Circular economy: what it means, how to get there

In the future, you will know the source of every component in the products you use or manufacture, how it was produced, the energy consumed in its production, perhaps even who will own it next and how much they will pay you for it. This is the natural, inevitable outcome of combining circular economy principles with digitization technologies. Economically, environmentally, and socially, the logic of this is undeniable. Only our unwillingness to change stands in the way.

We are in the midst of a digital transformation in which technology is helping businesses, entire industries and countries to enable, differentiate and fundamentally define their strategies. This is driving a tremendous amount of innovation and economic growth, while also creating unprecedented challenges as resource and energy consumption increase.

If you look back, we have seen periods of technological advancements that generated large amounts of economic activity. For example, the Industrial Revolution was enabled by new sources of energy – almost exclusively carbon-based fuels deposited and stored in the ground over the course of hundreds of millions of years.

Through advances in what became material science – and even more energy use – we accelerated the mining of metals, the development of alloys, and eventually plastics. Linear models of production – take, make and waste – over time led to many downsides. Air and water pollution, in addition to deforestation, became evident, impacting the quality of life for people, and life itself for many species of plants, animals, and marine life. The U.K and U.S. clean air and clean water acts of the late 1960s and early 1970s reversed some of the negative impacts. Recently, we have seen emerging markets experience a similar development curve, struggling with basic clean air and water concerns.

As we enter what Professor Klaus Schwab calls the Fourth Industrial Revolution, we must ensure that we learn from our experiences of the past and develop technology in a more sustainable way for the future. We must think and act differently than we have before. The circular economy lends itself to exactly this. Through careful design and innovative business models, we can ensure that technical and biological materials flow continuously within the economy, safeguarding valuable stocks and decoupling growth from finite natural resources. We need to move away from linearity and embrace circularity.

The IT industry is a great example of one that can help lead in this principle. In 2015, worldwide IT spending across vertical industries was forecast to be $2.7T. Like many technology companies, Cisco’s top environmental challenges are related to energy and – as a company that produces hardware in addition to software and services – disposing of our products at their end of life. Most technology has a typical life cycle of three to five years. It is estimated that there is 12 times more gold in a ton of eWaste compared to a ton of gold ore. With eWaste becoming one of the fastest growing waste streams, there is a need to approach this production, use and reuse from a circular mindset. IT products can be designed so that essentially 100% of the product and packaging can be recycled.

With the spread of the Internet of Things (IoT), there is incredible opportunity to enable circular innovation. For example, with sensor technologies becoming low cost and networking becoming more pervasive, each component that goes into a manufacturing process will be connected. The data you collect from those connections will allow you to know the source of the product, how it was produced, and the energy consumed in its production. This data lies at the heart of the circular economy. The intelligence derived from it enables businesses, cities and countries to enhance their profit margins by recovering, regenerating and redeploying these resources most effectively.

The circular economy has the potential to positively affect everyone’s lives and everything we buy for a more sustainable future. One company or one industry doing this alone will not be enough. A network of companies, working and innovating together, is what will help lead this transformation into the future. In 2010, Cisco became a founding member of the circular economy program at the Ellen MacArthur Foundation, in order to partner with other like-minded companies to find the best approaches to solving this major issue. An upcoming report, published by the Ellen MacArthur Foundation and the World Economic Forum, shows that the interplay between circular economy and intelligent asset value drivers provides a fertile ground for innovation and value creation. Circular economy value drivers include extending the useful life and maximizing the utilization of assets, looping assets and regenerating natural capital.

The opportunity is within our reach, and the onus is on all of us to become part of the next generation of global problem solvers. It is time we embrace the benefit that a circular economy provides for creating new business models, accelerating economic growth, and improving lives everywhere.