Myths vs. realities: Circularity metrics, LCA & reporting — what the evidence actually supports

A 2025 survey by the Ellen MacArthur Foundation found that 73% of companies claiming to measure circularity use metrics that cover fewer than 20% of their material flows, while only 11% apply lifecycle assessment (LCA) methodologies that meet ISO 14040/14044 standards in full. In the EU, where the Corporate Sustainability Reporting Directive (CSRD) now requires circularity disclosures from more than 50,000 companies, the gap between what organizations report and what the data actually represents is widening. For founders building products in the circular economy space, understanding which metrics hold up under scrutiny and which collapse on inspection is the difference between credible market positioning and regulatory exposure.

Why It Matters

The EU's transition to mandatory circularity reporting under the European Sustainability Reporting Standards (ESRS) E5 resource use and circular economy standard has created enormous demand for measurement tools, LCA software, and reporting platforms. The global LCA software market reached $1.2 billion in 2025 and is projected to grow at 14% annually through 2030 (Grand View Research, 2025). Meanwhile, the number of companies publishing circularity metrics in annual reports increased from roughly 800 in 2022 to more than 4,500 in 2025 across the EU alone (GRI, 2025).

This explosion of circularity reporting has outpaced the maturity of underlying methodologies. Different frameworks produce wildly different results for the same company: a 2024 study by the Wuppertal Institute found that applying five commonly used circularity indicators to the same manufacturing firm yielded circularity scores ranging from 12% to 68%, depending on system boundaries, allocation methods, and what counted as "circular" (Wuppertal Institute, 2024). For founders selling circularity measurement solutions or building businesses that depend on circular economy claims, this methodological fragmentation creates both risk and opportunity.

Investors are paying attention. The EU Taxonomy's circular economy criteria require companies to demonstrate measurable contributions to circularity using standardized approaches. Greenwashing enforcement under the EU Green Claims Directive, which takes effect in 2026, explicitly targets unsubstantiated circularity claims. Founders who build on rigorous metrics will find regulatory tailwinds; those who rely on marketing-grade indicators face increasing legal exposure.

Key Concepts

Circularity metrics attempt to quantify how effectively materials, products, and components are kept in use at their highest value. The most widely referenced framework is the Ellen MacArthur Foundation's Material Circularity Indicator (MCI), which scores products from 0 (fully linear) to 1 (fully circular) based on recycled input, recycling rates, product lifetime, and intensity of use. LCA is a broader methodology that quantifies environmental impacts across a product's entire lifecycle, from raw material extraction through manufacturing, use, and end-of-life processing. Under ISO 14040 and 14044, a compliant LCA requires defined goal and scope, lifecycle inventory analysis, impact assessment, and interpretation, with peer review for comparative assertions disclosed to the public.

The ESRS E5 standard requires companies to report on resource inflows (including recycled and renewable content), resource outflows (including waste generation and recycling rates), and circular design principles applied to products and packaging. These disclosures must be connected to financial materiality assessments and transition plans.

Myth 1: A Single Circularity Score Can Capture True Performance

The idea that one number can meaningfully represent a company's circularity is appealing but fundamentally misleading. The MCI, Circulytics, and similar composite scores aggregate multiple dimensions of circularity into a single figure, but the aggregation masks critical trade-offs. A company might score highly by recycling large volumes of low-value material while sending small quantities of hazardous materials to landfill. The composite score looks good; the environmental reality does not.

A 2025 analysis by the Technical University of Denmark compared MCI scores with environmental impact results from full ISO-compliant LCAs for 42 consumer products. The correlation between MCI score and actual environmental benefit was weak (r = 0.31), meaning that products scoring well on circularity metrics frequently showed minimal environmental improvement, and some showed worse outcomes due to energy-intensive recycling processes (DTU, 2025). The MCI captures material flows but ignores energy inputs, toxicity, water use, and biodiversity impacts associated with material recovery.

The reality: circularity metrics are useful as directional indicators for specific material streams, but they should never substitute for comprehensive environmental impact assessment. Founders building measurement platforms should present circularity indicators alongside LCA-derived impact metrics, not as standalone scores.

Myth 2: LCA Provides Objective, Comparable Results

LCA is often presented as the gold standard for environmental assessment, a rigorous, science-based methodology that produces definitive answers. In practice, LCA results are highly sensitive to methodological choices that involve subjective judgment. System boundary definition, functional unit selection, allocation methods for multi-output processes, end-of-life modeling assumptions, and the choice of impact assessment method all significantly influence results.

A 2024 study published in the Journal of Industrial Ecology asked 15 experienced LCA practitioners to independently assess the same polyethylene terephthalate (PET) bottle using the same database (ecoinvent 3.10) and found that carbon footprint results varied by a factor of 2.3, ranging from 82 to 189 grams of CO2 equivalent per bottle (Journal of Industrial Ecology, 2024). The primary drivers of variation were allocation choices at the recycling stage and assumptions about the displaced virgin material.

