Circular Economy: Collective Effort to Overcome Squander Logic

Sustainability requires an increase over time in the value of fixed assets that can benefit production or welfare. Physical capital is only the best known of these, and also the one we look at in terms of changes (investment) in national economic accounts, but there are others, including natural capital, ecological capital that measures population health, human capital. Among them, natural capital is one of those most affected by our economic development, as shown in 2018 by Managi and Kumar (Inclusive Wealth Report, New York, Routledge), who recorded an overall decline of 40% globally between 1992 and 2013. We can certainly hope that technological progress will enable us to reduce the depletion of natural and ecological capital, even in the presence of future increases in production, and hope that individual consumption will increasingly be directed towards services with low material costs. However, we must be realistic and remember that the planet populated by 8 billion people must find other ways to solve problems. In this contribution, I would like to discuss the role of the circular economy, starting with its definition, then describe some conceptual elements of its quantification, continuing with some existing data concerning the Italian situation and the measurement of the degree of circularity in large corporations in the international economy, carried out in the study presented here, conjointly with Corrado Gaudenzi and Giliola Frey of Eurizon Capital, the asset management company of the Intesa Sanpaolo Group, and conclude by summarizing some implications of the results obtained.

What is circular economy: the circular economy contrasts with the linear economy. In the latter case, natural and environmental resources are used as inputs to production processes that simultaneously create products and services, and the waste then goes as products that are released into the environment. The circular economy wants to change this paradigm by turning to activities such as reuse and recycling. The concept of circular economics was introduced by Boulding, who, in a 1996 article entitled “The Economics of the Coming Spaceship Earth,” counterposed the economy of the Far West to the economy of a spaceship. If we want to use movies to intuitively understand the meaning, let’s imagine Clint Eastwood as the cowboy in Sergio Leone’s Italian westerns and Kubrick’s masterpiece “2001: A Space Odyssey.” In the Far West, the protagonists have no problem utilizing resources as they drive through endless green landscapes. In space, every drop must be used sparingly, given the resource scarcity that accompanies human exploration of endless blue spaces.

Measuring the circular economy: the Ellen MacArthur Foundation more accurately defines the circular economy as a system based on three indispensable principles: eliminating waste and pollution, sustaining the products and materials used, and restoring natural systems. As emphasized in a study conducted by Eurizon Capital, one way to understand how cyclical an economic system – or at least a company – is would be to examine data related to the cyclicity of the production process, stakeholder participation in circular economy practices, and the quality of initiatives undertaken. Each item on this list includes many aspects, such as packaging initiatives, product development from a natural resource perspective, waste management, and attempts to work together with customers, suppliers, and employees by promoting a shared cyclical culture.

Italy: the evidence concerning Italy is not yet very well developed. According to a report on the circular economy, prepared by the Observatory of Energy and Strategy of the Politecnico di Milano School of Management, 57% of companies have implemented at least one circular economy practice in 2022, up from 44% in the previous year. Product and component recycling is the most common practice, adhered to by 61% of respondents, while 32% favor product redesign operations to encourage reuse, repair, and waste reduction. These data may seem unsatisfactory, but international comparisons tell us that overall, the Italian economic system is one of the most efficient, at least in Europe, in terms of circular economics.

International economics: together with Gaudenzi and Frey, we applied Eurizon Capital’s proprietary model to measure the attitudes to cyclicity of the world’s largest listed companies based on all publicly available information from their accounting and statistical documents. The results of the cyclicity ranking show that in the sample of 470 companies, 86% reported at least one circular economy initiative in 2021, albeit within strong cross-industry heterogeneity. Moreover, the estimate of the degree of cyclicity, derived from the model, is low and shows that there are large reserves for improvement. So far, companies have prioritized interventions concerning changes in resource, waste, and packaging management, with little attention paid to the active participation of stakeholders, especially customers and suppliers.

Consequences: bad news? Economies around the world are largely linear. Good news? Economies around the world are largely linear. This is not a typo, but a reminder to everyone that big problems can present opportunities, especially for a country as transformative as Italy. Our disadvantage historically has been that we have no natural resources. The new emphasis on cyclicity may give us an incentive to be more cautious, buy fewer resources from abroad, and reduce the use of our ecological and natural capital. It is important that the effort be carried out by the system as a whole, not just by individual companies. Everyone must be involved to quickly achieve significant results that could enable us to “thrive by doing good.” Public measurement and monitoring efforts by multiple actors, including the public system, banks, asset managers, and independent agencies, are also useful in this context. We have long known that in today’s world the immeasurable is a non-existent phenomenon: this is why we must come together and collaborate to spread best circular practices, which represent one of the most concrete ways to achieve environmental and social sustainability.