Transitioning to a Circular Economy with Jarkko Havas

June 22, 2021

Jarkko leads the Ellen MacArthur Foundation’s Insights & Analysis work. I&A consists of the Data & Metrics Initiative with a focus on measuring company level circular economy performance (Circulytics), and teams working on upcoming focus topics for the Foundation, as well as the case study programme. Prior to joining the Ellen MacArthur Foundation, Jarkko was an Engagement Manager at McKinsey & Company, based first in Tokyo and then in Brussels. His consulting work focused on agriculture and chemicals industries in both private and public sectors. Jarkko’s academic background is in environmental engineering and sustainability science.

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John: Welcome to another edition of the Impact podcast. This is a very special edition of the Impact podcast because we’ve got with us today Jarkko Havas with us. Jarkko is the lead for the Insights and Analysis Department at the Ellen MacArthur Foundation. Welcome to the Impact podcast, Jarkko.

Jarkko Havas: Thank you, John. I’m glad to be here.

John: Before we get going and talking about all the important and the great work that you and your colleagues are doing at the Ellen MacArthur Foundation, can you share a little bit about your background? How you even got here?

Jarkko: Yeah, absolutely. So, it all kind of goes back to Osaka, Japan a little bit over ten years ago where I started my studies in Environmental Engineer.

John: Okay.

Jarkko: And moving on from there to the work at a management consulting company called McKinsey in Japan first, and sort of internally in McKinsey moved to working on sustainability topics, especially in agriculture and development and then transferred to Brussels where McKinsey had a hub on that topic. And then from there followed some colleagues who had left McKinsey to the Ellen MacArthur Foundation and call my way there as well about two years ago now. That common thread from environmental sustainability topics to now circular economy has followed throughout from my undergrad studies all the way up to now.

John: When you were growing up with your parents into the environment, were you exposed to any of that, or did you grow up in a very green part of this planet as well and that you were motivated even if it was subliminally motivated? Is that part of also when you think back why you’re doing the work you do today?

Jarkko: Yeah, I think so. I mean, actually, sort of independently from my family, many members have moved towards that path.

John: Really?

Jarkko: My dad went from investment banking to gardening and sort of the same time as I did my studies. My sister is very much in that field as well, sort of independently from each other. She’s in Norway and did her studies in Australia. So, we’ve been doing this around the planet as family as well. There’s something to it, for sure.

John: That’s really nice though, because you all get to share the journey together, really.

Jarkko: Yeah, I think so. You know, it’s just we tried to make the family conversations not always about these things though.

John: I got you. Well, I’m on your website now and I had the distinct pleasure of meeting your CEO years ago, Andrew Morlet, at Vice President Al Gore’s office. He is just nothing but a brilliant and delightful human being. I was very, very impressed with what he shared with me. Your foundation’s website which I’m on right now is ellenmacarthurfoundation.org. For our website, for our listeners and our viewers, it’s ellenmacarthurfoundation.org. Can you give a little background on the foundation? What is its mission and purposes? And then we’re going to go specifically into a lot of the important work that you and your colleagues are doing there right now as well.

Jarkko: Sure. So the Ellen MacArthur Foundation started about ten years ago now when Dame Ellen MacArthur had a realization. So she was a competitive yachtswoman and held the fastest solo around the world navigation record at one point. But she realized that on her boat there are limited resources, and she needs to make do with that. That’s all she has, and the planet is not really any different. She had the idea of trying to make sense of it and sort of ended her at competitive yachting career at the peak of her performance and started the foundation with the mission of accelerating this transition to circular economy. What we mean by circular economy is almost the opposite of linear economy where we mostly live today where we take materials from the ground, make stuff out of that, and most of the time it ends up in waste at the end of its use. Circular economy is there to try to fix that.

John: So linear economy is take it out of the ground, use it once and then put it in the landfill and it’s gone then.

Jarkko: That’s the simplification. Yeah. Although it’s never gone, really. It’s in the landfill and it loses all its volume and its usability for the economy. And the whole point is to make use of those limited resources we have especially when we talk about metals, Etc. As much as there is on the planet and we need to make sure that we keep reusing that material indefinitely, really. Otherwise eventually, we will run out of it.

John: Jarkko, I’ve always thought about this. Because I’ve had the luck to be able to travel a lot. I’ve traveled through Europe. I’ve traveled through Asia. I have partners on both sides of the Pacific and the Atlantic, business partners. And what I’ve seen is, and you tell me if I’m off on my thinking here, Europe, UK, Ireland, Italy, France, and all the great companies that exist on the other side of the Atlantic, and then you have South Korea and Japan. All are smaller countries. And they have, of course, less resources, including less land to abuse. And so they were generationally, two generations ago, really getting part of the circular economy movement and sustainability movement back then. And now the US and Canada areas where the land has been big and quite wasteful and we could just build big landfills and throw away, we’re starting to catch up, but really we’re way 30, 40 years behind the behavior that was already starting to change on both the other side of the Atlantic and Pacific before. Am I off on that thinking, or is that too simplistic?