This does not mean LCA is useless. It means that comparisons between LCA results are only meaningful when conducted under harmonized methodological assumptions. The EU's Product Environmental Footprint (PEF) methodology addresses this by prescribing specific rules for each product category through Product Environmental Footprint Category Rules (PEFCRs). As of early 2026, PEFCRs have been finalized for 19 product categories including batteries, textiles, and packaging. Founders building LCA tools should align with PEF methodology where PEFCRs exist rather than offering unconstrained flexibility that enables cherry-picking of favorable assumptions.

Myth 3: Recycling Rate Equals Circularity Rate

Companies routinely report recycling rates as their primary circularity metric, implying that a 90% recycling rate means 90% circularity. This conflation ignores three critical factors. First, recycling rate typically measures the percentage of waste entering a recycling facility, not the percentage actually converted into usable secondary material. Collection and sorting losses, contamination-related rejection, and process yields mean that a reported 90% recycling rate often corresponds to 50 to 70% actual material recovery (WRAP, 2025).

Second, recycling does not account for quality degradation. Mechanical recycling of plastics typically reduces polymer chain length and introduces contamination, limiting recycled material to lower-grade applications. A PET bottle recycled into polyester fiber has been recycled but has moved to a lower-value application with limited further recyclability, a trajectory that is linear with one extra step, not circular.

Third, recycling rate says nothing about the other circularity strategies that sit higher on the value retention hierarchy: refuse, reduce, reuse, repair, refurbish, and remanufacture. A company that designs products for 10-year lifespans with modular repair might have a lower recycling rate (because less material reaches end-of-life) but higher actual circularity than a competitor with disposable products and excellent recycling infrastructure.

Myth 4: CSRD Circularity Disclosures Will Create Comparability Across Companies

The assumption that ESRS E5 reporting requirements will produce comparable circularity data across companies and sectors overestimates what the current standards prescribe. ESRS E5 requires disclosure of resource use and circular economy policies, targets, and metrics, but it allows significant flexibility in how companies define their reporting boundaries, which material streams they include, and what baseline they measure against.

A 2025 pilot analysis by the European Financial Reporting Advisory Group (EFRAG) of 35 early CSRD adopters found that circularity disclosures varied so substantially in scope, methodology, and granularity that cross-company comparison was not feasible for 28 of the 35 companies studied (EFRAG, 2025). Companies in the same sector used different definitions of "recycled content," different system boundaries for waste reporting, and different approaches to measuring product lifetime extension.

The reality: CSRD will drive a significant increase in the quantity of circularity data disclosed, but meaningful comparability will require sector-specific implementation guidance and likely two to three reporting cycles before methodologies converge. Founders building reporting platforms should invest in sector-specific templates and benchmarking databases rather than assuming that generic ESRS compliance will automatically produce comparable outputs.

What's Working

The EU Product Environmental Footprint methodology is the most promising development for standardized circularity-related environmental assessment. PEFCRs define precise rules for system boundaries, allocation, data quality requirements, and communication formats for specific product categories. Companies using PEF methodology for batteries (under the EU Battery Regulation) and textiles (under forthcoming EU textile strategy requirements) are producing results that are genuinely comparable within their categories.

The Cradle to Cradle Certified Products Standard (version 4.1) provides a multi-attribute certification that combines material health, circularity, clean air and climate, water stewardship, and social fairness assessments. Over 700 products from 200 companies hold Cradle to Cradle certification as of early 2026, and the standard's requirement for continuous improvement over three certification levels (Bronze, Silver, Gold, Platinum) provides a more nuanced picture than single-score metrics.

Company-specific material flow analysis, where organizations track actual material quantities through their value chains rather than relying on industry averages, is producing the most actionable circularity data. Interface, the flooring manufacturer, has tracked its material flows at the product level since 2020 and reports circularity metrics that distinguish between closed-loop recycling (carpet-to-carpet), open-loop recycling (carpet-to-other-product), and downcycling, providing a transparency model that other manufacturers are beginning to follow.

What's Not Working

Generic circularity scorecards marketed as "comprehensive" assessments remain widespread despite their demonstrated limitations. Many SaaS platforms offer automated circularity scores based on minimal input data: a few material composition percentages and end-of-life assumptions drawn from industry averages rather than actual supply chain data. These tools create a false sense of measurement precision.

Data availability for LCA remains a fundamental bottleneck. The ecoinvent database, the most widely used LCA background database, contains approximately 20,000 datasets, but many represent European production conditions from 2015 to 2020. Companies operating with Asian or African supply chains frequently lack representative data for key processes, forcing reliance on proxy data that introduces substantial uncertainty.

Scope 3 circularity measurement: tracking circularity across upstream supply chains and downstream product use and end-of-life, is particularly underdeveloped. Most companies can report on their own manufacturing waste streams with reasonable accuracy, but data on what happens to products after they leave the factory gate relies on assumptions, surveys, and modeling rather than direct measurement.

