Towards a Model for Analyzing the Circular Economy in Ecuadorian Companies: A Conceptual Framework

Abstract

A successful implementation of a CE requires an appropriate comprehension of its conceptual framework and the identification of the elements that composed it. However, there is still no consensus on a unique CE definition, which makes it difficult for companies to adopt circular practices in their business models. In this context, this study proposes a CE framework based on four fundamental elements: principles, drivers, stakeholders and strategies, which was complemented by circular-organization-oriented metrics. Then, local case studies were used to assess the implementation of CE strategies in Ecuadorian companies. Among the identified elements, it was found that there are general action lines that facilitate the understanding of the CE. On the other hand, the majority of elements and metrics are oriented toward the production and end-of-life stages, while extraction, design, use, marketing and distribution are less considered. Furthermore, although environmental, economic and social aspects are considered, the latter are mostly limited to employment generation. Finally, for the local case studies it was observed that the current adoption of circular practices in companies derives from the incorporation of the sustainability approach instead of a structured and systematic implementation of CE strategies.

1. Introduction

The circular economy was conceived as a response to the environmental degradation and over-exploitation of natural resources toward which current economic growth is leading [1,2,3]. The conceptualization and understanding of the CE have been influenced by many schools of thought such as the laws of ecology, regenerative design, industrial ecology, cradle to cradle, biomimicry, the performance economy and the blue economy. There is no clear agreement about a unique definition of the CE. Even though it was formulated several decades ago, its definition is still unclear and has diverse meanings for different stakeholders as a result of a broad spectrum of principles and proposals that have been developed [4,5]. One of the definitions most recognized has been framed by the Ellen MacArthur Foundation, where “a circular economy is one that is restorative by design, and which aims to keep products, components and materials at their highest utility and value, all the time” [6]. Some existing literature reviews, such as the one conducted by [7], have found 114 distinct definitions of the CE within consultancy reports, peer-reviewed articles and policy papers, ultimately compiling them as “an economic system that replaces the ‘end-of-life’ concept with reducing, alternatively reusing, recycling and recovering materials in production/distribution and consumption processes. It operates at the micro level (products, companies, consumers), meso level (eco-industrial parks) and macro level (city, region, nation and beyond), with the aim to accomplish sustainable development, thus simultaneously creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations” [7].

Over the last few years, the CE has received increasing interest in academic research, with special emphasis on certain areas such as closed loop value, supply chains [8], circular business models and circular product design [9]. The concept has gained the attention of policy makers and governments at local, regional, national and international levels [10]. It has also been related to corporate social responsibility (CSR) as it shares some considerations with the CE, and the two may complement each other in their operationalization. However, they are based on different motivations and, therefore, pursue different goals [10]. CSR can be considered as the voluntary integration by companies of social and environmental concerns in their activities and interaction with stakeholders, in order to positively affect the reputation of the company and its long-term success. On the other hand, the CE promotes a systemic change for a transition from a linear to a circular economy, retaining the value of materials and products for as long as possible, with the aim of providing a systemic response to present and future challenges at the economic, environmental and social levels [7]. Nowadays, the CE has been adopted as an operationalization for implementing the concept of sustainable development [10,11,12] in many countries’ policies, which have taken different approaches to its implementation [1,13,14,15]. At an international level, CE concerns have been also incorporated, most notably, in the EU’s 2015 Circular Economy Strategy [16]. However, the role of the CE in sustainability is unclear. Although most scholars recognize the relationship between both concepts with respect to economic and environmental aspects, there is still a lack of social elements in the CE [10].

The substantial discrepancy between CE approaches makes it difficult to define a consented theoretical framework that enables the implementation of circular systems at different levels [17]. In this sense, some common elements have been found in the literature including principles [18,19], drivers [20] and strategies [21,22]. These are frequently used by different stakeholders, who operate in distinct ways trying to connect theory with practice [19]. In the process of transition to a CE, circularity indicators are fundamental tools, as they provide crucial information for the design of policies and strategies and make it possible to measure and evaluate the impacts derived from their application [4]. In this regard, companies, governments and academics have formulated various proposals for measuring circularity. However, “what to measure” is still a matter of debate [4,23]. The classification of circularity indicators is diverse and complex. Many authors have grouped them by taking into account different criteria and according to the understanding of the CE from their respective fields [4,23]. One of the most widespread classifications is, based on their scope and groups, to place the indicators into three levels: macro, meso and micro [7,23,24,25,26]. The macro level is usually applied at the level of province, region, nation or the global economy and includes the development of eco-cities, eco-municipalities or eco-provinces [7,23,24,25,26,27]. The meso level focuses on eco-industrial parks and industrial symbiosis [28]. Lastly, the micro is used to support the implementation of product policies, energy efficiency and integrated waste management at the company level [24].

