Investing in digital infrastructure to accelerate the circular economy

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This article is sponsored by Cisco.

To shift from a take-make-waste linear economy to a resource efficient circular one, companies need to design out waste and pollution, keep products and materials in use and restore natural ecosystems. But shifting systems is a heavy lift and will require collaboration with many stakeholders in the public and private sectors.

The European Green Deal is a strategic growth plan intended to make Europe the first carbon neutral continent by 2050 — restoring biodiversity, cutting pollution and transitioning to a circular economy. Even while responding to the global pandemic, sustainability has remained a top priority across many European governments and the pandemic has strengthened a resolve to reimagine business as usual. 

Digitization is a key component of the European Green Deal. The plan requires at least 37 percent of total pandemic recovery expenditure to go towards investments that support climate objectives and 20 percent towards developing digital infrastructure. Digitization technologies provide many important building blocks for the circular economy. 

Digital infrastructure’s role in the circular economy

Transitioning to a circular economy for physical goods requires resource management designed to conserve resources from the start. The physical mechanics of the circular economy — for example, remanufacturing and recirculating products or improving infrastructure in cities to minimize resource use and waste — are enabled by digital technology. Technology can help us reduce energy consumption and collaboration tools can reduce the need for travel. Digital technologies such as Internet of Things (IoT) and Artificial Intelligence (AI) accelerate the transition by providing data and insights on a scale never before possible.   

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Digital technology also enables companies around the world to reduce their emissions and be resource efficient within current systems. As an example, smart buildings, such as ASHRAE’S new headquarters near Atlanta, Georgia, use digital technology to provide enhanced and optimized operational efficiency, connectivity, health and safety all in one. In a smart building, the systems that control the internet, lights, heating and security can be used to optimize heating and lighting usage and they can run through the same wiring, reducing materials and saving money.

Smart building systems can become “circular” buildings, meaning a building’s networked systems know what they are made of and have product passports for their components. Product passports provide transparency and digital information that give access to information that ensures they are used and maintained optimally as well as allowing the reuse of components should the building be disassembled. Digital tech generates data on energy and materials, allowing them to be optimally used and reused, instead of wasted. 

Digital technologies open up a whole new dimension for circular business models. For example, within the fashion sector, Ferragamo launched a digital platform for customers called “Sustainable Thinking,” created to host, cultivate and amplify discussions about sustainability, inclusivity and community support. COVID-19 drove Ferragamo to rethink the entire in-person retail process, breaking it down into many pieces and deciding which components could be done virtually, and contributing to the conversation focused on sustainability. It was also an opportunity to show that it is possible to create a highly personalized and unique digital experience within the customer’s home. 

The circular economy needs digital tech. Digital tech needs financing and partnerships.

Awareness is growing for the requirement to build for climate and digital simultaneously. Government policies such as the European Green Deal shows investors that there are opportunities in financing circular economy projects and investors recognize that their investments can go further with partnerships. 

The recent report from the Ellen MacArthur Foundation, “Financing a circular economy,” highlights the opportunity for investments related to circular economy. It noted that since the beginning of 2020, assets managed through public equity funds with the circular economy as the sole or partial investment focus increased sixfold, from $0.3 billion to over $2 billion.

In addition to growth in public equity and private market funds focused on the circular economy, there is a similar trajectory with bank lending and project finance. Intesa Sanpaolo, a major European bank, set up a dedicated circular economy credit facility of $7.3 billion to support companies looking for circular efficiencies and adopting circular business models.

All kinds of companies are eligible for financing, from startups to multinationals and in all business sectors and many of them have circular business models powered by digital technology. 

Intesa Sanpaolo is working in partnership with Cisco to provide wrap-around support from financing to technology for companies going into a circular transition. “We rely on the expertise of a partner like Cisco, so we can not only better support companies investing in their circular transition, but also benefit the whole ecosystem by catalyzing innovation,” said Maurizio Montagnese, chairman of Intesa Sanpaolo Innovation Center

Since late 2018, Intesa Sanpaolo has financed almost 200 circular economy projects. Some are related to new factories and machinery for closed loop manufacturing, which reduces the overall carbon footprint of a product by optimizing material use and decreasing raw material inputs and waste. Some projects are dedicated to circular product design, such as incorporating new materials (recycled and recyclable, or bio-based) and enabling product life extension. Other projects use funds to upgrade to new sensor technologies for reverse logistics that bring products back for repair or resale and IoT to develop predictive maintenance and pay-per-use models. 

Both Maurizio Montagnese and Angelo Fienga, technology solutions architect at Cisco, established the partnership in large part because working together, is the ideal way to nourish an ecosystem that promotes circular economy solutions.

What happens next?

Systems change when disrupted by new tools, new opportunities or new constraints. Today, we are seeing the positive disruption from digital technology, new financing models and government policy combining to accelerate the shift to the circular economy for Europe and beyond. 

Partnerships of like-minded business leaders such as Intesa Sanpaolo and Cisco provide opportunities for companies of any size to adopt circular business models. Emerging from the global pandemic, companies, government and other stakeholders are eager to rebuild in a way that supports the green goals we’ve talked about for decades and partnerships will be key to deliver on that promise.

Learn more about Cisco’s approach to the circular economy here.