When circular economy is considered as a mindset that requires all systems to be designed from scratch, it is also subject to criticism on many issues due to its motivation to change the existing order. Of course, the aim of changing the existing economic and social structures from top to bottom is not a process that a single stakeholder can decide and realise alone. However, since circular economy is a concept that has not yet been properly understood as a concept and is not addressed at the macro level, not all stakeholders have this holistic systemic transformation motivation yet. This causes the transition to a circular economy, which prioritises environmental and social welfare but also puts economic welfare at the centre of transformation, to be hampered.In the process of transition to circular economy, as we have mentioned many times in our previous articles, the main stakeholders that make up the social and economic structures, namely governments, private sector, academia, NGOs and individuals, have duties and responsibilities. Since these stakeholders are considered as legal or real persons, they have to be involved in the transformation within certain metrics or roadmaps. However, there are also different stakeholders who carry critical importance in the transformation but do not have a clear interlocutor.The 'market', which is the most fundamental part of economic systems, where all stakeholders come together and trade is carried out, appears as a stakeholder without a direct interlocutor. The market, which can be considered as the environment where buyers and sellers meet in its simplest definition, can be named as the biggest obstacle in front of the transition to circular economy or most basic sustainability issues today.Although all stakeholders that make up the market have started to attach importance to welfare-enhancing activities on environmental and social issues in recent years, financial expectations, profit-oriented structures that do not like change are seen as the main reason for the loss of momentum in the process of transition to circular economy.So at what points do the expectations of the market and circular economy conflict?<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">🧰 Private property</h3>Today, private property is no longer limited to commodities such as land or real estate. With the development of mass production and technology, all products and services we use in our daily lives are handled within a system organised under the ownership of consumers or sellers/manufacturers.All products and services purchased in daily life (except for rental services) are completely owned by the buyers. Private property, which has a critical place in circular economy, is handled differently compared to its current setup. Circular economy advocates that product ownership should be taken from consumers and given to manufacturers/sellers in order to use resources efficiently.The instinct to own a car, a house, a smartphone, which is encoded in our mindset, inevitably opposes this idea. However, the basic motivation underlying the idea is as follows: In order to extend the lifespan of any product produced using many resources, the product needs to be included in the maintenance and repair processes. This can only be possible if the consumer who owns the product carries out these processes correctly. Thanks to mass production, the fact that everyone can access the desired product at any time, with alternatives suitable for their own budget, prevents the processes of preserving the value of the products. Of course, it is not realistic to expect a consumer who can access the same product at any time to carry out such maintenance and repair processes efficiently.At this point, the circular economy argues that the ownership of products and services should be left to the manufacturers and that all maintenance and repair processes should be carried out by the manufacturers . This would extend the life cycle of a manufactured product, while preserving the value of all utilized resources as long as possible. In addition, the fact that consumers can access products and services only when they need them has a positive impact on both cost and utilisation efficiency. Here, as an alternative to increasing profitability by selling more products, which is the expectation of the market, circular economy actually introduces innovative business models by suggesting the rental of products and services. Thanks to innovative business models such as rental, maintenance, repair, etc., consumers can have the product they want only when they need it. While purchasing costs are reduced, manufacturers can diversify their revenue models thanks to innovative business models.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">🗑️ Planned obsolescence</h3>Planned obsolescence, which emerged in the early 20th century, means that products are deliberately and intentionally designed to cause them to lose their function.For our readers who want to get detailed information about planned obsolescence, we invite you to read our previous issue titled <a fr-original-style="" href="https://aposto.com/i/how-do-we-stop-planned-obsolescence" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">'How do we stop planned obsolescence?'</a>Planned obsolescence is another critical practice where the market is at odds with circular economy. The main application method of planned obsolescence is the use of products and services for a limited period of time determined by the manufacturers, after which they completely lose their function and are considered as 'waste'.Aside from preserving the value of resources, planned obsolescence, which causes them to be considered as waste in a shorter period than they should be, is used in many products today. This type of design, which aims to compress the lifespan of products to a certain period of time by reducing their durability, aims to make consumers buy the same or similar products continuously.Circular economy, on the contrary, aims to design products and services with the most durable technical and hardware features at the initial design stage and to maximise the value of resources by using them for a long time. This is, of course, the biggest indicator of why market dynamics do not accept the circular economy as it is. Current market dynamics cannot naturally accept products and services that offer long-term use and durability. Products with a longer life span, which create obstacles to more sales, cannot exist in a profitability-oriented system. However, extending the product life cycle and designing durable products can reveal different business models for manufacturers as mentioned above.Although the products are durable, they may need to be renewed at any time due to new technologies, user errors, etc. In addition to maintenance and repair processes, designing modular products that can be improved in parallel with updated technologies and with the replacement of a few minor parts, are alternatives that can contribute to the increase in profitability, which is at the centre of the business as the main motivation.To summarise, market dynamics unknowingly create much bigger obstacles in the process of transition to circular economy. The examples in this article are just a few of these obstacles. Many factors such as labour rights, product valuation and pricing, technical efficiency and market efficiency stand as obstacles to the systemic change proposed by circular economy because they have typical structures.The transformation of market dynamics is considered to be a very challenging process as there is no clear interlocutor. However, there is a point that should not be forgotten; those who determine the dynamics of the market are also the main stakeholders that make up our social and economic structures. For this reason, in a future where all stakeholders know their duties and responsibilities and adopt the circular economy as a mindset that will ensure prosperity in every field, the market may change the stereotypes that we say 'would never change' today.

Market dynamics: private property, planned obsolescence, appraisal

What challenges do market dynamics pose against transformation?