The majority of the CE indicators in the literature are found at the macro level, while the meso and micro levels are less prevailing [29]. Although there is a growing number of micro indicators, most of them are under development and still in the pilot phase [30]. As mentioned by [29], these indicators are mainly focused on recycling and waste management practices, with most CE principles barely taken into account. In addition, there is currently no standardized way to measure circularity at this level. This low degree of maturity could be the reason for its limited implementation in industrial practices [31]. According to [29], these can be classified into three groups: (1) simple indicators, which define circularity as a single number; (2) guidelines and tools, which evaluate circularity through less complex metrics; and (3) composite indicators, constituted by multiple indicators or by the combination of Type 1 and 2. However, there is a noticeable preference in the use of Type 2 micro indicators in practice, which include less complex metrics such as energy or water consumption, waste generation and reduction or financial, social and management aspects. Among the most recognized tools there are Circulytics and Material Circularity Indicator (MCI), developed by the Ellen MacArthur Foundation in collaboration with partnerships, leading business, universities and investors. The aim of these tools is to enable companies to measure its current stage of circularity, identify areas for improvement and support decision making and strategic development for CE adoption [32,33,34].

The transition to a CE in companies requires the adoption of new visions, strategies and, in some cases, a fundamental redesign of product concepts and service offerings. In this context, business models play a key role as they enable systematic change by providing analysis, planning and communication tools [35]. The term circular business model (CBM) was first introduced by [36] as an exploration of types of individual business models for circular value creation. Then, it re-emerged with the wider dissemination of the CE by the Ellen MacArthur Foundation and the World Economic Forum. Although it lacks a unified understanding [37], from a general point of view a CBM articulates the way in which an organization creates, delivers and captures value to its wide range of stakeholders while minimizing social and ecological costs [38]. For its implementation, it requires organizations to adopt circular strategies based on the least amount of resources for the longest time while extracting the most value in the process [39]. In this regard, the development of a conceptual framework which includes CE elements such as principles, drivers, stakeholders or strategies, allows companies to identify existing circular practices and facilitates decision making to create a circular business, diversify its current business models, acquire a circular business or transform their business model into a circular one, based on their performance [40].

In Ecuador, small business (formal and informal) and citizen collectives have been practicing circular activities such as electrical equipment repair, shoe repair, tailoring, rental stores, organic food production or bulk stores for a long time. However, the concept of the CE as an economic model is relatively new [41]. Some of the most important Ecuadorian companies have started to incorporate the sustainability approach in their business model by implementing economic, environmental and social strategies, some of them related to the CE. Nonetheless, the adoption of circular practices is still uncertain. In January 2020, the draft organic law for circular economy was presented, with the intention of establishing specific criteria and mechanisms to reduce the generation of waste and promote its reuse, recycling and other types of recovery, through the implementation of circular economy principles, extending producer responsibility and other waste management instruments [42,43]. Then, in 2021, the now-called “Inclusive Circular Economy draft organic law” was finally approved [44,45]. In this context, the aim of this study is to identify the current integration of circular practices at the organizational level in Ecuador. For this purpose, a conceptual framework of the CE that incorporates principles, drivers, stakeholders and strategies is firstly proposed. Secondly, a set of indicators and tools to measure the CE is established based on a literature review. Lastly, case studies are used to assess the implementation of the CE in Ecuadorian companies.

