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Digitalisation’s role in the circular economy

Technology is helping to bring about efficient consumption, which is key to tackling environmental degradation and transitioning to a sustainable future
13 June 2023

    Digitalisation’s vital role in unlocking the circular economy

    Technology is helping to bring about efficient consumption, which is key to tackling environmental degradation and transitioning to a sustainable future

    Digital technology will play a central part in helping society embrace circular business models, economic experts predict. The transition to business concepts based on resource reduction, reuse and recycling is expected to increase Europe’s gross domestic product half a per cent by 2030.1

    “Technology has the potential to help drive the circular economy as well as other sustainable approaches throughout the value chain,” says Kristin Hughes, a Director and Executive Committee Member at the World Economic Forum (WEF). “It can help an organisation understand every step of a product’s life, looking at how it can be reutilised, regenerated and eventually recycled, as well as the potential to keep raw materials within the cycle rather than over-use them.”

    Today we only are at roughly nine per cent of circularity, that means over 90 per cent of everything we use is just disposed of

    The scope for growth in circular economy processes and business models is huge. “Today we only are at roughly nine per cent of circularity,” Hughes says. “That means over 90 per cent of everything we use is just disposed of.”

    Digital technology can help boost the level of circularity by giving companies and customers greater visibility into material flows along the supply chain. It is hard to introduce circular consumption models when producers and consumers do not know where their raw materials come from or end up, so technologies such as blockchain and radio-frequency identification tags, which can help track material flows, are “massively important”, Hughes says. “If we can integrate blockchain technology to understand what materials go into that initial product, we can also then identify when that product is at its end of life. [Then] rather than throwing it away, we can break it back down into its original components for reuse.”


    Channelling feedback, delivering efficiency

    “Besides improving the full life-cycle visibility and traceability of materials and components, digital technologies can deliver efficiency improvements that are seen as vital in helping to reduce resource depletion and can help limit energy consumption,” says François Travaillé, Europe Small & Mid-Cap and Climate Equity Fund Manager at HSBC Asset Management.

    These improvements can act at two levels. The first involves improving the efficiency of a process through digitalisation. In the fashion industry, for example, digital platforms are being used to re-sell second-hand clothing, reducing the demand for new clothes.

    Beyond this, digital technologies can also deliver services that are inherently more efficient than traditional alternatives. The Covid-19 pandemic, for instance, forced most professional conferences to move to online platforms, cutting carbon emissions by an estimated 94 per cent.2 Elsewhere, switching to digital platforms can often radically reduce the need for more resource-intensive physical goods and services. The rise of digitally enabled working from home that was triggered by Covid is credited with decreasing the consumption of fossil fuels and office supplies.3

    We don’t expect the population or GDP per capita to drop over the next 30 years, so we must rely on technology

    Bénédicte Mougeot, Head of Climate Equity at HSBC Asset Management, says such efficiency improvements will be vital for a transition to more sustainable business models in the face of increasing levels of consumption. “We don’t expect the population or GDP per capita to drop over the next 30 years, so we must rely on technology to fill the gap,” Mougeot says


    Digital technology’s environmental footprint

    Enthusiasm for the benefits of technology to the circular economy needs to be tempered by a consideration of the IT industry’s own environmental footprint and the extent to which digital platforms encourage trivial use. One example is in written communications: although an email has an almost negligible ecological footprint compared to a letter, the ease with which emails can be sent means the net environmental impact of emailing is scarcely less than that of the postal service.4

    In general, however, increased adoption of digital technologies is expected to deliver vitally important improvements in circularity. And the IT industry itself is working to reduce its environmental impact, partly through cloud computing and efficient data centre designs.

    Microsoft cloud computing is up to 93 per cent more energy efficient than on-premises data centres, for example. “5G technology is 90 per cent more efficient per traffic unit than legacy 4G networks”, says Hughes at the WEF. “Digitalisation is already unlocking huge environmental gains just within its own sector. Embedding it in just about all practices will help unlock opportunities and transition towards a more sustainable lifestyle.”

    While the environmental footprint of the IT industry, equal to 1.4 per cent of global emissions, is cause for concern, the issue is being addressed – and the circular economy benefits of applying digital technologies to other sectors far outweighs the impact that these technologies might have.


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