You may have heard the term "circular economy" being used across various fields and sectors. For example, the emerging New London Plan sets out a policy framework to support London’s transition to a low carbon circular economy, contributing towards London becoming a zero-carbon city by 2050.
What is the “circular economy”, what is its impact on development and real estate, and to what extent can it contribute towards meeting ESG goals?
Closing the circle
The aim of the circular economy is to extract the greatest possible value from resources by maximising the use of existing materials through re-use and recycling, leaving minimal residual waste. Put very simply, it is about making resources go round and round the economy as much as possible before finally entering waste streams.
The principle can be applied to almost all products and markets – fashion, plastics and food to name a few – but also to the built environment. Worldwide urbanisation is accelerating rapidly, but this comes at a huge environmental cost: cities use 75% of natural resources and emit 50% of global waste[1]. A circular economy seeks to reduce this impact by encouraging design that promotes disassembly and reuse rather than waste, and by creating and using materials and products to a high standard and with a long life.
Examples in the built environment
We discuss below that sustainable design and careful selection of materials and processes are increasingly central considerations for the purposes of new development, though even here bold alternatives are being pioneered. However, circular economy principles can also be adopted in existing buildings. For example:
- Moving from the concept of products in terms of a “buy-use-discard” model to products as a service. For example, rather than buying, discarding and buying more lightbulbs, Schiphol Airport in Amsterdam buys light as a commodity from a lighting service provider. The airport does not pay any upfront costs, only a monthly service fee which includes energy and maintenance costs. The provider provides the lighting system and is incentivised to supply high quality, sustainable and repairable systems.
- Landlords and tenants will be familiar with end-of-term reinstatement obligations, however historically little thought has been given to the environmental cost of simply discarding tenant fit-out. In many cases there is still life in these discarded items, at least in recycling the waste materials. There are still practical challenges to be overcome, for example finding a home for the second-hand equipment, but appetite to put sustainability at the forefront of corporate strategies is growing.
Industry body the UK Green Building Council has published two guides to provide practical guidance:
- Circular Economy How-to Guide: Reusing products and materials in built assets; and
- Circular Economy How-to Guide: Implementing Light as a Service in built assets
Both can be found here along with other materials as part of their Circular Economy Implementation Packs.
Sounds good; how can it be achieved?
Promoting a wider and faster adoption of circular economy principles is likely to require a combination of regulation and investor pressure.
Developers
Development can be achieved in a socially and environmentally responsible way by designing to high sustainability standards, which can save money as well limiting the effects of environmental threats such as heatwaves and flooding. In practical terms this means designing buildings with parts that can be replaced where necessary to support a longer lifespan and planning for waste reduction at all stages of development, including by using standardised components, modular build and re-use of materials.
For this reason, development plans increasingly apply circular economy principles. For example, in London, Policy SI 7 of the emerging new London Plan provides that some strategic planning applications (ie applications which exceed certain development thresholds, such as the development of 150 residential units or more) will need to be supported by a Circular Economy Statement, and the Greater London Authority (GLA) has released a pre-consultation draft of guidance which explains how to prepare a Circular Economy Statement as required by Policy SI 7. Circular Economy Statements will need to demonstrate:
- how waste materials will be re-used and/or recycled;
- how the proposed development’s design and construction will reduce material demands and enable materials and components to be disassembled and re-used at the end of their useful life;
- on-site waste management, storage and collection systems to support recycling and re-use; and
- how performance will be monitored and reported.
(See Fig 3.2 of The London Plan Intend to Publish (clean version), December 2019 below.)
Investors, owners and occupiers
As highlighted above, the circular economy can be applied to existing as well as planned infrastructure. We see daily examples of businesses participating in the circular economy without necessarily giving it this label: breweries making available leftovers for people to use as compost in gardens; vintage and used clothing on-sold in boutique stores; and bus tyres recycled in shoes. How can the circular economy be implemented by those whose business is buildings? There are multiple possibilities, but to name a few:
- Landowners can help by finding ways to reduce waste. For example, providing free drinking water fountains enables the re-use of water bottles and reduces single-use plastic waste.
- Tenants and landlords can engage in discussions about re-thinking the reinstatement process. All participants can demand more circular economy aspects of re-fits and refurbishments to be embraced - using local supply chains is an important aspect.
- Investors can direct where they want their funds and pensions invested to encourage sustainable projects.
Conclusion
The circular economy is here to stay.
An Ipsos MORI poll carried out in May 2020 showed that three quarters of people surveyed in 16 countries said they expected their governments to make the environment a priority in a post-Covid recovery, suggesting that the global pandemic has, if anything, highlighted people’s desire to shift to a more sustainable way of life. Embracing a circular economy is one step towards that admirable ambition.
Not only can value be created from keeping materials in the economy for longer, there are a plethora of opportunities to increase the value of companies embracing circular economy models. Gone are the days of business models relying on people simply buying more based on a traditional linear economy. Performance against ESG targets is being measured and reported on, and boards, investors and consumers are listening. Developers who incorporate circular economy principles in their projects will be well placed to seize investment opportunities and developments designed with circular economy principles will attract strong interest from landlords and occupiers looking to reduce societal and environmental costs.
[1] Source: Ellen MacArthur Foundation website
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