2. Materials and Methods

2.1. Circular Economy Framework

To establish the circular economy framework, a literature review was performed inspired on Fink’s methodology considering a search in tools, guides, reports and scientific databases, such as ResearchGate, Science Direct, Springer, Taylor and Francis, ProQuest, SpringerLink and Google Scholar, focusing on the CE elements. For this purpose, search terms like “Circular Economy”, “Elements of Circular Economy”, “Components of Circular Economy” “Circular economy framework” were used. In the literature review, 60 items were analyzed (Appendix A). Principles, stakeholders, drivers and strategies were proposed as the main elements of the circular economy framework. This structure was inspired in a previous article developed by the authors of this study called “Towards a sustainability balanced scorecard for managing corporate social responsibility in Ecuador: A conceptual model” [46], where Principles refer to the fundamental basis for decision making or to determine behavior, Stakeholders refer to individuals or groups that are interested in any decision or activity of the organization, and Strategies correspond to the method or manner of doing something. Additionally, for this study the element “Drivers” was included and considered as a factor encouraging the adoption of CE initiatives [47].

Each article analyzed was coded using elements of the CE framework as predefined codes, i.e., Principles, Drivers, Stakeholders and Strategies and summarized using four findings matrices where the items of each code were registered. For principles and drivers, its definition (if available) and context were analyzed in order to better understand its meaning, and they were grouped based on their similarities. For stakeholders, only six articles of the total sample had a list of circular economy stakeholders, which were contrasted with each other in order to avoid repetition. For strategies, the practices mentioned in the sample were summarized. Then, according to their action lines these were clustered in macro groups. As an additional exercise, the CE framework elements were compared with the Business Models Canvas components proposed by [48].

2.2. Circular Economy Indicators

To complement the proposed circular economy framework, circular economy micro indicators of Type 2 (evaluation tools) were analyzed as they are the most used in industrial practices. Five CE tools were selected based on their popularity and the availability of indicator data bases. The selected tools were: Circulytics (52 metrics included in 10 themes), Cradle 2 Cradle (C2C) (83 metrics divided into five critical sustainability categories), Circular Transition Indicators (CTI) (10 indicators and 19 metrics), Material Circularity Indicator (MCI) (four main inputs) and Circular Economy Indicator Prototype (CEIP) (15 metrics grouped according to product life cycle stages). These tools were analyzed and systematized using a comparison matrix where all metrics of the tools were contrasted with each other. The similar metrics were grouped to avoid repetitions and the final result was classified in 9 evaluation categories: Energy, Water, Waste, Materials, Emissions, Design, Social, Financial and Management.

2.3. Circular Economy Implementation in Local Cases

The third stage consisted in the analysis of the CE implementations in local companies. To this end, a verification matrix was constructed based on annual reports of case studies and the CE analysis framework established in this study. Seven local case studies were selected, considering both service and production companies. For this purpose, information from the MERCO sectorial ranking, which classifies the most representative companies in Ecuador into 31 sectors was used. These sectors were simplified into 6 categories: food, health, materials, wholesale and retail, industrial and others. Then, based on the availability of companies’ annual reports, a case study of each category was selected for the analysis, except for the “others” category for which no company reports were found. It is important to mention that due to the current sanitary crisis, the latest reports from most companies are from 2019. In addition, information from the Sustainable Ecuadorian Companies Ranking was used, since most local companies consider the CE as a tool to achieve sustainable development and report some circularity elements in their sustainability reports. The ranking mentions the 30 Ecuadorian companies with the best sustainable performance considering four criteria: sustainable business management, recognition in sustainability, membership in sustainability guilds and the opinion of specialists in sustainability. Four of the five selected from MERCO were consistent with the ranking of sustainable companies. The remaining case study represents the food sector, which is important for the local context, reason why it was included. In addition, to ensure better coverage of the country’s productive sectors, two case studies on the sustainable ranking were included in the sample: one corresponding to the banking sector and the other to a higher education center. The selected case studies were: Alpina (2019), Difare (2019), Novacero (2019), Almacenes Tia (2019), Ingenio San Carlos (2019), Universidad Técnica Particular de Loja (UTPL) (2019) and Banco Pichicha (2019). A detailed description of the case studies is presented in

Table 1. Selected case studies.

