Material advantage: How circular strategies drive business value – imd.org

From Compliance to Competitive Advantage: Advancing Sustainable Development Goals through Circularity

Introduction

Circularity in business operations plays a pivotal role in advancing the United Nations Sustainable Development Goals (SDGs), particularly those related to responsible consumption and production (SDG 12), industry innovation (SDG 9), climate action (SDG 13), and decent work and economic growth (SDG 8). This report outlines how circular business models transition companies from mere regulatory compliance to gaining competitive advantages that align with sustainable development.

1. Regulatory Readiness and SDG Alignment

Companies adopting circularity achieve regulatory readiness by:

• Reducing material complexity
• Avoiding substances likely to face restrictions
• Designing products for traceability

This preparedness enables firms to adapt swiftly to evolving regulations across regions, minimizing costly redesigns and market delays. This proactive approach supports SDG 12 by promoting sustainable consumption and production patterns and SDG 16 by fostering effective, accountable institutions.

2. Risk Reduction and Supply Chain Resilience

Risk reduction has become a strategic priority at the board level. Circular strategies contribute by:

• Lowering dependence on virgin inputs
• Extending the usable life of assets
• Diversifying sourcing to mitigate exposure to extreme weather and supply shocks

These actions enhance supply chain resilience, directly supporting SDG 9 (Industry, Innovation, and Infrastructure) and SDG 13 (Climate Action) by reducing vulnerability to environmental disruptions.

3. Building Reputational Advantage

Circularity fosters a reputational advantage grounded in reliability rather than solely virtue. Key benefits include:

• Consistent delivery under constraints
• Control over material flows
• Preferred supplier status and faster permitting
• Enhanced partnerships

This reliability aligns with SDG 17 (Partnerships for the Goals) by strengthening collaborations among businesses, governments, and communities.

4. Enhancing Resilience through Circular Operations

Resilience differentiates industry leaders by enabling continuous operation amid external shocks. Circular capabilities include:

• Internal loops such as remanufacturing and take-back systems
• Secondary material streams
• Rapid rerouting and redeployment of resources

This operational resilience supports SDG 9 and SDG 11 (Sustainable Cities and Communities) by promoting sustainable industrialization and resilient infrastructure.

5. Strengthening Relationships and Customer Engagement

At advanced maturity levels, circularity drives relationships through:

• Repair, refurbishment, and reuse models
• Ongoing customer and partner touchpoints
• Data generation and loyalty building
• Transition from transactional products to service platforms

This engagement enhances SDG 8 by fostering sustained economic growth and decent work through innovative business models.

6. Unlocking Revenue Growth

Circular business models enable revenue growth via:

1. Product-as-a-Service (PaaS) models
2. Performance-based contracts
3. Secondary markets and refurbishment programs

These approaches extend product lifetimes and material value, generating recurring and stable revenue streams that contribute to SDG 8 and SDG 12.

7. Delivering Financial Returns and Capital Efficiency

Return on investment is realized through:

• Lower material costs
• Optimized waste management
• Reduced downtime and improved asset utilization
• More predictable margins

Investors increasingly recognize circularity as a capital-efficient strategy, supporting long-term value creation consistent with SDG 8 and SDG 12.

Conclusion: Integrating Circularity with Sustainable Development Goals

Business leaders are encouraged to translate circular strategies into measurable outcomes that advance the SDGs. This requires:

• Financial discipline to capture direct and indirect economic impacts
• Broad evaluation beyond immediate cost savings to include supply chain stability, delivery reliability, customer retention, and lifetime value
• Commitment to sustainable practices that align with global development priorities

By embedding circularity into core business models, companies not only comply with regulations but also drive innovation, resilience, and sustainable growth in line with the Sustainable Development Goals.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 9: Industry, Innovation and Infrastructure
   • Focus on building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation aligns with circular business models and resilience discussed in the article.
2. SDG 12: Responsible Consumption and Production
   • The article’s emphasis on circularity, material reduction, reuse, refurbishment, and waste management directly connects to sustainable consumption and production patterns.
3. SDG 8: Decent Work and Economic Growth
   • Revenue growth, return on investment, and stable business models through circular economy practices support sustained economic growth and productive employment.
4. SDG 13: Climate Action
   • Risk reduction and resilience to supply chain shocks, including those caused by extreme weather events, relate to climate action and adaptation strategies.

2. Specific Targets Under Those SDGs

1. SDG 9 Targets
   • 9.4: Upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies.
   • 9.5: Enhance scientific research, upgrade the technological capabilities of industrial sectors, including encouraging innovation in circular business models.
2. SDG 12 Targets
   • 12.2: Achieve sustainable management and efficient use of natural resources through circularity and reduced material complexity.
   • 12.5: Substantially reduce waste generation through prevention, reduction, recycling, and reuse.
   • 12.6: Encourage companies to adopt sustainable practices and integrate sustainability information into their reporting cycle.
3. SDG 8 Targets
   • 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation, including circular economy models.
   • 8.4: Improve resource efficiency in consumption and production and endeavor to decouple economic growth from environmental degradation.
4. SDG 13 Targets
   • 13.1: Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries.

3. Indicators Mentioned or Implied in the Article

1. Indicators Related to SDG 9
   • Proportion of companies adopting sustainable and innovative industrial practices (implied through regulatory readiness and circular business models).
   • Number of industries using resource-efficient technologies (implied by reduced material complexity and design for traceability).
2. Indicators Related to SDG 12
   • Material footprint and waste generation rates (implied by reduction in virgin inputs and optimized waste management).
   • Percentage of companies publishing sustainability reports and adopting sustainable practices (implied by reputational advantage and reporting cycles).
   • Rate of product reuse, refurbishment, and recycling (implied by circular business models such as repair, resale, and remanufacturing).
3. Indicators Related to SDG 8
   • Growth rate of revenue from circular economy activities (implied by revenue growth and recurring revenue streams).
   • Improvement in asset utilization and reduction in downtime (implied by return on investment and operational efficiency).
4. Indicators Related to SDG 13
   • Number of companies with risk reduction and resilience strategies against climate-related supply chain disruptions (implied by risk reduction and resilience discussions).

4. Table of SDGs, Targets, and Indicators

Source: imd.org