The changing economic order, globalisation and the negative social and environmental impacts they bring with them are changing the agenda of investors and therefore companies. New concepts of the economic order such as countries’ zero-emission commitments, regulations such as the&nbsp;European Green Deal,&nbsp;environmental risks are among the most effective and prioritised risks on the world agenda, the rise of responsible investments in global markets, stakeholder capitalism and the big reset is pushing companies to create environmental, social and corporate governance (ESG) focused strategies.With this change, innovative business models, circular and zero carbon economy, people-oriented and inclusive systems, a management approach that focuses not only on shareholders but also on all stakeholders, and integrated management have become the focus of leading companies.<h3 dir="ltr" fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Number of reports on the rise as their scopes get wider</h3>At this point, companies and leaders started to intensify their sustainability-focused reporting in order to explain themselves to the stakeholders for whom they are responsible. The number of reporting companies in the S&amp;P 500 has more than quadrupled in the last 10 years. Today, <a fr-original-style="" href="https://www.sustainability-reports.com/ga-institutes-publishes-2021-sustainability-reporting-in-focus-trends-report/" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">92%</a> of the companies in the S&amp;P 500 and <a fr-original-style="" href="https://assets.kpmg/content/dam/kpmg/sg/pdf/2022/10/ssr-small-steps-big-shifts.pdf" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">96%</a> of the 250 largest companies in the Fortune 500 are conducting sustainability reports.In addition to competitive advantage, changing customer demands, and the need to attract and retain talent, the biggest motivation for reporting is to provide the information needed by investors, especially for publicly traded companies. Today, the amount of investment received by companies with high sustainability performance in global markets is over 35 trillion dollars. Moreover, research shows that companies with high sustainability performance have better financial performance. Being traded on reliable global sustainability indices is the primary way to prove that companies are performing well. The Dow Jones Sustainability Index, FTSE4Good Index Series, MSCI ESG Indices and the Borsa Istanbul Sustainability Index from Turkey question the performance of companies in terms of ESG through different evaluation methods. This explains not only the number of reports but also the rate of increase in data coverage.<h3 dir="ltr" fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">According to which standards is reporting done?</h3>Just as effective international initiatives ensure the reliability of financial reporting, the world of sustainability reporting adopts a similar approach. Sustainability reports are generally based on the Global Reporting Initiative (GRI) Standards, Sustainability Accounting Standards Board (SASB) Standards, World Economic Forum Stakeholder Capitalism Metrics (WEF SCM), United Nations Global Compact (UNGC) and the International Integrated Reporting Council (IIRC) framework for integrated reports. In climate-related reporting, in addition to the Carbon Disclosure Project (CDP), risks and opportunities are included in accordance with the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD).&nbsp;In addition to global developments, regional and local expectations from companies have started to increase and different reporting requirements have emerged. For example, the European Commission has made non-financial reporting mandatory for all publicly traded companies and published the Corporate Sustainability Reporting Directive (CSRD).&nbsp;On the other hand, every publicly traded company in Turkey is obliged to make disclosures in its financial reports in accordance with the Capital Markets Board's Sustainability Principles Compliance Framework.&nbsp;These reporting requirements affect not only companies but also the supply chain. For example, with the German Supply Chain Due Diligence Act, which will take effect starting 1 January 2023, companies will be responsible for the entire supply chain in terms of child labour, forced labour, forms of slavery, occupational health and safety, and decent wages. This will increase the transparency of social risks in the reporting of companies doing business with Germany. Similarly, with the European Green Deal, companies trading with the European Union will increase their performance and reporting on different environmental, social and governance issues, especially climate change and gender equality.<h3 dir="ltr" fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">A common language in reporting</h3>Although companies use the reporting guidelines they want according to their priority stakeholder groups and sectors, they may experience confusion and difficulties due to the increasing number of standards, guidelines and practices in recent years. Today, many companies think they do not know where to start reporting on sustainability or that existing reporting methods, indices and standards are too complicated. In such cases, the best step for companies is to identify the most appropriate reporting standards, guidelines and practices for their needs and take action accordingly.The International Financial Reporting Standard (IFRS) has taken action to create a common reporting standard by gathering sustainability disclosures together, thus preventing confusion caused by different reporting standards. With the participation of organisations and stakeholders working in this field, IFRS published two standards titled General Requirements for Sustainability and Climate Related Financial Information (IFRS S1 and IFRS S2). These standards, which are still at the draft stage, are planned to be implemented quickly, especially for publicly traded companies. In fact, as recently announced during COP27, IFRS S2 will be included in CDP reporting starting in 2024.<h3 dir="ltr" fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">What is an ideal reporting standard?</h3>More important than finding the most appropriate reporting standard for companies is the&nbsp;content quality&nbsp;of their reporting. The more impact-focused, transparent, balanced and inclusive a company's reporting is, the closer it comes to the ideal.No company is perfect, so it is important to reflect good performance while holding room for improvement. For example, not including a negatively publicised incident in the report at all reduces the credibility of the report. However, we should read about the truth and the effects of this negative event, and the actions to be taken in the coming period in a company's sustainability report.Another important factor that improves the quality of content is the stakeholder’s voice&nbsp;in the report. It is important for companies to act together with their stakeholders in decision-making processes in order to minimise risks and ensure harmony between stakeholder groups. Explaining how stakeholder engagement mechanisms work throughout the company and sharing the feedback received and responses given are among the expected criteria.&nbsp;Analysing and financialising the impacts of sustainability issues on the company is one of the main requirements for reporting, but nowadays, including the negative and/or positive impacts&nbsp;of the company on the environment, society and economy is a finding sought in new generation reporting. Another important criterion for an ideal report is that the targets aligning with the strategy and the data should be comparable. Comparisons with past performance, future forecasts and industry averages provide meaningful inferences for the reader.<h3 dir="ltr" fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Conclusion</h3>Sustainability reports provide a snapshot of the current situation of an organisation. For a better sustainability report, all companies need ESG strategies and targets that are integrated with their business strategy and are supported by clear action plans.&nbsp;All stakeholders, especially investors, need clarity on how companies will act in the near term within the framework of a long-term vision with strong interim targets for 2030 or the closer term.&nbsp;It is likely to become increasingly important in the coming period for companies to manage their portfolios according to environmental and social risks and opportunities, and to share these transparently through sustainability reports.

Aposto Business

Why is sustainability reporting conducted?