Business Sector	Name	Founding Date	Products or Services	No of Employees	Website
Food	Alpina	1996	Dairy Drinks, Cheeses, Creams and Butters, Desserts and Sweets	670	www.alpinaecuador.com (accessed on 1 February 2022)
Health	Difare	1984	Pharmaceutical distribution and development	4100	www.difare.com (accessed on 1 February 2022)
Materials	Novacero	1973	Construction and Metal-mechanic products, Industrial and Road solutions	1400	www.novacero.com (accessed on 1 February 2022)
Wholesale and retail trade	Almacenes Tía	1960	Grocery Store	7500	www.tia.com.ec (accessed on 1 February 2022)
Industry	Ingenio San Carlos	1897	Sugar, Panela	2836	www.sancarlos.com.ec (accessed on 1 February 2022)
Ranking of sustainable companies	UTPL	1971	University	1347	www.utpl.edu.ec (accessed on 1 February 2022)
	Banco Pichincha	1906	Private Bank	5113	https://inicio.pichincha.com (accessed on 1 February 2022)

.

3. Results

3.1. Circular Economy Framework

The proposed circular economy framework is presented in Figure 1. It was structured into four key elements: principles, drivers, stakeholders and strategies. Regarding principles, a total number of 60 were identified and grouped into 17 categories, mostly related to in-use products and materials maintenance, natural and economic capital preservation, maximization of resource productivity and design for the circular economy. Among the CE principles, it was observed that concepts such as waste revalorization (10R), Innovation, Efficiency, Design and Systemic Thinking stand out. Moreover, it was found that most the CE principles include environmental and technical aspects of products and services but lack social ones. As for the drivers, a total number of 55 were identified and grouped into six categories based on their similarities. It was found that the CE drivers are related to environmental and economic aspects and, unlike principles, to social ones, specially focused on the generation of employment and public health. Some of the main topics of drivers are the scarcity of resources, climate change, the promotion of new technologies, the development of skills and capacities for the CE, the development of circular models and the improvement of the supply chain. On the other hand, 12 types of CE stakeholders were identified, evidencing a wide variety of applications of the concept. Among the stakeholders found are investors, shareholders, designers and experts in materials relevant to the application of circular practices, with consumers and governments being the most relevant.

Finally, with regard to the CE strategies a total number of 160 were identified and grouped into 27 action lines. Most of the strategies focus on training, education and campaigns concerning environmental and CE issues, reducing and improving the efficiency of resource use, facilitating repair and upgrading, and promoting end-of-life strategies. It was found that most strategies consider environmental, economic and management aspects, while the social aspect is addressed only with strategies related to employment generation. In addition, CE strategies were found throughout the entire life cycle of a product or service, with the use and end-of-life phases being the most prevalent.

By comparing the CE framework with Business Models Canvas, it was found that the CE elements can be adapted to business model components to facilitate the implementation of circular aspects as presented in Figure 2. However, a more in-depth analysis of this topic should be addressed in future research. This study is mainly focused on the comprehension of the CE framework as a starting point to enable the inclusion of these elements in business models.

3.2. CE Metrics

The analysis of the circularity tools evidenced significant similarities between their proposed evaluation metrics. These were grouped into 10 categories: Energy, Water, Waste, Materials, Emissions and Effluents, Design, Employment, Financial and Management, as shown in

Table 2. Circular economy metrics.

Aspect	Environmental						Management	Economic	Social
CATEGORIES	Design	Emissions	Materials	Waste	Water	Energy	Management	Financial	Employment
METRICS	-MD1 -MD2 -MD3 -MD4 -MD5 -MD6	-ME1 -ME2	-MM1 -MM2 -MM3 -MM4	-MWAS1 -MWAS2 -MWAS3 -MWAS4 -MWAS5 -MWAS6 -MWAS7 -MWAS8 -MWAS9 -MWAS10 -MWAS11 -MWAS12 -MWAS13 -MWAS14 -MWAS15	-MWAT1 -MWAT2 -MWAT3 -MWAT4 -MWAT5 -MWAT6 -MWAT7 -MWAT8	-ME1 -ME2 -ME3 -ME4	-MMA1 -MMA2 -MMA3 -MMA4 -MMA5 -MMA6 -MMA7 -MMA8 -MMA9 -MMA10 -MMA11 -MMA12 -MMA13	-MF1 -MF2 -MF3 -MF4 -MF5 -MF6 -MF7 -MF8 -MF9 -MF10 -MF11 -MF12 -MF13 -MF14 -MF15 -MF16 -MF17	-MS1 -MS2 -MS3 -MS4 -MS5 -MS6 -MS7 -MS8 -MS9 -MS10 -MS11 -MS12

. A total number of 83 metrics were identified (Appendix B), most of them related to economic and environmental aspects. As for social aspects, similarly to the CE strategies, the metrics were mostly related to employment generation and health. Some of the most representative metrics are the amount of waste generated, total consumption of water, fuels, electricity and materials, percentages of recycled waste and economic profits. In addition, metrics were found throughout the entire life cycle, with greater emphasis on the design, production and end-of-life stages.