Jarkko: There’s some truth to that. I think timeline-wise could be a bit different. I wouldn’t say that Europe is a foster child in any way in this matter. Of course, the European Union and the European Commission have taken these matters now very seriously, especially with the COVID recovery plans accelerated the green deal in Europe. So, taking climate mitigation efforts, the circular economy as means to achieving some of those climate goals and then some to the core of these plans. So I think it’s more recent. But the thing is that it’s ancient. That’s how nature works. There is no waste in nature. In human societies there was very little waste until the Industrial Revolution came about and we kind of got addicted to oil and coal and then the ability to use and abuse materials because of that of expansion in the energy that we had available to us. And I think humanity kind of lost it there. And now, we’re realizing that can’t go on forever. And perhaps Europe, maybe Japan, sort of policy-wise is step ahead of North America, but by no means sort of there yet either.

John: Whenever you turn on the television now here in the United States, CNN, CNBC, Bloomberg, Wall Street Journal, New York Times, everyone is saying ESG is having a moment. Circular economy is having a moment. How does that translate to the important work that you guys have started at the Ellen MacArthur Foundation and also with your goal to help transform us from a linear economy to a circular economy?

Jarkko: Yeah, it’s a good point. ESG data is used a lot by investors and we see exponential growth now in the money that’s labeled under circular economy and going to finance circular economy activities. One example is the circular economy fund by BlackRock that started one and a half years ago. I can’t remember the exact number but it’s small, 20, 30, 40 million USD. And it’s now I think just about 2 billion. So it’s just the exponential growth and just an anecdote of that and it’s not alone. There are increasing number of those. It’s sort of one element of this. So, ESG investment in general is, of course, taking off. And I think more and more academic evidence to just investors’ sentiment on seeing the long-term value in companies that take these things into consideration, because that gives companies the ability to avoid or mitigate a lot of supply chain risks and policy related risks as policy landscape moves very quickly at least in Europe towards mandating and reporting circular economy related activities and making sure that you have extended producer responsibility, things in place, Etc. At the Ellen MacArthur Foundation, we’re also working on those topics by creating methods for companies to measure their circular economy performance, and to use that data if they wish to, for example, with investors.

John: How do people approach you? Do you approach governments, or do government entities, NGOs, privately held, publicly traded companies, approach you to help them get better at their practices, and you analyze their practices? How do organizations interrelate with you and then you drive change? How does that all work?

Jarkko: It’s quite different depending on the type of organization. So we collaborate a lot with universities. We work with intergovernmental organizations, cities around the world. In North America, New York is the flagship city working with us on circular economy and then with private sector. So, our new tool called Circulytics, Circular Analytics you can say and short of that.

John: I’ve never heard that before. Explain what that means. I’ve never heard that ever. And I live in this world because of our company. Explain what Circulytics mean. I’m fascinated by that word.

Jarkko: Absolutely. We chose the name because before we launched that name and you Google it, zero hits. So they’re all the hits on Circulytics are driving towards our tool which is great.

John: I love it.

Jarkko: Indeed it’s a circular economy performance measurement tool for companies, and we have now over a thousand companies that are using the tool. I think it’s around 170 companies whose headquarters are in North America, majority is still in Europe. But this is a way for companies to assess their performance by sort of third-party tool. So, it’s not biased. But it’s created…

John: Explain how it works. Does my company or any other company can now license this tool from you? It’s a software tool and we plug in the data, and the algorithm gives us the answers?

Jarkko: It’s an assessment that we do. So, the step-wise process for a company would be to sign up, get an account, use an online platform to input information that you’re asked. All of that is available on our website to look at what kind of information that actually is. It’s up to 36 indicators, depending on the type of business that you do. You’ll then submit that information securely. We don’t disclose it to anybody else. We use all the latest data security protocols to handle that. And then at the end we produce a scorecard to send it back to you and give you a license to use that scorecard and disclose that information and talk about your score with your business partners if you choose to do so.

John: So a company is going to be able to sign up with your organization and eventually as they evolve and work through this, they’re going to be able to put your logo, the Circulytics logo, on their website with a score and that will be very transparently informative to their stakeholders as to how they’re performing in a new circular economy world.

