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What is stopping the circular transition?

Thu Nguyen Share on:

“Humanity is running an ecological Ponzi scheme in which society robs nature and future generations to pay for short-term economic enhancement today.” – UN Secretary-General António Guterres.

It’s a bleak but accurate assessment. Our current economic system relies on a linear take-make-waste model that harms the environment, depletes natural resources, and exacerbates inequality. The solution? A circular economy that keeps resources in use and waste to a minimum. While this concept has gained traction in recent years, the reality is that the circular transition is struggling to take off.

In this article, I’ll explore the barriers that are preventing a widespread shift to circularity.

Pessimistic Outlook for Circularity Despite Increasing Awareness

Circularity has captured the attention of both consumers, and businesses alike. Demand for sustainable products and services is increasing. More organizations are exploring circular business models. Governments and educational institutions are also recognizing the importance of the circular economy. Yet, despite all these efforts, the global circularity rate is on a downward trend.

I’m not being overly pessimistic here, my sentiment is based on pure facts. The Circularity Gap Report (2022) shows that the global circularity rate has decreased from 9.1% in 2018 to 8.6% in 2020, and 7.2% in 2022. In other words, only 7.2% of the materials we consume are brought back into the cycle.

This begs the question: why is the circular transition struggling to take off? In the following sections, we’ll dive into some of the main barriers to circularity – through our industry-focused survey, to academic and scientific research on the topic.

Uncovering the Barriers to Circular Progress: Insights from 148 Manufacturing Leaders

Let’s explore what we learned from our survey.
The global circularity rate is decreasing which is a cause for concern. But, why is circular progress still slow, despite everyone, seemingly, talking about it?
To get a better understanding, Inchainge and Windesheim University of Applied Sciences surveyed upper managers and decision-makers in the manufacturing sector. Manufacturing companies are among the main consumers of the earth’s resources and play a crucial role in the transition towards circularity.
Our question was simple: What is stopping the circular transition? 

The survey asked 148 respondents to rank seven challenges based on their importance. The results provide valuable insights into the challenges companies face when trying to implement and accelerate circular progress. So, what did they reveal?

The results show that both internal and external factors hinder the road to circularity. The top three barriers to circular transformation are:

  1. The lack of a long-term vision and strategy
  2. Silos within the organization resulting in a lack of cross-functional collaboration
  3. Severe time constraints for key employees, which can lead to tension between urgent short-term needs and important long-term goals

These findings are consistent with prior research on the internal organizational factors that slow down companies’ circular efforts.The survey also highlighted four other challenges:

  1. Difficulty of building an ecosystem of external partners to support circular change
  2. Internal resistance to change, making it difficult to create the critical mass needed to fuel the transition
  3. Lack of a promising business case
  4. Remote working due to COVID-19 limiting the collaboration and creativity needed for a transformation

It’s clear that the road to circularity is full of challenges, both internal and external. However, by understanding these challenges and developing strategies to overcome them, companies can begin to make progress towards a more circular economy. In the next section, we’ll dive deeper into these challenges together with their related research.

Key Roadblocks to Circular Progress

Let’s examine the survey results to understand the internal and external factors faced by manufacturing companies when implementing circular practices.

I. Uncovering the Internal Struggles

1. Organizational strategy and culture

The Lack of a long-term vision and strategy is a major internal barrier highlighted by the survey results. Strategy is what drives a company’s investments and activities. Without a clear vision and strategy, it becomes challenging to prioritize circular practices in the value chain.

Ellen MacArthur Foundation’s research reveals that many companies have set some ambitious circular targets related to their plastic packaging design. By 2025, their production lines are aimed to ensure that 100% of their packaging is designed for recycling, reuse, or composting. Moreover, they aim to reduce usage of virgin materials, waste, in their production and promote post-consumer recycling.  However, progress is rather slow; it is predicted that companies will struggle to achieve them. Furthermore, the target represents only one-fifth of the world’s packaging production, only a fraction of the millions of other businesses. This further proves that even with a clearly set target known to the public, circularity remains a tough task.