<h4 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Circular Economy 101&nbsp;writes about circular economy, a model of production and consumption of sharing, renting, reusing, repairing, refurbishing, and recycling existing materials and products for as long as possible.</h4><hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">How can we utilize circular economy for biodiversity?While&nbsp;circular&nbsp;economy aims to reinvent systems, it actually proposes the larger system to renew itself thanks to the basic principles of the concept. This system we are talking about is, as you can guess, natural ecosystems. As it has been for millions of years, nature ensures its own sustainability through a cyclical system, and thanks to its resilient structure, it continues to survive regardless of the conditions. In fact, we are aware of the fact that nature can renew itself no matter how much damage we do to it. Today, the biggest motivation of humanity in combating the climate crisis is unfortunately still largely 'ensuring the continuation of the human race. The sustainability strategies implemented with this perspective are not designed as strategies that make it fully possible to protect nature.This is precisely why biodiversity is one of the most popular topics on the global agenda today. Biodiversity basically defines a characteristic of life on earth, biological diversity. Although this expression may seem very simple, the impact of biodiversity is of course much more complicated. While all life on Earth is possible thanks to the current balance of biodiversity, some factors cause biodiversity to decrease and disappear. Here, biodiversity should not be considered only as the extinction of an animal species. Of course, the extinction of an animal species is a very critical and threatening factor as it disrupts the natural balance within biodiversity. However, biodiversity loss is a process that has devastating consequences far beyond just affecting the food chain.<p contenteditable="false" fr-original-class="custom-button-wrapper fr-deletable" fr-original-style="text-align:center" style="text-align: center; margin-top: 0px; margin-bottom: 1em; box-sizing: border-box;"><a bgcolor="#effe75" color="#090909" contenteditable="false" fr-original-class="custom-button-link" fr-original-style="background-color:#effe75 !important;color:#090909 !important" href="https://aposto.com/i/transformation-for-biodiversity?utm_source=aposto" rel="noreferrer" style="background-color: rgb(239, 254, 117) !important; color: rgb(9, 9, 9) !important; text-decoration: none; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Read more</a><p contenteditable="false" fr-original-class="custom-button-wrapper fr-deletable" fr-original-style="text-align:center" style="text-align: center; margin-top: 0px; margin-bottom: 1em; box-sizing: border-box;"><a bgcolor="#effe75" color="#090909" contenteditable="false" fr-original-class="custom-button-link" fr-original-style="background-color:#effe75 !important;color:#090909 !important" href="https://aposto.com/n/circular-economy" rel="noreferrer" style="background-color: rgb(239, 254, 117) !important; color: rgb(9, 9, 9) !important; text-decoration: none; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Subscribe</a>

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While circular economy aims to reinvent systems, it actually proposes the larger system to renew itself thanks to the basic principles of the concept. This system we are talking about is, as you can guess, natural ecosystems. As it has been for millions of years, nature ensures its own sustainability through a cyclical system, and thanks to its resilient structure, it continues to survive regardless of the conditions. In fact, we are aware of the fact that nature can renew itself no matter how much damage we do to it. Today, the biggest motivation of humanity in combating the climate crisis is unfortunately still largely 'ensuring the continuation of the human race. The sustainability strategies implemented with this perspective are not designed as strategies that make it fully possible to protect nature.This is precisely why biodiversity is one of the most popular topics on the global agenda today. Biodiversity basically defines a characteristic of life on earth, biological diversity. Although this expression may seem very simple, the impact of biodiversity is of course much more complicated. While all life on Earth is possible thanks to the current balance of biodiversity, some factors cause biodiversity to decrease and disappear. Here, biodiversity should not be considered only as the extinction of an animal species. Of course, the extinction of an animal species is a very critical and threatening factor as it disrupts the natural balance within biodiversity. However, biodiversity loss is a process that has devastating consequences far beyond just affecting the food chain.<h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">What causes biodiversity loss?</h2>➡️ Misuse of land and sea areas:&nbsp;Humanity is the most dangerous invasive species in nature. This is a feature that causes humanity to try to alter every place it steps into, and thus damage the living ecosystem in that area.➡️ Planet exploitation:&nbsp;No matter how advanced technology is today, we are still amazed by human inventions, things that exist on their own in nature but can be reproduced with a human mind. It is useful to get used to this feeling of amazement because as humans, we have consumed the resources on earth so inefficiently that in the very near future we will not have access to thousands of natural resources that seem insignificant to us now, but which we actively use in all areas of life. What makes the situation even worse is that we dream of leaving a habitable world to future generations (of humans) under the name of 'sustainability', but we never leave living creatures in their natural ecosystems alone.➡️ Climate change:&nbsp;Among the most important causes of biodiversity loss is of course climate change. Problems caused by climate change such as changing weather conditions, temperature increase, and sea levels rising affect biodiversity much more than it affects humanity.➡️ Pollution:&nbsp;You may have come across photos of plastic islands in the oceans or turtles with wires wrapped around their bodies. This information alone explains how humanity causes biodiversity loss, especially in aquatic ecosystems.➡️ Invasion of alien species:&nbsp;Each ecosystem has a certain balance within itself. While it is possible to come across this balance in all our living spaces, you may have witnessed that different factors shake these balances. Another factor that disrupts biodiversity is invasive species that reduce biodiversity by disrupting the balance within the ecosystem. In addition to considering humanity as the most dangerous invasive species, it is also possible to consider other invasive species (animals, plants, bacteria, micro-organisms, etc.) that cause biodiversity to deteriorate for different reasons.Once we have seen some of the factors that directly accelerate biodiversity loss, we can discuss the question of what steps should be taken to restore and renew biodiversity with circular economy. The report <a fr-original-style="" href="https://ellenmacarthurfoundation.org/topics/biodiversity/overview?utm_source=aposto" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">'The Nature Imperative - How the circular economy tackles biodiversity loss?"</a> published by the Ellen MacArthur Foundation will guide us in this discussion.<h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Private sector's road map</h2>As in the fight against the climate crisis, a large part of the responsibility is given to the private sector in the process of systemic transformation within the scope of circular economy. This is, of course, a natural situation considering the impact of the private sector. However, unless the private sector integrates its environmental and social impacts into its profit-oriented perspective, it does not seem possible for it to fulfil its responsibility. Nevertheless, the number of studies carried out by the private sector in the field of biodiversity has been increasing rapidly in recent years.&nbsp;So what steps should the private sector take to protect and increase biodiversity?<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Impact and risk analysis</h3>In the private sector, financial risks have been carefully analysed for a long time, and according to the output of these analyses, companies design risk avoidance strategies. The first step for a company taking action to increase biodiversity with the transition to circular economy is to conduct this impact and risk analysis with a focus on biodiversity. Does the company have a direct impact on biodiversity loss? Will biodiversity loss affect the company directly or indirectly (problems in raw material supply, impacts on the regions of operation, etc.)?These questions allow companies to understand their own impact on biodiversity, and to identify how biodiversity loss will affect them, possible risks and opportunities. The analyses, of course, enable the preparation of new strategic roadmaps that allow these impacts and risks to be properly managed through the correct evaluation of the results. Scientifically designed goals can help halt biodiversity loss and implement restorative practices.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Circular economy principles</h3>As circular economy recommends designing systems from the ground up, it aims to design the system from the very beginning by considering all possible scenarios. This allows not only impact on biodiversity, but also the environmental and social faults of all systems to be recognised at the very beginning. The innovative road maps of transformation that companies will develop based on circular economy principles after the first step of impact and risk analyses are critical for stopping the loss of biodiversity.Circular economy, which aims to establish innovative systems by imitating nature, and operates on the principle of 'Waste = Raw Material', aims to give back to nature what it takes from it, unlike current linear economy practices. This is already a process that will completely eliminate the most fundamental cause of biodiversity loss.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Co-operation</h3>Regular readers of our publication are well aware of the importance of cooperation in circular economy. Contrary to what is currently being attempted, the process of transition to circular economy requires the active participation of each stakeholder in the system as it designs the system from top to bottom. If this seems complicated, let's simplify it with an example: If a company does not foresee a process on how the consumer uses this product after selling a product produced with circular economy principles to the consumer, if it does not take the consumer's opinion or if it does not somehow contribute to raising consumer awareness on 'waste management', that 'circular' product will unfortunately not fulfil its purpose. This is because the company has excluded consumers from its system by preferring a subjective transformation rather than a systemic transformation. This, of course, does not allow a systemic transformation to take place.Collaboration is also critical for reducing and stopping biodiversity loss and implementing restorative actions. After analysing the impacts and risks, a company that initiates the transformation process with circular economy principles should seek opinions from other stakeholders (other companies in the sector, consumers, legislators, NGOs or academia), share good practices and allow the transformation to be completed holistically.These steps are, of course, not enough to completely halt biodiversity loss. Since the private sector has the opportunity to carry out a much more systematic transformation than other stakeholders, the transition to circular economy can be carried out relatively faster. However, this transformation process requires other stakeholders to conduct their own impact and risk analyses, adopt circular economy principles and cooperate with other stakeholders. Of course, each stakeholder will have its own steps and strategies. However, especially when it comes to such a critical issue as biodiversity, the correct understanding of circular economy, the realisation that it is not just a waste management system and raising awareness to start the transformation process can be listed as the steps that each stakeholder should carefully implement.As for us, the individuals who will ensure social transformation, we should educate ourselves, change our daily lives and make the best contribution we can in this process, which we think we cannot fully grasp because we may not come across in our daily lives such as circular economy, biodiversity or carbon emissions, but in terms of impact, we are as effective as each stakeholder. In order to do this, we need to do more research, understand our impact in our own lives and realise our responsibility.