3.3. Case Studies

The analysis of the case studies at the local level showed that Ecuadorian companies include many aspects of the CE in their practices. However, the aspects vary according to the specific goals of the companies and are not implemented under a CE approach. What happens in most cases is that there is a strong component of sustainability in which several elements coincide with circular practices. Among the most applied principles (Figure 3) in local production and service companies are Transparency, Innovation and Collaboration, which correspond to general principles of the CE. However, more specific principles such as Design for circular economy, Material balance, Close the system, Rethinking the business model and Reduce the size of the system were not considered.

Regarding the CE drivers (Figure 4), the most prevalent in both product and service companies were Social development, followed by Political and economic benefits and by Environmental concerning and resource depletion.

For the CE stakeholders (Figure 5), it was found that Consumers and Users and Suppliers are the most relevant for both product and service companies, while Society, Employees and NGOs are less prevailing.

With respect to the CE strategies (Figure 6), it was identified that the most frequently applied strategies for both product and service companies are Generate Employment, Promote proper waste management, Training, education and campaigns about environmental issues and the CE and Creation of collaborative networks. For product companies, some additional strategies such as Reduce and improve efficiency resources usage and Reducing pollutant emissions were found. On the other hand, a significant number of more complex strategies such as Minimize the use of hazardous materials, Promote mono-material designs, Incorporate systems to control failed components, Design transparent, reproducible and scalable products, Establish laws and policies towards the CE, Design products for reuse, recycling and/or recovery of materials/components, among others, were not included in any of the companies analyzed. In addition, it was found that in the local context, companies show a high interest in promoting strategies in environmental and social aspects, for the latter promoting strategies for the eradication of violence and discrimination, freedom of association and the development of projects with the locality. However, these strategies were not included in the analysis as they were not identified as part of the CE framework.

Finally, for circular metrics (Figure 7) it was found that the categories of Energy, Water, Waste, Waste recovery and Social (related to job creation and occupational safety and health) are the most reported by product and service companies, while no Design metrics were reported in the analyzed sample. Among the most reported metrics are Total revenues, Percentage of occupational injuries, Number of jobs generated, Total energy and water consumption and Percentage of waste recycled. It was identified that the most reported CE metrics by local companies are mostly environmental related, while financial and management aspects are less prevailing. In addition, the metrics identified in the local context correspond to the production and end-of-life life cycle stages.

4. Discussion

As mentioned by many authors, the CE concept has evolved and been adapted to different contexts since its introduction, which has aroused growing interest among researchers, governments and decision-makers. However, and despite its popularity, the conceptualization of the CE is still under development and debate [4,5]. In 2017, the paper by [7] studied 114 definitions of the CE, which evidenced the diversity and complexity of the concept. Furthermore, the literature review conducted in our work found that, as with definitions, there is a wide variety of CE elements, resulting in an extensive and, to some extent, confusing conceptual framework. However, by means of the proposed framework, general action lines were found that facilitate the understanding of the CE, since it structures better its elements and relationships. With regard to the principles of the CE, an emphasis on resource use efficiency as well as on waste management was evidenced. In addition, there is a growing interest in principles related to structural changes in organizations, which have an impact on the different components of business models such as value proposition, distribution channels, revenue streams, key activities, key resources and the relationship with strategic partners, which derives in strategies such as the design and creation of circular products with fewer raw materials and less energy use and with repair or remanufacturing capabilities, the proposal of new sales channels such as virtual ones, the use of secondary materials and circular sourcing, the use of renewable energies, the reduction of water consumption or the creation of cooperation networks in the value chain and supply chain [49].

