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ESG, the Circular Economy and Opportunities Missed
Sustainability

ESG, the Circular Economy and Opportunities Missed

By and | January 11, 2022

Sphera’s James Pearson joins the SpheraNOW podcast to discuss Environmental, Social and Governance (ESG), the circular economy and missed opportunities.

 

The following transcript was edited for style, length and clarity.

James Tehrani:

Welcome to the SpheraNow ESG podcast, a program focused on safety, sustainability and productivity issues. I’m James Tehrani Spark’s editor in chief. Today we are joined by James Pearson, a senior product manager in Sphera’s article compliance division, and that’s a mouthful. We’ll be discussing ESG, the circular economy and opportunities missed. It’s always nice having a fellow James on the show, James. So thank you so much for joining me today.

 

James Pearson Sphera EC4P

James Pearson:

Thanks for having me, James. It’s a pleasure to be here.

James Tehrani:

Oh, cool. Let’s get into this. I’m interested in learning on how you connect the dots between the circular economy and how it goes hand in hand with ESG. Can you explain that?

What Is ESG Reporting, and Why Is It Important?
GlossaryWhat Is ESG Reporting, and Why Is It Important?
ESG reporting refers to the disclosure of data covering a company's operations in three areas: environmental, social & corporate governance.

James Pearson:

Yeah, sure. The circular economy and ESG are both very large concepts, of course. So I can give you a summary of circular economy and then we can dig down deeper into it as needed. So the circular economy, the best way of describing it really is probably to start thinking about the opposite system, which is our current linear materials economy. So when you’re thinking about the current system terms, there’s a couple of terms that you might think of and listeners might actually be aware of them. So ‘take, make waste’ is one term that’s often used to describe it. An alternate is ‘take, make, use waste,’ and then you’ve got things like ‘cradle to grave’ as well. And it’s basically an indication of the product life cycle within that material economy, our current materials economy. But the key point is that we’ve got this waste phase, and that essentially results in the products that we use and that we buy being disposed of in let’s say a less than desirable manner, of course. And that’s because fundamentally disposal ends up harming humans and the environment as well.

James Tehrani:

So we see that a lot with things like plastic waste and things like that. But it also, we also see that with electronics and batteries and things like that, right?

James Pearson:

Yeah, that’s right. So I mean in a strict sense, transitioning to a circular economy would keep the material value in use for all materials. But you know, we have to be practical. We have to start somewhere. And so the circular economy initiatives that exist today, I’m thinking particularly of the circular economy action plan, as it’s turned, this is something that’s come out of the European commission, but they have a focus on electronics batteries. An aside, there’s increasingly electronic vehicles because you know, of course you look under the hood of an EV is just a massive lithium battery basically. And then you’ve got the packaging plastics that you meant as a subset of that and where there’s a real focal point. At the moment, there are single use plastics and microplastics and things like that. But the focus on those products or those product areas is twofold or the reasons are twofold. Like those product types, they present like a very high environmental impact when they’re improperly disposed of. But second, they also have what we would call like a high potential for circularity. So because of those two key things, it makes them a very good practical starting point for circular economy initiatives.

James Tehrani:

OK. And when we’re talking circular economy, are we just, and you say end of life of products and things like that, does recycling factor into that, too? Or are we just talking about disposal?

What-is-a-Circular-Economy
GlossaryWhat Is a Circular Economy?
Circular economy refers to a model in which economic growth does not go hand in hand with the exploitation and consumption of natural, non-renewable resources. The aim of a circular economy is the resource-efficient and sustainable use of natural resources, their reuse and recycling within a circulatory system and the prevention of waste.

James Pearson:

Yeah, that’s a great question because circular economy can be used interchangeably with recycling. I mean, it shouldn’t be because recycling is part of a circular economy, but it is a key aspect, right? It’s sort of a foundational aspect of a circular economy, but there are, what we might say, other modes of circularity. So you have concepts like reuse and repair, of course, but then other sorts of business models like sharing and renting, or I suppose in North America, you’d say leasing business models, and they lend themselves to circular economy principles. So yeah, circular economy’s not just recycling, although recycling’s a fundamental part of it.

James Tehrani:

I see. And so when we’re talking about ESG in this regard, are we looking at the E in Environmental or is Social or Governance part of it as well?

James Pearson:

Yeah, I mean, again, a good question because ESG—Environmental, Social and Governance—is of course, a really broad topic. And I suppose it can be quite overwhelming for companies to look at ESG as a whole thing, but particularly for product manufacturers, right? They are actually coming up with ESG metrics for disclosure, and they want to be looking at activities where they can get the most beneficial improvements. And that might mean trying to identify activities that lead to improvements and effective mitigation across more than just, let’s say, the environmental track or the governance track. So yeah, circular economy, I would say has for product manufacturers looking to improve activities, which advance a circular economy, has benefits across both environmental and governance, perhaps social as well, but that might be a stretch.