Jarkko: That’s right. So, we asked companies to give context to their score. With the score you would, of course, use the Circulytics logo, but it would also say what type of activities have you done to achieve that score and then hopefully also say what you plan to do next to give a little bit of context to not just say that we got an A- or B+ or whatever it might be, but it was actually behind it then. And we see that as really important. It’s the actual sort of substance behind that score and that’s just really a conversation over to this important topic.

John: You know, these obvious factors are obvious outcomes from companies and government entities and organizations coming into the circular economy. Obvious is it is great for carbon, it’s great for the offsets, it’s great for the energy savings. And as you said at the top of the show, the resource savings are quite substantial. There’s no need to dig for and mine for new aluminum if we could recycle our aluminum and our gold and our silver. But talk a bit about some of the other benefits that come out of moving from a linear to circular economy for businesses and other organizations.

Jarkko: Yeah. Well, you touched on many of those. In certain resources, resource scarcity is a real issue. Rare earth metals, for example. And it’s really a forcing mechanism for you to think about circular economy recirculating materials. But it’s also about bottom line. So, through our research and through others’ research on a system levels, on an economy level, in Europe or North America, there are trillions of dollars of value in moving to a circular economy. And how that value gets distributed depends a bit on the industry, but there are certainly first-mover advantages in figuring out what that looks like for your company and your industry. We see that with companies we work with. So, some of the largest brands in the world, Google, Nestle, Unilever, are our strategic partners and they take this very seriously and they see the value of moving faster actually than their competitors to figuring out what, for example, packaging for Unilever. What is circular packaging and how can they benefit both for their bottom line and for the planet from moving into more, for example, reusable solutions?

John: How about in terms of some of the soft but still very substantive benefits such as employee turnover, retention, and getting everybody focus on a mission? Does some of the study starting to show that companies that have missions that are to do well and do good at the same time? To make a profit, but to make the world a better place, to transition to greener and more circular economy behavior, have higher retention rates and less turnover as well?

Jarkko: You said it. Absolutely. And I think increasingly so with this and the next generation of employees coming to working age, it is definitely an increasingly important topic. And for anybody feeling that you’re doing a meaningful contribution to something else than your own bank account, it’s definitely a motivating factor, and that’s absolutely true.

John: How long does the process take? If a company signs up with the Ellen MacArthur Foundation now and they want to sign up for the Circulytics process analysis, how long is that process take typically?

Jarkko: It depends on how easy or difficult it is for the company to find the information, for example, about your material flows. So, if you produce goods, we would ask you or you need to input data and indicators about your material flows in and out of the company. That can take time if you’re a large company. But once you’ve submitted, we process it fast. So everything is run on a Cloud server. So the scorecard generation, we do it in batches in a week. Although, if you’re a large company and we put the threshold at 1 billion USD of annual revenue, we also make a Bespoke analyst commentary. So we look at the results, look at the supporting evidence that you would provide, and then our analysts will look at where we think you’re doing well and where we think you have sort of low-hanging fruits to move to next in your journey to becoming more circular company. And depending on the time of the year, it may take us a little bit longer but we try to make all of those scorecards where we put the commentary within a month. So, anything from a week to a couple of months depending on how long it takes for you to collect and submit that information as well.

John: When did you launch the Circulytics program? Like, approximately when?

Jarkko: Exactly on January 14, 2020. So, it’s relatively new. So it’s not even one and a half years, and really encouraged to see that over a thousand companies already are finding value from it.

John: Because of what the investment community now getting more circular economy, ESG excited and voting with their pocketbooks, are you seeing the velocity of organizations signing up for this program picking up?

Jarkko: Yeah, I think it’s quite a steady flow, but it’s interesting to hear that the companies have completed the assessment. They’ve talked about their Circulytics score in their investor calls, quarterly calls with their financiers. And in that sense, it is finding its way really to the heart of decision-making in some of these companies.

John: In the last two weeks, I read articles that BlackStone and the SEC who governs the publicly traded companies here in the United States both said they’re going to make ESG disclosure mandatory for leadership of both publicly traded companies, and BlackStone they said for portfolio companies. Obviously these trends are going to spread. BlackStone is doing it. All the other big investor groups are going to take that on as well, and the SEC is making publicly traded companies do this. So, is this now a beginning from the top down that’s going to force since they don’t have their own tools, these organizations are going to turn to credible, legitimate, and great opportunities like your organization offers with Circulytics to then say, “hey, we need to report now to the SEC or to leadership at BlackStone, therefore we need this tool to help keep us on the right side of what they’re recommending”?

Jarkko: Yeah, I think it’s a very active space, this sort of non-financial measurements or disclosure standardization. So there’s a lot of movement towards that and increase disclosure of company performance beyond financial performance. And of course, in our opinion, circular economy is absolutely critical part of that. We work with other organizations to make sure that circular economy ends up in those future standards as well, and keep Circulytics as a deep dive to really understand in more depth circular economy performance.

