The connection between net-zero emissions and the circular economy is backed by research. When it comes to cutting greenhouse gases, the main focus is on improving energy efficiency and transitioning away from fossil fuels to renewables, but that only accounts for 55% of greenhouse gas emissions. The remaining 45% is tied up in products, materials, and food.

Key administrations are aware of this and are starting to act accordingly. Accelerating innovation in industrial products and fuels for a net-zero, circular economy is one of five priorities in U.S. President Joe Biden’s Net-Zero Game Changers Initiative. Meanwhile, the new Circular Economy Action Plan (CEAP) is a main element of the European Green Deal.

In parallel, the UN is collaborating multilaterally to create policy to regulate plastics. The UN Plastics Treaty is a consensus by 175 nations to deliver a legally binding agreement to tackle plastic pollution by the end of 2024. This is significant because plastic has become fundamental to the products we create and the packaging we use to contain and ship them. Plastic has an enormous impact on the environment due to the emissions involved in its creation and mismanaged plastic waste polluting the air, the oceans, our food, and even our blood.

Currently, the linear economy dominates, as only 7.2% of the world’s resources are reused or recycled. In the case of plastic, we take oil from the ground, turn it into products and packaging, use them, and throw them out when we’re finished. Continuing like this isn’t an option because we will run out of resources, worsen global warming, and cause further damage to our ecosystem. The circular economy is about running the resources around in loops, so materials retain their value and can be reused.

It sounds logical, so why aren’t we doing it already? The first reason is financial. In the long term, the circular economy will create jobs, cut costs, improve profitability, and secure supply lines. Achieving this, however, requires massive capital investment in the short term. Additionally, more data is required to help us understand the impact of our decisions. And we need a new, more collaborative way of working.

Capital investment-wise, we must invest in designing and manufacturing products with circularity in mind. We need to adapt and build machinery and systems to rescue resources from existing products and turn them into new items. The labor market must evolve to train people in the skills required and to make circular economy jobs attractive, with good remuneration and benefits packages. More wealth must also flow back up the supply chain to ensure the sustainability of raw materials and to enable growth and sustainable manufacturing. To help companies and financial institutions understand the benefits and necessity of the circular economy, more education is required.

Record, report, and act on your sustainability goals with SAP solutions

Data systems need to evolve to give companies insights on material flow and traceability, help them avoid waste, extend periods of use, recover and regenerate materials, and make informed decisions about products and packaging. This is where SAP comes in, with 80% of the world’s businesses using our software.

Take plastic again: the SAP Green Token solution can help businesses trace plastics back to their source polymer to understand what type of material is used in every plastic element in a product. This can help companies prove the environmental credentials of a given plastic. SAP Responsible Design and Production can be used to understand how recycled and recyclable a component is and can help a company understand the true end-to-end cost of a material. This can be useful in regulating certain materials for comparison and decision-making purposes as well as in helping businesses anticipate taxes and fees associated with their products.

We can interrogate upstream supply chain data, which relates to what a product is made from, but we don’t yet have a complete downstream picture of what happens to a product at its end of life. Recyclability varies wildly between countries, so to understand how recyclable materials are in certain countries or jurisdictions, a partnership approach with national governments, local authorities, NGOs, and others is required to build a database that can inform companies which types of plastic to use or avoid for certain markets to achieve circularity. SAP can add value by collecting this data and pulling it into solutions.

At the same time, to embrace the circular economy, our way of working must evolve. Instead of working in silos within our individual businesses and in vertical supply chains, we need to work collaboratively to share the data and bring the skill sets and processes together. For example, SAP works with groups of companies, such as with the WBCSD, to establish frameworks for exchanging data. SAP Sustainability Data Exchange started with embedded carbon in products, but the application can be extended to track other important material information for the circular economy like recycled content or water content.

Collaborations between businesses and non-corporate bodies accelerate progress. A clear example of this is how, by working with the WBCSD and the Ocean Plastics Leadership Network, SAP works towards updating solutions to help customers respond to new requirements that arise from the negotiations.

The ambition is to replicate this approach to plastic for other products, such as steel, batteries, electronics, textiles, and even food. With a circular economy across these industries, I’m convinced we can get halfway to net zero and if, in parallel, the energy experts continue to move the needle on energy efficiency and renewable power generation, we’ll get the rest of the way.

Learn more about SAP Sustainability solutions at sap.com/sustainability.

Darren West is a product expert in Circular Economy at SAP.

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