How can we utilize circular economy for biodiversity?

Written by Phuong Gomard, Mazars USA, Sustainable Finance Leader One of the key features of COP26 was recognition that the scale and speed of the changes needed to transition to a more sustainable economy require all forms of finance. Public finance to develop infrastructure to transition to a greener and more climate-resilient economy, and private finance to fund technology, innovation, research, and sustainable business models.&nbsp;As a result, last year’s COP confirmed the launch of the Glasgow Financial Alliance for Net Zero (GFANZ) to improve commitment to net-zero ambitions and establish a forum for addressing sector-wide challenges associated with the transition. As we head into COP27, GFANZ now has more than 550 members from over 50 countries and has developed a voluntary set of recommendations and framework for financial institutions looking to establish net-zero strategies, as well as guidance on how to increase the mobilisation of finance.So, what has the finance sector learned over the last 12 months, and how can COP27 galvanise the finance sector to progress even further?<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Developing specific pathways and targets</h3>One thing that has become clear over the past 12 months is that in terms of developing pathways, setting targets and aligning portfolios, a bank needs to consider different aspects to, for example, an insurance company or an institutional investor. While pledges to the net-zero transition and the mobilisation of finance are increasing, delivery is being slowed down by the need for more tailored and customised guidance that answers the concerns of individual players within the finance sector. This challenge to develop more specific pathways and advice is one that GFANZ, amongst other alliances and working groups, is working on so that the finance sector’s ability to meet sustainable targets gains momentum.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Improve metrics and methodologies used</h3>A current key challenge for financial players is measuring or evaluating the alignment of investment, lending and underwriting activities so that they can chart the progress of transitioning to a more sustainable economy. While a growing number of metrics and methodologies focus on sustainability, not all have the objective of measuring progress on changing the trajectory of the path we are on. Plus, depending on the methodology used, different results on how green a portfolio is can be produced and results often being misunderstood by investors who do not have sight of underlying assumptions made. While there is general agreement on the need to focus on metrics that reflect transition targets more accurately, current methodologies give too much room for interpretation and the need to make and substantiate assumptions that create barriers to adoption.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Transparency and disclosure are vital to mobilising finance</h3>The ability of financial institutions to mobilise finance toward sustainable activities relies on the disclosure and transparency of the firms they invest in or lend capital to. To this end, bodies such as the SEC, the recently formed International Sustainability Standards Board (ISSB), Global Reporting Initiative (GRI) and the European Financial Reporting Advisory Group (EFRAG) are all working on climate and general sustainability disclosure prototypes to improve transparency. While each approach overlaps in certain areas and is helping to shape the transition, only EFRAG’s approach currently considers disclosure through a more detailed double materiality lens that assesses the impact on the planet, people, and financials. As discussions progress, prototypes will emerge to provide coherency and consistency in disclosure standards across multiple jurisdictions.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Reviewing the roadblocks</h3>Dedicated sessions on finance are due to be held at COP27 to review the work achieved and ways to remove roadblocks that impede future progress. A current roadblock is the lack of formally agreed upon recognition of green assets, making financial players reluctant to invest when unsure of the green credentials presented. While many frameworks have been developed, no framework has emerged as comprehensive and robust enough to give financial players the confidence to adopt. Another roadblock is the level of risk associated with the financial performance of green finance and how to remove uncertainty and grow trust and financial reliability in green projects. The intervention of regulators is now seen as key to underpinning confidence and incentivising financial players to mobilise capital by applying the same regulatory rigour to green projects as is currently applied to traditional investments.It’s clear that the finance sector has made progress over the past 12 months, particularly in collaborating to provide solutions and input on steps forward. This has involved each player assessing their own transition to a sustainable future and areas where they can improve. For financial players who have reached a certain level of sustainable maturity, such reflection has provided a format to act as role models, give encouragement and highlight clear pathways to clients looking to improve their own sustainability transition.As witnessed by progress to date, it’s only by collaborating and learning together that sustainability challenges can become opportunities. Hopefully, COP27 will provide further nourishment the finance sector needs to transform its sustainability ambitions into credible actions.