When it comes to circular transition in companies, according to Takacs, Brunner & Frankenberger (2022), the strategies needed often require organizations to set new targets and metrics for their employees, which can be time-consuming and challenging. Additionally, companies may need to make significant changes to their business models, supply chains, and partnerships to achieve a certain level of circularity, which entails risks and uncertainties. These factors can contribute to the third barrier identified in the survey, which is
Severe time constraints for key employees, causing a tension between urgent short-term tasks and important long-term goals. As a result, companies may be even more hesitant to start their circular transformation.

2. Silos in the organization

Silo thinking, the second barrier from our survey, restricts a department’s line of thinking to its own boundaries, resulting in a lack of alignment within the company. Circular economy practices are often hindered by this – it can lead to incoherent or non-holistic strategies, making it difficult to align stakeholders. Restricted silo thinking is also believed to be a key reason for companies’ reluctance to commit to circularity (Kirchherr et al 2018). Battling this would require leadership, clear targets, and strong strategies to align stakeholders, especially internal ones.

To be more specific, let’s take an example: a manufacturing company striving for a circular process can encounter certain misalignments between its departments. The sustainability manager might aim to recover 20% of used products through recycling, while their operations manager sees no need for extra cost made by a recycling service provider. This lack of agreement and collaboration within the company can impede progress towards circularity. The resistance to incorporating a recycling service provider to enable sustainable targets suggests a reluctance to change existing practices, which is a common challenge faced by companies when transitioning to circular practices.

Similarly, misalignments between supply chain and marketing departments can lead to internal conflicts, decision-making difficulties, and operational planning delays, highlighting the fifth barrier: Internal resistance against change, making it difficult to create the critical mass to fuel the transition.
The lack of long-term strategy, silo thinking, and resistance to change are intertwined problems that companies face when including circularity in their business. Addressing these internal barriers requires leadership, clear targets, and strategies that align all stakeholders.

II. External barriers to Circular Transition

1. Dependence on Customers to Determine strategy

Our survey identified a Lack of a promising business case as the sixth-ranked barrier to implementing circular practices in production. This finding is consistent with research by Kirchherr et al. (2018), who highlights the importance of consumer demand in driving circular change.

Companies depend on their customers to determine their offers and strategies. If there is not enough noise and demand from the public, their hesitation to adopt circular practices is heightened.

2. The hurdle of Building External Partnerships

While customer demand for sustainable alternatives is not significant enough to drive large-scale change, there are successful examples of it. Such as, the fast-moving consumer goods industry switching from single-use packaging to more circular alternatives. This shift has the potential to prompt changes among companies. However, the market for alternatives such as recycled plastics is still relatively small, and the technology needed is not readily available and easy to adopt. It still requires significant joint efforts on innovation from companies across the value chain to roll out a large-scale and efficient solution (Clarke, 2019).

Our survey found that building an Ecosystem of external partners to support circular change is a significant challenge. It ranked fourth among the barriers that companies face in implementing circular practices. To overcome this, companies must invest time and resources in building relationships with external partners and collaborating to develop circular solutions that work for everyone involved.

Where do we go from here?

What is stopping the circular transition? – In a nutshell, our survey and research highlight a lack of long-term strategy and silo thinking as the most critical internal factors. While external factors such as the difficulty of building an ecosystem of external partners and the lack of a promising business case weigh in heavily.

Similar to any other innovation or technology, circularity goes through the cycle of Innovators, Early adopters, Early majority, Late majority, and Laggards. To bridge the gap between the Early Adopters and the Early Majority (or “The Big Scary Chasm”), solutions should be developed and implemented from within companies, with people as their focus. What works for these Innovators and Early Adopters probably would not have the same effect as the rest. In order to attract the Early Majority, options range from positioning circularity as a crucial requirement in production and not a by-product to clear demonstration of its impact on work processes and environment.

One such solution is to create awareness and experience through Learning & Development programs, which directly impacts the internal environment of organizations. A critical mass of employees and management is crucial to kick-starting the circular transition. Based on our experience of working with customers, the key to making progress is to simply get started.

So where do we go from here? Companies need to recognize the importance of a circular approach and take concrete steps towards implementing circular practices. This requires collaboration and partnership building with external stakeholders, and an openness to innovation and experimentation. By working together and creating a shared vision, we can move towards a more sustainable and circular future.

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Thu Nguyen