James Tehrani:

OK. Interesting. So you mentioned the word disclosures there, and when you’re talking about disclosures, are you referring to regulatory disclosures or are you talking about Science Based Targets or both?

James Pearson:

I suppose really we’re talking about any sort of metric that a company has identified that it’s going to make public. So it’s going to disclose as part of its ESG reporting programs. I mean, essentially it’s fundamental level ESG reports are allowing investors to make informed decision about the companies, which they invest in. So the things that companies want to identify for disclosure, they often look to sort of ESG frameworks to help identify what sort of metrics they should be concentrating on. I mean, if we’re looking at circular economy, we’re mostly focusing on product actors. And so when a product manufacturer is trying to identify metrics for disclosure, what they really want to do is look to their core business activities and the areas where they can have the most improvement where they can drive for the most improvement. And so what they would do in that instance is look across a product lifecycle, take a product lifecycle approach. So going back to what we talked about at the beginning, which is this idea of take, make waste you’ve got resource extraction, manufacture phase, a use phase and a disposal phase. So if product of manufacturers can kind of drive improvements and mitigation measures across each of those product lifecycle phases, then that makes them very ripe and ideal for disclosure in the ESG sense.

James Tehrani:

OK. And as a company, I ask this question to a number of my guests, but you have the concept of it’s the right thing to do for the world, but what is the business case for focusing on ESG and disclosures? And I know one term that you wanted to talk about was extended producer responsibility, which is related to end-of-life recycling. Can you kind of explain the process of why companies should take this so seriously in terms of their business models?

James Pearson:

Yeah, sure. I mean, you bring up this idea of extended producer responsibility, which is essentially like an end of life, recycling responsibility that’s placed on manufacturers. So, one of the reasons they might want to look at that is because it is a compliance topic this idea—it’s kind of convoluted. Maybe I’ll just do a bit of a précis on extended produced responsibility, so …

James Tehrani:

Oh, please do.

James Pearson:

Yeah. So extended producer responsibility essentially makes product manufacturers responsible for the collection of and recycling of their products. Here’s a key aside—or similar products, and that means they’re competitors products. In some instances, when those products reach their end of life. So if we just track the words on it for a second, it extends the responsibility of this idea of a producer, but you can think of the producer as the product manufacturer. And it extends that responsibility beyond the point where they actually have possession of the products that they sell. So, the products are out of their hands, but they’re still responsible for the end of life, recycling of those products.

James Tehrani:

OK, great. So let’s talk a little bit about compliance and what is necessary in terms of the circular economy, and what areas do you think are ripe for companies to go beyond compliance?

James Pearson:

Yeah, again, that is a good question because, so we’ve just done a little intro onto this idea of extended produced responsibility, which can be thought of as end-of-life recycling. And that really is what you might call the sort of the teeth, if you like, or the main policy instrument of the circular economy, a sort of foundational aspect. And one of the reasons for that is manufacturers are not really incentivized by market forces to engage in the recycling of their products or their competitors’ products, once they’re outside of their possession. In other areas like let’s say efficiency, savings, manufacturing efficiencies. For example, manufacturers might actually be able to make cost savings by driving efficiencies in the manufacturing process. So there could be a good business reason for doing so that would align with their sustainability goals for end of life recycling, where the costs can be substantial. There’s not really a market force for that, which would drive it, hence why it’s such an important compliance topic.

And actually it’s a very challenging compliance topic for manufacturers. If you can imagine a multinational selling products in countries all around the world, they have to comply with these recent recycling laws in each country, or, indeed state now in North America or in a provincial level in Canada. And they have to comply with all of those as laws independently, and there’s different requirements for recycling in each country or state. So it’s quite an esoteric concept. People generally don’t know that much about it, but it is widespread in the EU increasingly in North America and other parts of the world as well. But just to sort of make it a bit more tangible for people. I mean, most people will be listening to this on like a smartphone or a tablet or a personal computer. And the manufacturer of that item will have had to register with a kind of recycling scheme and pay for the recycling of that product when they sold it in the country. I mean, that’s certainly the case in Europe. It’s increasingly the case in North America. But I think that a lot of people don’t know that that is necessarily the case.

James Tehrani:

Oh, sure.

James Pearson:

That’s of course if the manufacturer is doing what they should be doing, caveat it with that.