COP27 Finance: Transforming ambitions into credible actions

Circular Economy 101&nbsp;writes about circular economy, a model of production and consumption of sharing, renting, reusing, repairing, refurbishing, and recycling existing materials and products for as long as possible.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">What are the key elements of circular transformation?Unlike the concept of sustainability, circular economy is a concept that aims to redesign existing systems, not improve them. This makes the transition to circular economy a much slower, and more challenging process. However, since circular economy not only has positive environmental and social impacts but also the potential for economic growth, it does not matter how challenging this transformation process is.Improvements in existing systems, repairing faulty areas or reducing negative impacts, unfortunately, do not have the expected impact in combating the climate crisis nor in issues such as social justice and equality. One of the most important reasons for this is that the private sector and governments want to keep their financial situation under control in this transformation process. The fact that making improvements to reduce environmental impacts is seen as costly actually sheds a light on our current situation in the fight against the climate crisis, which is progressing slowly based on scientific data.<p contenteditable="false" fr-original-class="custom-button-wrapper fr-deletable" fr-original-style="text-align:center" style="text-align: center; margin-top: 0px; margin-bottom: 1em; box-sizing: border-box;"><a bgcolor="#effe75" color="#090909" contenteditable="false" fr-original-class="custom-button-link" fr-original-style="background-color:#effe75 !important;color:#090909 !important" href="https://aposto.com/i/key-elements-of-transformation?utm_source=aposto" rel="noreferrer" style="background-color: rgb(239, 254, 117) !important; color: rgb(9, 9, 9) !important; text-decoration: none; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Read more</a><p contenteditable="false" fr-original-class="custom-button-wrapper fr-deletable" fr-original-style="text-align:center" style="text-align: center; margin-top: 0px; margin-bottom: 1em; box-sizing: border-box;"><a bgcolor="#effe75" color="#090909" contenteditable="false" fr-original-class="custom-button-link" fr-original-style="background-color:#effe75 !important;color:#090909 !important" href="https://aposto.com/n/circular-economy" rel="noreferrer" style="background-color: rgb(239, 254, 117) !important; color: rgb(9, 9, 9) !important; text-decoration: none; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Subscribe</a>

Unlike the concept of sustainability, circular economy is a concept that aims to redesign existing systems, not improve them. This makes the transition to circular economy a much slower, and more challenging process. However, since circular economy not only has positive environmental and social impacts but also the potential for economic growth, it does not matter how challenging this transformation process is.Improvements in existing systems, repairing faulty areas or reducing negative impacts, unfortunately, do not have the expected impact in combating the climate crisis nor in issues such as social justice and equality. One of the most important reasons for this is that the private sector and governments want to keep their financial situation under control in this transformation process. The fact that making improvements to reduce environmental impacts is seen as costly actually sheds a light on our current situation in the fight against the climate crisis, which is progressing slowly based on scientific data.In circular economy, it is the opposite. Circular economy is a concept that differs from sustainability in that it creates new businesses, redesigns faulty systems and allows for the avoidance of mistakes that were previously made in the redesign process. In doing so, it also brings an innovative perspective to the cost part, which is actually ignored but, as mentioned above, is the biggest obstacle to the concept of sustainability. Economic growth is one of the most important benefits of circular economy. It provides this return with the new income and consumption models it embodies.In order for this transformation to proceed smoothly, all stakeholders need to act for the same purpose and fulfil their duties and responsibilities by adopting the principles of circular economy. However, in addition to this unity, different practices must also be implemented for the transformation that constitutes the main discussion of this week's article. These practices should be considered a part of social transformation as they affect the way we think and do business.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">🧩 Data analysis and digitalisation</h3>Data science is now an indispensable part of our lives. In our daily lives, we interact with data science at every moment of the day, whether we are aware of it or not. Although this situation is handled under 'marketing activities', especially for consumers, it can be said that data science actually facilitates or streamlines our daily lives in many different areas. Data science, which has become more popular with the introduction of Industry 4.0 technologies into our lives, is also critical for circular economy.Circular economy basically aims to use resources efficiently. The main goal is to create less waste by consuming fewer resources. Although it seems very simple, this goal is very difficult to achieve due to the current linear economy. Data analyses come into play to achieve this goal.With innovative data analysis systems, we can use resources more efficiently, consume only when we really need to, and prevent waste generation. But this is of course an application that brings with it the digitalisation of all processes (in professional and private life) that you can think of today. Therefore, the first step towards the realisation of circular economy is the digitalisation of all processes and the inclusion of data science in this process.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">🧩 Experience</h3>There is research on how circular economy has potential environmental, social and economic impacts. The most striking of these is, of course, how it has a positive economic impact. The potential of circular economy can be overestimated on paper, but this does not necessarily make it a 'profitable' concept. A process that is favourable on paper, in theory, may not have the expected effect in real life.For this reason, in order to complete the transition to circular economy with minimal damage, innovative circular business models should be implemented quickly and tested with pilot studies. It is critical to pay much more attention to initiatives with circular business models, especially at the point of providing financing, and to in-house circular pilot studies in the private sector.By correctly testing circular strategies and business models with high potential in these trial processes, the transition process of all stakeholders to circular economy will accelerate, while the abovementioned potential for economic growth will be tested.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">🧩 Measuring impact</h3>In the current, linear economic system, especially financial data are of critical importance. Companies' balance sheets, debts, receivables, turnover, etc. are still among the most important indicators today. But this situation is the main reason for the establishment of the faulty system we are in. To avoid misunderstanding, it should be noted that we are not criticising the 'capitalist/socialist' systems.Systems designed in the light of financial metrics naturally put profitability at the centre of business models and mindsets. This causes the impact of the work done, regardless of the sector, company, country or region, to be ignored. As long as an X&nbsp;product brings the expected profitability, gender equality is not sought in the production process of this product, or how much natural water resources it pollutes is ignored.Although the situation in linear economy is unfortunately as depressing as we have mentioned above, of course, this situation is changing with the increasing awareness in recent years. Stakeholders in the value chain (especially investors and consumers) now demand that the private sector, and in some cases governments, share not only financial returns but also environmental and social impact analyses. This situation now makes it mandatory to measure not only the economic but also the environmental and social impacts of the work done, the step taken, and the decision made.This critical process, which is also very important in the transition to circular economy, should actually be addressed in the process of designing the systems from the beginning. In this way, possible impacts can be determined at the very beginning, at the design stage, and the negatives can be identified and prevented in advance.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">🧩 Standardisation</h3>Since circular economy does not have a specific framework for the time being, its potential remains uncertain. This uncertainty can be seen as positive, especially as it paves the way for innovation and allows the potential to grow further. However, the uncertainty also leads to a misunderstanding of circular economy as a waste management system and therefore its potential is lost before it can be realised.Especially within sustainability, there are metrics used to measure the performance of the private sector in the areas of environmental, social and governance (ESG). This allows companies to make their sustainability journey in a controlled manner with continuous improvements.From this point of view, it is critical that the transition to circular economy is also monitored with some globally recognised standard metrics. However, it is useful to remind the distinction of innovation. Transformation within a certain framework will of course be limited and insufficient. For this reason, while preparing metrics for performance monitoring (or circularity rate) for circular economy, circular economy principles should not be limited and business models should not be handled within a certain framework. In this way, while the transformation process can have a specific roadmap, innovation, which is the most valuable building block of circular economy, may not be prevented.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">🧩 Mindset</h3>Circular economy is first and foremost a way of thinking that requires us to change the way we do business and our ways of thinking. Circular economy is a system that will enable us to live in touch with nature by changing our view of life and will allow us to redesign our systems in this direction. In doing so, it is a much more inclusive and broad concept as it focuses on economic development as well as environmental and social welfare.Even if we design all the applications that come to mind during the transition to the circular economy with circular economy principles, we will not be able to achieve the transformation we expect if we do not update our mindset as humanity in a way that adopts the circular economy.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">For this very reason, circular economy should be understood and adopted not only by waste management units of companies, but also by each stakeholder of social structures in a way to cover their own spheres of influence. Not only resource utilisation, waste management or responsible consumption, but also education systems need to be designed from the ground up to ensure that future generations continue their lives with circular mindsets. In order to get rid of the roots of linear economy in every aspect of life, we need to do more research, learn the right information and experience more circular business models.