John: For our listeners and our viewers that have just joined us, we’ve got Jarkko Havas. He is the lead of the Insights and Analysis Department at the Ellen MacArthur Foundation. You can find Jarkko and his great colleagues at www.ellenmacarthurfoundation.org. What’s the future look like? You’re a young man, you’re doing great work at a very great organization with a lot of other good colleagues. What’s the future look like? How long is it going to take for everyone to get on board or at least for the tipping point to happen and we make real strides here?

Jarkko: That’s a very good question. I think there is no blanket answer to that. If you look at, for example, plastics packaging globally, I think we are beyond that tipping point. For plastics packaging manufacturers, it is very hard to operate without thinking about extended producer responsibility, without thinking about where your plastic bottles end up. And in that sense, that is eventually going to that tipping point. It’s coming to different materials streams and different industries. Circular economy generally, I think, is at a tipping point especially in Europe where it’s finding its way into the core of policymaking in EU and to the way that companies are assessed and the way that investments are assessed. Circular economy taxonomy for investors is something that’s becoming a reality in a year or two in EU and then really you need to do it, and it’s going to affect cost of capital and everything after that as well.

John: That is so wonderful. Your generation seems to be voting with your pocketbook more than ever before. That you really want to buy goods and services from companies that are at least trying to do the right thing. We know there’s no such thing as perfect. Perfect is a bad goal, but at least making an effort. And by signing up for Circulytics, it sounds like that’s one great step in the right direction. What could you say to organizations or companies that are thinking about this but are scared of what the results might be, scared of the process, scared of just the whole aura of being greener and having to go and to be examined so closely?

Jarkko: The good things are the tool is free to use. As we’re a charitable organization, we get funding from our funders to run this show. You get to choose whether you disclose your score or not. So we don’t force disclosure. More and more companies choose to do that as it’s beneficial, even if your score is not great. But again, to try it out, you get to understand first what your baseline is, where you’re doing well, where you should do better. Even if circular economy is a new concept to you, the tool helps you with resources to understand it as you go through the process. And in a way, it’s a safe space where you first can figure out where your company is today and see what you should do next to improve your score and more importantly improve your circular economy foremost, really. And then when the time is right, talk about your score with your suppliers and with your customers and indeed the end consumer and show the potential and the performance that your company has when you choose to do so.

John: That makes so much sense. How can you fly an airplane if you don’t have the information necessary to get to the destination?

Jarkko: That’s right. That’s what measurement is about. It’s about understanding where you are today and how quickly you are moving towards the destination that you choose. And hopefully that destination and your company strategy has circular economy in it.

John: Are you finding geographically the response has been similar both in EU, North America, and Asia, or is it concentrated right now in one geography and in the years ahead you’re going to focus your messaging to other regions as well that haven’t come along so far?

Jarkko: Yeah, I think our foundation is based in the UK and historically has stronger connections with Europe. So, 60% of the companies that have used Circulytics are Europe-based organizations although many operate globally and we see slowly other regions taking up that percentage. And with late last year, we released the tool in Chinese, Spanish, and Portuguese to cater to more global audiences. We see a lot of excitement, especially in Latin America and increasingly in North America as well. So, we certainly want to make this into a globally used and reference tool.

John: Jarkko, I’m going to leave you with the last words. I want you to share any last thoughts or comments with our listeners and our viewers and then we’re going to have to say goodbye for today. So I leave it to you.

Jarkko: Sure. So what I would say is that circular economy is not like a green concept that’s outside of business reality. Because we live on a planet that is finite, it’s an eventuality. There is no way around it. It needs to be able to use our materials and reuse and then reuse them again because there’s just as much as there are renewable materials also. We need to be able to take care of the planet that provides us this renewable materials, and that’s what circular economy is about. So, it’s very much a core business decision for companies. And in that sense, it’s not something extra but it should be at the core of how we operate companies and the economy at large.

John: Well, that’s great. And for our listeners and viewers out there, as Jarkko said earlier, it’s a free tool, so why not learn about your own organization and learn about at least where you are. Get a baseline so you can effectuate change and make it better. Jarkko, I’m so honored that you came on today. Thank you, and all your colleagues at the Ellen MacArthur Foundation. Again, for our listeners and viewers, to find the Ellen MacArthur Foundation, go to www.ellenmacarthurfoundation.org. Thank you for making the world a better place. Thank you for making a great impact. You are always welcome back on the show. Continued success, Jarkko Havas.

Jarkko: Thank you, John.

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