How the Circular Economy Improves Risk Management

Since COP26 commitments to systemic change mean that net zero is now an organizing principle for business.  Additionally scrutiny of worker treatment exemplified by the German Supply Chain Due Diligence Act whose principles are likely to be placed on an EU footing – the German Act itself comes into force in January 2023 – is a key focus area.

There are mighty challenges in both these areas.

The International Energy Authority’s November 2021 Renewables Tracking report returns the verdict of “more effort needed” in order to meet the 2050 net zero target set out at COP26.

Across the EU and in the Nordics there has been delay to the law as there are concerns that despite good intentions the proposed directive won’t deliver the desired results.

A good starting point to the question of how supply chains are actually doing in the drive to support sustainability is to consider the MIT report on just that topic.

  • supplier development
  • supply chain visibility
  • environmental impact reduction

Despite the report being extremely rich and, as one would expect, well researched, I can’t help but observe that a quick search on the word “resilience” returns one instance and the words “robust / robustness” return zero instances.  That is a missed opportunity, in my view, since I think the link between sustainability and risk management is an important one which is often overlooked.

On a purely linguistic level it’s true that something can’t be sustained if it can’t withstand the knocks and shocks that the world throws at it.  However, it seems to me that because the connection is simplistic at a verbal level its implications, and therefore potential actions, are not explored.

I think the reason for that oversight is lack of clarity about the distinction between resilience and robustness.  In brief, “resilience” is being able to bounce-back and “robustness” is not breaking / wobbling enough to need to bounce back.  Sébastien Miroudot of the OECD provides a full discussion of the two here.  Both are key considerations of risk management policy.

With that clarity it is much easier to see that the link between risk management – which the Covid crisis has made top of mind for nearly everyone – and sustainability.  Put simply: if objects are robust they don’t need fixing or augmenting as much.  And where that’s the case the object probably won’t consume as much of the word’s resources or be as dependent on supply chain continuity (think spare parts / maintenance / replacement) to continue to function.

The result is my line of thought leads me to place the circular economy at the heart of risk management.