🧩 Data analysis, digitalisation, experience, measuring impact, standardisation

What are the key elements of circular transformation?

While Saudi Arabia’s smart and futuristic city plan ‘The Line’ is echoing, I would like to share my thoughts on another smart city project which I have witnessed while I was in South Korea. With the influence of the series ‘Severance’, I will be talking about both Songdo and other smart cities in relation to Songdo.<img src="https://images.aposto.com/2022/8/4/1663855625805.png" style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px; border-style: none; position: relative; cursor: pointer; padding: 0px 1px; box-sizing: border-box;" width="550" ratio="1.42" fr-original-style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px;" fr-original-class="fr-draggable">Being one of the first smart cities in the world, Songdo International Business District, in South Korea’s Incheon region, was planned by turning the location’s closeness to the airport into an advantage. The city, being only 30 kilometres from Seoul and having started from scratch, is the biggest private property project implemented in history. Although the project was supposed to be finished in 2015, with 80,000 flats, 5,000,000 m2 of office area and a 900,000 m2 shopping centre, it still remains incomplete. In addition to the abovementioned areas, the city holds cycle tracks, big streets and many parks, which makes it almost a city utopia. &nbsp;<img src="https://images.aposto.com/2022/8/4/1663855670789.jpeg" style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px; border-style: none; position: relative; cursor: pointer; padding: 0px 1px; box-sizing: border-box;" width="550" ratio="0.56" fr-original-style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px;" fr-original-class="fr-draggable">Moreover, the city puts the firsts into practice in terms of sustainability by hosting 106 buildings with an LEED certificate which means that 40% of the city is certified. Therefore, it is quite impossible to encounter trash in the city because the trash is collected via trash chutes in buildings and categorised as either waste or recycle. The city manifests its smartness once again with the free Wi-Fi and the electronic systems inside the buildings. Access to residentials is ensured by either cards or passwords while the screens at homes make it possible to control the room temperature, the lights, etc. One of the most interesting things for me was the constant music playing on the streets. &nbsp;It seemed as if the purpose was to protect the pedestrians from the sun with huge umbrellas while they were waiting for the long traffic lights in addition to entertaining them.&nbsp;<img src="https://images.aposto.com/2022/8/4/1663855744743.jpeg" style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px; border-style: none; position: relative; cursor: pointer; padding: 0px 1px; box-sizing: border-box;" width="550" ratio="0.56" fr-original-style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px;" fr-original-class="fr-draggable">So, how did this smart city make me feel like? Although South Korea’s plan to construct the future’s smart and organised city, as opposed to the chaos of Seoul, seemed plausible, it is likely for this utopia to turn into a dystopia — in fact, it is already turning. This excessively sterile and organised city cannot manage to get rid of the feeling of a big, clean shopping centre. Furthermore, it is not somewhere people can afford, considering the rapid climb of house prices. The city’s population is around 167,000. And we know for a fact that more buildings than demanded are built and many more are to come. Empty streets and parks are almost like a reflection of the demand and supply gap. When I think of this gap, I cannot help asking myself: How could a smart and sustainable city be the future’s city in the first place when it is not preferred by people? Those who would like to be close to work and families looking to run away from Seoul’s chaos prefer this city. On the other hand, how different is it from Panoptikon with the obliviousness among its residents and the CCTVs watching the city 24/7?<img src="https://images.aposto.com/2022/8/4/1663855767938.jpeg" style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px; border-style: none; position: relative; cursor: pointer; padding: 0px 1px; box-sizing: border-box;" width="550" ratio="1.34" fr-original-style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px;" fr-original-class="fr-draggable">I believe the human factor and its values are neglected whereas smartness and political correctness are given importance to when it comes to planning smart cities of the future. The only intentions in the designation process of these places are smartness, orderliness and security which leaves out the spirit of the place. In my opinion, the places people take refuge in while running away from the city’s chaos turn into dystopias that appear as utopias in the first place which are very smart, but ghost towns on the contrary. Building smart ‘enough’ cities instead of the ones that look like they are invaded by dementors seems like the biggest challenge of tomorrow’s architects.<img src="https://images.aposto.com/2022/8/4/1663855792418.jpeg" style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px; border-style: none; position: relative; cursor: pointer; padding: 0px 1px; box-sizing: border-box;" width="550" ratio="1.34" fr-original-style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px;" fr-original-class="fr-draggable">

Are smart cities able to serve the purposes that have shaped their design process?

