Business leaders, consumers and governments alike have discovered that continued wealth generation requires a new industrial model that is less dependent on primary energy and materials inputs, and ultimately able to regenerate our natural capital. In its recent reports, the Ellen MacArthur Foundation has focused on the economic and business benefits of such a circular model of growth.
In this report, the World Economic Forum and the Foundation, with analytics provided by McKinsey & Company, acting as project adviser, joined forces to reconcile the concept of scaling a circular economy within the reality of a global economy and complex multi-tier supply chains. The key objective is to propose a very specific joint plan of action for industry leaders.
The challenge of closing materials loops and regenerating natural assets is an exponential function of product complexity and supply chain length. While more localized production is experiencing a robust renaissance in some economies, we cannot ignore nor fail to tap the power of global division of labour, specialization and economies of scale. This report sets out to emphasize that the circular economy must hold its promise not merely to the village economy, but also to a globalized economy of nine billion.It presents the concept of circularity as a tangible driver of industrial innovations and value creation for the 21st century global economy. In addition, it positions the concept for today’s global CEO as a practical business strategy to “hedge” against the complex and interconnected risks of resource competition, commodity price volatility, new materials technologies and changing consumer demands. A number of key messages stand out:
1. The circular concept fosters wealth and employment generation against the backdrop of resource constraints. Circular business models will gain an ever greater competitive edge in the years to come because they create more value from each unit of resource than the traditional linear ‘take- make-dispose’ model. Accelerating the scale-up promises to deliver substantial macroeconomic benefits as well as open up new opportunities for corporate growth. The materials saving potential alone is estimated at over a trillion dollars a year. The net employment opportunity is hard to estimate, and will largely depend on the labour market design. But even today, the job creation potential of remanufacturing globally and recycling in Europe already exceeds one million.
2. Circular supply chains are up and running— and they’ve gone global. The global secondary  fibre stream for paper and cardboard is one example. The economics of such arbitrage opportunities are expected to improve as raw materials prices rise and the costs of establishing reverse cycles decline. Trends favouring lower costs and making it possible to close the reverse loop include urbanization, which concentrates demand, allowing tighter forward and reverse cycles. Advanced tracking and treatment technologies also boost the efficiency of both forward and reverse logistics. Governments have started to provide stimuli, too: higher charges for land ll increase the competitiveness of circular products, and thus the arbitrage opportunities of setting up reverse cycle options.
3. Supply chains are the key unit of action, and will jointly drive change. In its most extreme manifestation, the global economy is a massive conveyer belt of material and energy from resource-rich countries to the manufacturing powerhouse China, and then on to destination markets in Europe and America where materials are deposited or—to a limited degree—recycled. This is the opposite of a loop. The materials leakage points and barriers to mainstreaming the new model of circular material  flows in a globalized economy must now be addressed and overcome. This requires better understanding of the archetypes into which supply chains fall, and the three main barriers to change: geographic dispersion, materials complexity, and linear lock-in. Analyzing the most advanced business cases confirms that a supply chain management approach that balances the forward and reverse loops and ensures uniform materials quality is critical to maximizing resource productivity globally. The transition can begin once the hinge points are identified and acted upon in a concerted effort—across companies, geographies, and along the supply chain.
4. Defining materials formulations is the key to unlocking change. The materials list is exploding. A wide range of new additives are added each year, making post-use valorization ever more demanding. The key is to tame materials complexity by defining and using a set of pure materials stocks at scale, designing out the leakages that hamper classification from the start. Reorganizing and streamlining  ows of pure materials will create arbitrage opportunities that generate economic benefits and make investments in reverse cycle setups pro table.