The principles of the CE have a clear lack of social aspects, which is somewhat contradictory since one of the main drivers identified, in addition to environmental concern and political and economic benefits, is social development. On the other hand, the wide variety of CE stakeholders found indicate the current considerations of the approach to be beyond companies and decision-makers, extending to civil society, local communities and consumers and users. With respect to CE strategies, it was observed that environmental, economic and social aspects are considered. However, the latter focus almost exclusively on employment generation and occupational safety and health, which implies that the social component is not comprehensively addressed. In addition, most CE strategies are oriented to the end-of-life and production stages, while extraction, design, use, marketing and distribution are neglected. Finally, a strong relationship was identified between the elements of the CE, where the drivers promote the adoption of the CE, which is based on basic principles for its implementation and is operationalized through strategies that involve different stakeholders. To complement the CE framework and evaluate its level of implementation at the organizational level, circularity micro indicators of Type 2 (circularity tools) were used, since Type 1 and 3 micro indicators embrace the CE principles in a broader way and at higher degree of complexity, which makes them less extended in industrial practices [29]. It was found that circularity tools propose metrics to evaluate environmental and economic aspects to a greater extent, while the social component, in a similar way to the CE strategies, is mostly associated with employment generation and occupational safety and health. At the same time, the majority of metrics are oriented to the end-of-life stage, and some aspects related to production and design.

In recent years, the CE has aroused growing interest in Ecuador. Many public initiatives such as the CE Pact, the CE White Book or the “Inclusive Circular Economy organic law” have attempted to guide the different stakeholders towards a National Circular Economy Strategy, through the promotion of the practices of efficient resource use, reduce, reuse, recycling, waste management or renewable energy use [42,43]. In this context, when assessing the local case studies some CE practices were found. However, these practices are mainly associated with the efficient use of resources and waste valorization, while elements related to product and service design, systemic thinking, closing loops and rethinking of business models are not taken into account. The current adoption of the CE at the company level does not have specific application frameworks, so that the implemented strategies are the result of the sustainability approach adopted by companies, where the CE is conceived as a tool to achieve their objectives. As mentioned by [49], the implementation of the CE in companies requires the adoption of new visions, strategies and a fundamental redesign of product concepts and service offerings towards long-term solutions. In this sense, business models enable a systemic change in a company’s dynamics by providing analysis, planning and communication tools, as well as a strategic asset for the company’s competitive advantage and performance. In this sense, companies willing to adopt circular practices in their business models must in the first place understand the CE framework and identify the elements of this approach that contribute to rethinking their value propositions. This CE framework could also be applied in other countries to identify the integration of circular practices at the organizational level since it derives from the convergence of multiple elements presented on a broad spectrum of proposals and approaches. Nonetheless, the existence of regulatory frameworks and standardized indicators should be taken into account, as they could drive the implementation of the CE in specific contexts.

5. Conclusions

This study proposed a CE framework based on four fundamental elements: principles, drivers, stakeholders and strategies, which contribute towards a better comprehension of the CE. The assessment was complemented by the identification of metrics for the evaluation of circularity in companies. Despite the extent and diversity of the items, it was possible to establish relationships and to identify general action lines that conduct the CE framework. It was found that most of the elements and metrics of the CE are environmental and economic oriented, with social aspects being reduced to employment generation and occupational safety and health. With regard to life cycle stages, it was observed that production and end of life are more prevailing. On the other hand, through the assessment of local study cases it was evidenced that the current adoption of circular practices in companies derives from the incorporation of the sustainability approach instead of a structured implementation of the CE. In this context, a proper understanding of the elements of the CE framework may facilitate the incorporation of the CE into companies’ business models.

The results in this study present some shortcomings due to the broad scope of the CE concept. In this case, a systematic literature review was conducted based on Fink’s methodology. However, there are other methodologies such as PRISMA, developed for a literature review and meta-analysis, which could be used for future in-depth research, since it is feasible for the identification of additional elements and action lines within the CE.

In Ecuador, companies are not currently compelled to inform their activities. Therefore, the information provided in their reports cannot be verified and does not contain specific CE-related data, as it is mostly used to improve their corporate image. In addition, reports are only available for big companies, so that the results do not necessarily reflect the adoption of circular practices throughout the entire business sector, as small and medium-sized organizations are not represented.

Finally, as the “Inclusive Circular Economy draft organic law” was not in effect at the time of this study, it would be necessary to evaluate the implementation of the CE in companies once it is approved.