Songdo: Utopia or Dystopia?

Contrary to current sustainability efforts, circular economy does not aim to improve existing systems or correct faulty points, but to change the system as a whole. This transformation, which should be kept separate from sustainability, requires a complete change in social and economic structures starting from the smallest scale. Although the transition to circular economy requires an innovative perspective that has no boundaries and is not restricted by certain frameworks, it must of course be measured and monitored correctly. A holistic approach is still too innovative for our current mindsets, so it is critical that a holistic process of transformation of systems is properly tracked, and the stakeholders are properly guided.A complete systematic transformation will bring many challenges that are currently unforeseen. Governments and legislative bodies have the greatest responsibility to ensure that the transformation process is carried out in the right way.Starting from this point, in this week's article, we discuss the critical action steps for governments to manage and follow the process correctly in the transition to circular economy. We will use the <a fr-original-style="" href="https://pacecircular.org/circular-economy-indicators-coalition" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Circular Indicators for Governments report</a> published in 2021 for our discussion.<h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Action plan</h2><h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">1- General measurable metrics</h3>We have already mentioned that the circular economy is an umbrella concept with no clear roadmap. However, this creates an uncertain situation where most stakeholders, especially the private sector, do not know what to do. Therefore, the first step is to prepare circular economy tracking metrics that all systems and sectors can benefit from, starting from the smallest scale systems (sectors, institutions, education system, etc.). In this way,&nbsp;each sector can have a framework&nbsp;that they can refer to while carrying out the change within themselves.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">2- Information exchange</h3>All stakeholders that make up the social and economic structures of circular economy need to carry out their own processes in cooperation with other stakeholders. This cooperation should not be limited to committing to projects together. The learning process should be accelerated by&nbsp;sharing the information that is learned from different processes with all stakeholders, and a holistic approach should be taken thanks to this exchange of information while transforming small systems. It is also important that governments coordinate the necessary sharing platforms in this context.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">3- Expanding the scope</h3>In almost all of our articles to date, we have criticized that the circular economy is misunderstood and treated only as a waste management process. In order to correct this misconception, it is a critical step for governments to introduce the circular economy as a broader system of doing business and thinking rather than just waste management. This broadening of scope, which will prevent stakeholders from having a limited perspective due to existing linear processes, will allow circular economy to be understood correctly and reach its true potential.🔎 Circular Economy 101's take:&nbsp;A more inclusive general definition of circular economy is also critical for scope expansion. While it is unlikely that there will be a single definition of circular economy in the near future - which is open to debate as a single definition would limit the circular economy in every way - at least the outputs of the studies can be considered from a broader perspective. In this way, it may be possible to address not only waste management but also many different aspects from production to supply, logistics to product and service use processes and to analyze the circular economy holistically within the value chain.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">4- Identifying economic impacts</h3>Because the circular economy is not just a waste management strategy, it changes systems and addresses environmental and social issues. In this way, it also focuses on economic growth, which is often overlooked but is much more inclusive than sustainability. From this point of view, the economic benefits and drawbacks of the circular economy should also be addressed within a certain framework and it should be ensured that all stakeholders involved in the process adopt circular economy with its economic factors. A system transformation that is measured by economic metrics similar to, but not limited to, the current Environmental, Social and Governance (ESG) standards will increase the potential of circular economy.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">5- Setting the right targets</h3>Governments and companies have sustainability goals that are very much on the global agenda. These goals are especially shaped within the framework of the Paris Agreement and the United Nations Sustainable Development Goals. The sustainability journey, which is tried to be carried out with the main goals of 2030, 2040 and 2050, has unfortunately not adopted the circular economy sufficiently today. Therefore, in order to accelerate the transition to circular economy and to prevent only the improvement of faulty areas, circular economy strategies and targets need to be set in a way that is truly meaningful, measurable and unleashes the potential of circular economy.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Although the above-mentioned action plans are considered as action plans that governments should implement, they are actually critical processes that all stakeholders should be involved in. Of course, it is very important for states to manage this process as a governance structure and to assign duties and responsibilities to all stakeholders in order for the process to be carried out in the right way.Still, there is no need for a single stakeholder to start the transition to a circular economy. As we always mention, consumers, producers, NGOs, academia and all other stakeholders that make up the society should know their duties and responsibilities in the process of transition to circular economy, understand circular economy correctly and adopt it in every moment of their lives and mindsets.To this end, we need to do more research, be skeptical of any information that does not have a scientific basis, and question the authenticity of every piece of information we receive. Only in this way can we change the fate of the concept of sustainability, which has lost its meaning, and achieve a circular economy.

🧭 Action plans for states in the transition process to circular economy

Where are the governments?