James Tehrani:

I was just thinking about kind of the evolution of manufacturing. And you think of the 1950s, I’m in the states here and you’re in the UK, but it wasn’t as common for products to go overseas back then, but nowadays you have this global marketplace where you can order things on your phone and send it wherever you want, so it’s such a complicated process. And when you talk about Product Stewardship, I think of the REACH regulations in Europe, and how complicated those are. But I’m assuming it’s very similar when you’re talking about circular economy and end of life recycling.

James Pearson:

Yeah, it certainly is. Yeah. I mean, if you imagine a product manufacturer who’s got a headquarters in the U.S., but is manufacturing products in another part of the world, and they have complex supply chains. And then they’re shipping products into literally hundreds of different countries. They have to manage recycling arrangements in each of those countries, which are based on the local legislation and the local recycling infrastructure that are available in each of those countries. So quite quickly, it’s an unfortunate fact for some product manufacturers that don’t know this when they start expanding their business activities into, let’s say across the whole of Europe. All of a sudden, they’ve got maybe 90 responsibilities and have to set up 90 arrangements for recycling and collection and recycling of their products, so, it’s quite a big challenge and it’s certainly getting bigger as time goes on as well.

James Tehrani:

I was going to say 89 different, but OK. We’ll go with 90.

James Pearson:

Yeah, that’s right.

James Tehrani:

So overall, do you think companies are doing a better job focusing on the circular economy with their products that they sell?

James Pearson:

I mean, I guess yes and no to that, I suppose. I mean, on the one hand, manufacturers are doing more, they’re doing more each year to mitigate their impact on the environment. I mean, if we are using last year’s sort of total commitments as a baseline, I’m just thinking about EPR now, but if we use that as an example, there’s more arrangements being put in place for recycling in more countries around the world. I mean, on the other hand, unfortunately, there is more to do. And again, I’m just thinking about extended produce responsibility. Again, like the amount of recycling laws around the world is increasing in size, in scope in complexity. And that’s just me thinking about EPR. If we start to zoom out a bit and think about the circular economy as a whole and the kind of what the circular economy tends to achieve, then I think a polite and fair way of describing it would be that we’re just over the start line and that we’re in this kind of nascent phase of transitioning from a linear materials economy to a circular economy. So I think there’s, there’s plenty more that can be done.

James Tehrani:

Very good. So how can businesses take the lead on the circular economy and dun, dun, dun, where are the missed opportunities?

James Pearson:

Yes. So I think this comes back to having a zoomed-out, more holistic approach, and that’s where the ESG framing comes in because we’ve talked about compliance in terms of EPR. I mean, at the same time as EPR being a compliance topic and, by EPR, again, I mean, end of life, recycling of products at the same time as it being a kind of compliance and market access topic for recycling, it is also the bedrock, the foundation, if you like, of a manufacturer advancing a circular economy. So this comes back to the idea that it’s both environmental and it’s both and it’s governance as well. And at the moment, I suppose when you’re saying missed opportunities, I’m thinking of the product manufacturers, websites that I’ve seen, where they’ve got a really good commitment to ESG disclosures, to driving improvements, efficiencies in manufacturing, in other areas as well.

At the same time, they’ve got their EPR compliance publicized, but on a separate part of their website. And they’ve not necessarily made the connection. They’ve not necessarily joined them together. And I think that that’s a real missed opportunity because if, when we’re able to step back and then see the wood from the trees as it were at that point, you can actually start to have a much more efficient focus on your efforts as a company to actually get a better return on investment. And you can essentially get two for the price of one in a way. And I think that’s really the opportunity for companies at the moment to sort of drive more effective change and maximize their ESG performance with a more holistic, more well-thought-out fashion.

James Tehrani:

So in terms of your tree metaphor, it’s really time to ‘branch’ out.

James Pearson:

Yes. Exactly. I couldn’t put it by myself.

James Tehrani:

So is there anything else you’d like to add here today that I haven’t covered?

James Pearson:

No, not specifically. I think I would just say we’ve given a good, high-level overview of some of the topics in circular economy, end-of-life recycling, how that relates and hopefully put it into a bit of an ESG framing. I think we’ve got some more information coming out, and this we’ll certainly be doing some webinars [this] year, if anyone would like to dive deeper into those. Other than that, just to say, thanks for having me on the podcast, James pleasure to speak to you.

James Tehrani:

Oh, it was great chatting with you too. And I hope you’ll be back after maybe one of those webinars. And we kind of can talk about it a little bit.

James Pearson:

Yeah. Thanks very much. Yeah. It’d be good to catch up.

James Tehrani:

All right. Thanks everybody for joining us today.

 

 

 

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