Circular Economy Materiality Assessment: The first step in an enterprise’s circular transition

The top 3-5 topics with ‘high materiality’ are typically the relevant starting point for a subsequent baseline assessment, target setting, and implementation roadmap. Below we outline our five-step approach. Note: To exemplify the approach, we have opted for a case with a consumer electronics company and the topic of ‘repairability’. The approach is applicable to all products, services and enterprises.

Step 1: Regulatory analysis

Objective: Reviewing sector-relevant existing and importantly, upcoming regulation, from a municipal to national (or EU) level, shows what will be required in the future to achieve regulatory compliance. This ensures market access is maintained in key geographies.

Process: A set of geographies and product/process/project categories are defined, and the scoped regulatory landscape is assessed through the lens of circularity topics potentially relevant for a specific enterprise. With a future-focused analysis, it can be helpful to look at adjacent industries and product lines that are indicative of trends in the enterprise’s product or process category.

Example: Relevant regulations relating to repairability could include the Right to Repair bill in the U.S., the French Repairability index, and the EU proposal on batteries to be removable and replaceable by 2024. The state of the regulations (proposed vs. enacted) and the level of legislative activity in the topic of repairability would be compared to other circular topics such as recycled content or waste generation.

Step 2: Competitor analysis

Objective: Analyzing competitors’ circularity strategies, targets, metrics, and performance helps to understand which peers are leading on circularity in the industry, what the overarching industry trends are, and how the company is positioned in relation to that.

Process: The competitive analysis can vary in depth and detail but can cover direct competitors or those that, although not competitors, use similar materials and processes. Direct competitors or peers are those that offer the same kind of services or products and compete in the same market. A company’s position in relation to their peers highlights the circularity topics where they are lagging or leading.

Companies in a similar industry but who are not direct competitors broaden the perspective and are importantly used as indicators to see where a particular sector may be heading. For example, a washing machine is a household appliance that is often regulated in a separate category than consumer electronics, but the ‘right to repair’ movement focused on consumer electronics could quickly spread to affect household appliances. By reviewing enterprise level reports and specific product information, we are able to assess the level of focus and achievement of other competitors in specific circularity topics.

Example: Competitive analysis for repairability could include a comparison of iFixit scores of flagship products, teardown reports, etc. To focus on batteries within repairability, a company could be scored based on their maturity in this space, e.g. a low score for batteries that are not removable in most products and a high score for companies that are already selling replacement batteries and toolkits.

Step 3: Customer analysis

Objective: Understanding and meeting key customer circularity requirements is of growing importance as voluntary requests shift to mandates. Across many sectors B2B customers, retailers, and public customers have introduced circularity requirements, such as recycled material content, sustainable packaging, or enhanced product repairability. Assessing the urgency of the various requests identifies the topics most critical to the success of a company’s current and future relationships.

Process: Given the variety of customer bases both direct and indirect that companies serve, analyzing the ‘customer needs’ can include retailers, consumers, or other original equipment manufacturers (OEMs). The review process considers retailer or OEM enterprise strategies, sustainability requests, and product requirements. For end consumers, survey data or interviews may be leveraged. The result is a body of evidence outlining which circularity topics are most critical to the customer base.

Example: Retail customers often give preference to suppliers who are aligned with their overall objectives. In the case of repairability, higher repairability scores or products with removable batteries may be prioritized over competition to meet the customer and ultimately consumer expectations.

Step 4: Interviews with key corporate functions

Objective: Interviews with key corporate functions help uncover the internal level of awareness around certain circularity topics and metrics as well as the topics that are most closely related to the existing, overall strategic priorities. This exercise combines the various perspectives to weight the topics at an enterprise level. Process: A cross-functional group of stakeholders is interviewed and are educated on each topic, as it relates to their function. The interviewer and interviewees move through the qualitative discussion to ultimately rank the relevance of the circular topics. Topics rank higher depending on the priorities and reward structures of any particular group. After engaging various functions, the rankings are compiled to represent a cumulative, enterprise level materiality of the circularity topics. Example: In the case of repairability, this topic may already be a high priority for the service teams conducting repairs for products under warranty but may not be a high priority for other upstream functions like marketing & product designers. The interviews uncover the discrepancies and opportunities within the organization driving focus on the most strategic circular priorities.

Step 5: Baseline assessment for the highly material topics

Once the most material topics have been established, a baseline assessment is conducted. It focuses on the highly material topics and identifies the current performance levels, risks, and opportunities related to the topics that are already underway. This uncovers the existing capabilities within an organization along with any potential gaps that will need to be overcome to enact the circularity strategy.

This assessment determines the maturity of the organization in relation to each of the material topics. Gaps in the organizational structure, data systems, and work processes are often an output of the assessment. Ultimately, the baseline assessment grounds the organization in their starting point and realistically prepares them for the work ahead, i.e. the creation of an enterprise-specific circular economy strategy.