In one of our recent issues,<a fr-original-style="" href="https://apos.to/i/what-does-the-private-sector-make-of-circular-economy" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">&nbsp;("What does the private sector understand from the circular economy?")&nbsp;</a>we examined what the private sector understands from the concepts of circular economy and sustainability, and talked about how each company adapts circular economy to its own needs and does not utilize the true potential of the concept sufficiently.In order to understand the circular economy correctly, the duties and responsibilities of all stakeholders that make up the system, which we share in our articles as Circular Economy 101 every week, need to be determined. So, do stakeholders with clear roles and responsibilities carry out the transition to circular economy easily and smoothly?We will take the research conducted in the article <a fr-original-style="" href="https://onlinelibrary.wiley.com/doi/10.1002/bse.3228" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">"The impact of internal company dynamics on sustainable circular business development: Insights from circular startups"</a> as a reference in our article where we will discuss the internal obstacles faced by startups that play an important role in the circular economy transition process thanks to their agile structures.<h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Challenges facing startups</h2><h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">1- Not taking risks</h3>The transition to a circular economy requires a complete overhaul of entire systems. While this is a situation that can be adapted relatively faster for startups, especially corporate customers of startups remain undecided in the process of transitioning to products and services created with circular economy principles.While the linear processes that make up the existing structures cause inefficient resource use and waste generation, especially corporate customers' unwillingness to use second-hand or recycled/upcycled products or services makes it difficult for startups to transition to circular business processes.We can say that risk aversion is not only valid for the circular economy in general, but in fact for all change and innovation. For this reason, sending only a small amount of waste for recycling instead of making systemic changes to prevent waste generation is considered sufficient to be a "circular" company today. This is of course due to the fact that circular economy is not considered as a way of thinking and doing business, but as an innovative waste management system.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">2- Motivation</h3>Motivation is a must-have for startups, especially for founders during the challenging business development process. Relatively small startups that run the entire value chain - from raw material procurement to logistics, from production to distribution, from consumer relations to finance and accounting - are strongly motivated by a specific purpose. But of course, every startup needs to attract the attention of investors in order to thrive financially. But circular economy or sustainability-related business models are still not on the radar of investors today.You may think of "green finance", "sustainable investment" funds or investors. Unfortunately, the first thing these investors look at is not sustainability or circular economy principles. This, of course, negatively affects the motivation for startups to spend time and effort on circular/sustainable business models that "won't bring in cash".<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">3- Financial barriers</h3>We have discussed the main reason for the motivational barrier we mentioned above in terms of getting investment. However, when we talk about financial barriers, the subject covers financial barriers related to business processes. As consumers also encounter in the markets, while a normal product is X dollars, the organic version of the same product is sold for 2X dollars. This unfortunately causes the budget to be allocated to circular business models to create problems.Another financial barrier, also related to investment, is that circular or sustainable business models are just being implemented and their profitability has not yet been proven in the market. Innovative business models require a change in habits not only for producers but also for consumers. Therefore, while circular business models may seem innovative, ethical and appealing to consumers in theory, in societies where the "circular mindset" has not been established, this remains only theoretical.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">4- Establishment phase</h3>Contrary to popular belief, the founding process of a startup is much more challenging and more important than any other process. It can be a very challenging process for the founding partners to establish a team with the same enthusiasm and motivation for an idea and to determine the vision of the venture. It is inevitable that a venture that is not properly structured will face problems in the transition to circular economy, especially in the vision and decision-making processes in line with this vision.Differences of opinion between co-founders, insufficient interest of customers in circular business models may cause startups to change their internal operations and unfortunately move away from circular business models.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">5- Capabilities</h3>The transition to a circular economy requires a total change not only in environmental but also in social issues. The most important proof of this is the insufficiency of circular talents, people with expertise in circular economy principles. The lack of employees who can apply circular economy principles not only in theory but also in the entire value chain such as design, production, procurement and purchasing is an obstacle to the transformation process of all stakeholders, especially enterprises.In order to accelerate the transition to the circular economy, not only waste management needs to be improved, but also the education system needs to be changed from top to bottom, vocational trainings with technical competence need to be widespread and the culture of innovation needs to be adopted by all individuals.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">6- Organizational barriers</h3>The main reason why startups have an important role to play in the transition to a circular economy is that they are agile and adaptable, as mentioned in the introduction. However, this agility and rapid adaptation decreases in proportion to growth due to the "limits" imposed by linear processes. Once an early-stage startup starts to grow, it has to adapt to the conditions imposed by the existing linear system. This leads to a slow decline in change and innovation, and innovative business models and sustainability gradually fall off the main agenda.Growing operationally can also be seen as a critical obstacle for startups, especially in the transition to a circular economy. Growing business volume, increasing customer demands for existing products and services, financial resource constraints, and problems such as raw material supply, which increase with the expansion of the value chain, can disrupt or completely stop the startups' transition to the circular economy.<img src="https://images.aposto.com/2022/7/3/1661943567372.jpeg" style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px; border-style: none; position: relative; cursor: pointer; padding: 0px 1px; box-sizing: border-box;" width="550" ratio="0.80" fr-original-style="display: block; vertical-align: top; margin: 5px auto; text-align: center; width: 100%; max-width: 550px;" fr-original-class="fr-draggable">unsplash.com<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;"><h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">How can obstacles be overcome?</h2>The barriers mentioned above can of course be encountered not only in the transition to a circular economy, but in all innovative systemic transformation processes. In order to overcome these obstacles, it will be important to take some strategic steps not only for the initiatives but also for all stakeholders facing obstacles.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">➡️&nbsp;People-oriented vision</h3>Almost all of the aforementioned obstacles are due to the mindset of the linear economy. In order to prevent this, it is especially important that startups are led and staffed by people who can take risks, who can demonstrate their skills outside linear structures, and who are open to change and innovation. Although teams formed with people who are aware of the circular economy and open to using their skills for change will be in a constant battle with the linear economy on the outside, vision and goal-oriented work can always be managed correctly in internal processes.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">➡️&nbsp;Circularity at the management level</h3>This strategic approach, which is directly related to motivation, requires the management teams of startups, especially the founders, to work entirely with a circular economy focus. Since startups operate with a smaller team and less hierarchical structure than corporate firms, the influence of managers on employees at all levels is much greater. This influence will allow the entire team to remain motivated, especially in the face of any negativity due to the limitations of the linear economy, as managers will not give up their vision and focus.<h3 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">➡️&nbsp;Circular capabilities</h3>One of the most critical features of the circular economy that is often overlooked is the "circular" capabilities mentioned above. When enterprises and all other companies that are in the process of transition to circular economy, or other stakeholders that make up the society, lack experts with technical or theoretical knowledge in the field of circular economy, the transformation process is disrupted. For this reason, it can be seen as another strategic step for all stakeholders, especially enterprises, to first train their internal talents according to the requirements of the circular economy, develop their skills, and then work on talent acquisition from outside.In conclusion, the transition to the circular economy is a process that needs to be managed differently for each stakeholder. This process has to vary depending on location, level of awareness, sector of activity or sphere of influence. This necessity stems from the fact that the circular economy, unlike the linear economy, is a way of thinking and doing business that has no boundaries, is not set in a specific framework, and is based on innovation. Therefore, while there is no clear roadmap for the transition to the circular economy, the obstacles posed by the linear economy in this transformation process are similar for most stakeholders.🔎 Circular Economy 101's take:&nbsp;Although there is no clear roadmap for the transition to circular economy, the duties and responsibilities of stakeholders are clear. But in general, the most important task is of course the holistic approach to the circular economy and the correct understanding of it. Not only startups, but also corporations, government agencies and even consumers can overcome these obstacles with a circular economy mindset and make the necessary contribution to the transformation process.

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