Key Players

Established: Sphera (GaBi LCA software and consulting), SimaPro (LCA software used by 14,000+ professionals), ecoinvent Association (lifecycle inventory database), SAP (integrated sustainability reporting in enterprise resource planning), Bureau Veritas (third-party verification of circularity claims)

Startups: Circulor (supply chain traceability and circularity tracking using digital product passports), Makersite (AI-driven product lifecycle intelligence platform), Circular IQ (circularity assessment and reporting for supply chains), Resourcify (waste management digitization and circularity analytics)

Investors: Circularity Capital (circular economy-focused growth equity fund, Edinburgh), SYSTEMIQ (circular economy advisory and investment), European Circular Bioeconomy Fund (EIB-backed fund targeting circular bioeconomy ventures), SET Ventures (sustainable economy transition investments)

Action Checklist

• Map all material flows entering and leaving your operations before selecting circularity metrics to ensure metrics cover at least 80% of material value
• Use circularity indicators (MCI, recycling rates) alongside LCA-derived environmental impact metrics rather than reporting circularity scores in isolation
• Align LCA methodology with EU PEF category rules where available to ensure comparability and regulatory compliance
• Distinguish between closed-loop recycling, open-loop recycling, and downcycling in all circularity reporting
• Audit automated circularity scoring tools for data quality: verify whether scores are based on actual supply chain data or industry-average proxies
• Prepare for CSRD ESRS E5 reporting by establishing sector-specific baselines and documenting methodological choices transparently
• Budget for third-party verification of circularity claims ahead of EU Green Claims Directive enforcement in 2026

FAQ

Q: Which circularity metric should founders prioritize for investor communications? A: Rather than a single composite score, present a dashboard of three to four metrics matched to your business model: recycled and renewable input rate (material sourcing), product lifetime or use cycles (design quality), material recovery rate distinguishing closed-loop from open-loop recycling (end-of-life), and total material productivity (revenue per kilogram of material input). This approach avoids the limitations of single scores while demonstrating measurable progress. Investors increasingly distrust single numbers and prefer seeing the underlying data.

Q: How much does a credible LCA cost, and when is it worth the investment? A: A streamlined (screening-level) LCA typically costs EUR 5,000 to 15,000 and takes 4 to 8 weeks. A full ISO 14040-compliant LCA with peer review costs EUR 25,000 to 80,000 and takes 3 to 6 months. For founders, a streamlined LCA is appropriate for internal decision-making and product development. A full peer-reviewed LCA becomes necessary when making comparative environmental claims in marketing materials (legally required under ISO 14044 and the EU Green Claims Directive) or when substantiating claims for B2B customers with procurement sustainability requirements.

Q: Will the EU Green Claims Directive make current circularity marketing claims illegal? A: The Directive, expected to apply from late 2026, requires that all environmental claims be substantiated using recognized scientific methodologies before they are communicated. Generic claims such as "circular product" or "zero waste" without quantified, verified evidence will be prohibited. Claims based on proprietary scoring methodologies that have not been validated against recognized standards (ISO, PEF) will face enforcement risk. Founders should audit existing marketing materials and product claims against the Directive's substantiation requirements now, rather than waiting for enforcement.

Q: How should startups handle data gaps in LCA when supply chain data is unavailable? A: Acknowledge data gaps transparently and use a tiered data quality approach. Use primary data (direct measurement from your suppliers) for the top 3 to 5 processes that contribute most to environmental impact, typically identified through a hotspot analysis. Use high-quality secondary data (ecoinvent, GaBi) for remaining processes, and document where proxy data has been used and what uncertainty it introduces. The PEF methodology provides explicit data quality ratings (1 to 5 scale) that help communicate confidence levels. Avoid presenting LCA results with false precision: reporting a carbon footprint as "4.2 kg CO2e" when underlying data uncertainty is plus or minus 40% is misleading.

Sources

• Ellen MacArthur Foundation. (2025). Circularity Indicators: An Approach to Measuring Circularity, Methodology Update 2025. Isle of Wight: EMF.
• Grand View Research. (2025). Life Cycle Assessment Software Market Size, Share & Trends Analysis Report. San Francisco: Grand View Research.
• Wuppertal Institute. (2024). Circularity Metrics Comparison: Applying Five Indicators to Manufacturing Firms. Wuppertal: Wuppertal Institute for Climate, Environment and Energy.
• Technical University of Denmark. (2025). Correlation Between Material Circularity Indicators and Environmental Impact: Analysis of 42 Consumer Products. Lyngby: DTU.
• Journal of Industrial Ecology. (2024). Practitioner Variability in LCA: A Multi-Analyst Study of PET Packaging. New Haven: Yale University.
• WRAP. (2025). Material Recovery Rates vs. Collection Rates: Closing the Data Gap in European Recycling Systems. Banbury: WRAP.
• European Financial Reporting Advisory Group. (2025). CSRD Early Adopter Analysis: Resource Use and Circular Economy Disclosures. Brussels: EFRAG.
• Global Reporting Initiative. (2025). State of Sustainability Reporting: Circular Economy Disclosures 2022-2025. Amsterdam: GRI.