, some of which have been around for 20 years or more. However, some of them have only begun to have a major impact on business and society. In this context, the acronyms BRAID (blockchain, robotics, artificial intelligence, internet of things, and digital fabrication) and SMAC (social media, mobile, analytics/big data, cloud) are frequently used as umbrella phrases.
These technologies are constantly evolving, and their potential to transform business processes and alter the environment in which we live, continues to gather momentum. Businesses and organisations have the opportunity to benefit from the growing pace of digitalisation, as these technologies are implemented in a wider range of their operations. One such application is the potential shift to a circular economy.
The circular economy
The concept of the circular economy is not new, but like some digital technologies, it is starting to feature in industry strategy documents, and in a growing number of companies’ environmental, social, and governance reports.
The circular economy is “an economic model that was first proposed in the mid-1960s as a means of ensuring that resources which enter the economy remain a part of the economy for as long as possible.” It aims to reduce both natural resource depletion and waste.
A circular economy is quite dissimilar to the traditional linear economy. In the traditional economy, the production process converts raw materials into waste, which in turn causes a number of environmental issues and a loss of natural capital.
Eight specific business activities can be identified in transitioning to a circular economy. They include: attracting target customers, improving product design, tracking and monitoring product activity, providing predictive and preventive maintenance, providing technical support, upgrading product, optimising product usage, and enhancing renovation and end-of-life activities.
Will digital technologies facilitate the transition to a circular economy?
Digital technologies, according to an increasing number of academics, are essential to the shift to a circular economy. For example, Sullivan and Hussain point out that companies such as H&M Group, DS Smith, and Danone are “already leveraging these newer technologies to design waste and pollution out of their value chains while keeping products and materials in use to create positive economic, environmental, and societal impact.”
[Multinational companies are] already leveraging these newer technologies to design waste and pollution out of their value chains while keeping products and materials in use to create positive economic, environmental, and societal impact.Jim Sullivan & Batool Hussain in Greenbiz
Moreover, a recent report from the EIT Climate-KIC Consultancy stated that “digital solutions such as artificial intelligence, blockchain and the Internet of things can redefine production and consumption in the 21st century, powering a new circular economy that works for people and planet alike”. However, other authors are more cautious; Cagno et al., for example, maintain that the connection between a circular economy and digital technologies is still in its infancy.
There is a consensus that digital technologies are creating greater efficiencies, enhancing processes, increasing productivity, and improving data management, all of which support and enable sustainability goals.
Sustainability is seen to be related to the use of digital technologies, which are utilised by the majority of organisations to support their operations and fundamental business processes (Table 1). But recent research indicates the link to a circular economy is less evidenced in many organisations at present. However, this is likely to change in the short to mid-term. As Kristoffersen et al. noted, “effectively using this digital transformation will be pivotal for organisations in transitioning to, and leveraging, the circular economy at scale.”
|Sustainability benefits / Technology used
|Analytics / Big Data
|AI / KW auto
|1. Waste reduction
|2. Reduction of energy consumption
|3. Reduction of transportation costs
|4. Augment circular economy knowledge and awareness
|5. Sustainability monitoring
|6. Systems, data management, and process improvements
|C3, C6, C7
|C3, C6, C7
|C3, C2, C4, C7
|7. Other efficiency gains
|C7, C3, C2, C6, C4
Table 1. Sustainability benefits from Digital Technologies
A survey of 8 companies (C1 – C8) indicated a clear connection between digital technology deployment and sustainability objectives. However, the linkage to a transition to the circular economy was not compelling.
Furthermore, there is another dimension to this debate. A truly circular economy will encompass the upstream (and downstream) activities of both suppliers and customers. This is part of what is sometimes termed “sustainable supply chain management”, which is an emerging field of research that examines all functions across the supply chain. This is of particular relevance in industries such as clothing and apparel (Figure 1), where raw materials are often processed in developing countries. There are wider implications of transitioning to a circular economy in such industries, where the extended supply chain spans radically different socio-economic environments.
The transition to a circular economy is a complex issue that “involves changing the way things have been done for decades”, and a change in the attitude of consumers and society at large will be needed to push companies into changing their business practices. Technology is a key enabler of this transition. As Sullivan and Hussain noted, “technology has incalculable potential to enable humanity to be the best stewards of the biosphere, and usher into existence a truly inclusive circular economy faster, more effectively, and more efficiently to create positive economic, environmental, and societal impact.” As such, digital technologies can facilitate and support the transition to a circular economy and a sustainable future.
Wynn, M., & Jones, P. (2022). Digital technology deployment and the circular economy. Sustainability, 14(15), 9077. https://doi.org/10.3390/su14159077