Trend analysis: Circularity metrics, LCA & reporting — where the value pools are (and who captures them)

The global circularity rate has fallen to just 6.9% in 2024—down from 7.2% in 2018—even as recycling volumes increase, according to the Circularity Gap Report 2025. Meanwhile, the digital circular economy market has reached $3.2 billion and is growing at 24% CAGR, while LCA software alone now represents a $230 million segment expanding at 15% annually. This paradox—declining circularity amid booming measurement infrastructure—reveals a fundamental tension in sustainability reporting: the difference between measurement theater and genuine material transformation. For sustainability leads navigating CSRD compliance, ISO 59020 adoption, and investor scrutiny, understanding where value actually concentrates in the circularity metrics ecosystem has never been more critical.

Why It Matters

Circularity metrics and life cycle assessment have transitioned from voluntary sustainability exercises to regulatory mandates with material financial consequences. The EU's Corporate Sustainability Reporting Directive (CSRD), which began affecting large companies for FY2024 reporting, makes circular economy disclosure mandatory under ESRS E5—the first global standard requiring quantitative circularity metrics from approximately 50,000 companies.

The stakes extend beyond compliance costs. A World Benchmark Alliance study found that while 77% of European companies mention circular economy in sustainability reports, only 22% report quantitative ESRS E5 indicators. This gap represents both regulatory risk and competitive opportunity. Organizations that build robust circularity measurement systems now will capture several value pools: reduced compliance costs as requirements tighten, enhanced access to green finance instruments, and operational savings from genuine resource efficiency.

The connection between measurement and material outcomes matters because 70% of global greenhouse gas emissions are tied to material production and use. Circularity metrics—when done correctly—drive actual decarbonization by tracking recycled content, product longevity, and end-of-life recovery. When done poorly, they create elaborate reporting exercises that obscure continued linear resource flows. The difference between these outcomes determines whether the $2.3 trillion circular economy projected for 2030 becomes real transformation or accounting fiction.

Key Concepts

The ISO 59020 Framework

Published in May 2024, ISO 59020 provides the first international standard for measuring and assessing circularity performance. The framework establishes mandatory and optional indicators across two categories:

Resource Inflow Indicators measure the source of materials entering an organization or product system:

• Recycled content fraction
• Reused content fraction
• Renewable content fraction

Resource Outflow Indicators track what happens to materials leaving the system:

• Fraction reused
• Fraction recycled
• Non-circular outflow (waste, losses, unrecovered products)

The standard emphasizes evaluating inflow and outflow indicators together—high recycled content means little if products are not recoverable at end-of-life. ISO 59020 applies across regional, inter-organizational, organizational, and product-specific levels, providing flexibility for different reporting contexts while maintaining methodological consistency.

Material Circularity Indicator (MCI)

Developed by the Ellen MacArthur Foundation, the MCI remains the most widely cited product-level circularity metric despite the Foundation stepping back from active development. The indicator scores products from 0.1 (fully linear) to 1.0 (fully circular) based on:

• Input source (virgin, recycled, bio-based feedstock)
• Output destination (recycling, reuse, disposal)
• Product utility (lifetime and intensity of use versus industry average)

Recent academic research has identified limitations in the MCI methodology, including oversimplified waste-allocation rules that can produce errors exceeding 2000% in complex multi-cycle scenarios. Users should treat MCI as a directional indicator rather than precise measurement.

ESRS E5 Disclosure Requirements

Under CSRD, the European Sustainability Reporting Standard E5 ("Resource Use and Circular Economy") requires:

• E5-1: Circular economy policies and governance
• E5-2: Actions, investments, and circular business models
• E5-3: Time-bound targets for resource efficiency and waste reduction
• Material flow quantification: inputs (virgin vs. recycled), outputs, recycling rates
• Circular design practices: durability, repair, reuse capabilities
• Value chain impacts: circularity across supply chains and product lifecycles

Sector-Specific Circularity KPIs

Sector	Key Circularity Metrics	Baseline Range	Target Range	Data Quality Challenge
Construction	Recycled aggregate content, Design for Disassembly score	15-25%	>40%	Inconsistent material passports
Packaging	MCI score, Recycled content %, Collection rate	25-35%	>60%	Post-consumer verification
Electronics	Extended product lifetime, Repair rate, E-waste recovery	5-15% recovery	>35%	Complex material streams
Textiles	Fiber-to-fiber recycling rate, Take-back volume	<1%	10-15%	Blend separation technology
Automotive	Remanufactured parts %, Battery second-life rate	20-30%	>50%	Supply chain coordination
FMCG	Packaging circularity, Refill/reuse system adoption	5-10%	>25%	Consumer behavior data

What's Working

Standardized Evaluation Frameworks

Organizations achieving top-quartile circularity performance share a common pattern: they adopt established frameworks before building custom metrics. The WBCSD's Circular Transition Indicators (CTI) framework, used by 50+ companies globally, provides baseline measurement, target-setting, and progress tracking aligned with ESRS E5 requirements. Companies using CTI report 40% faster CSRD compliance preparation compared to those building proprietary metrics systems.

The convergence around ISO 59020 and CTI enables benchmarking that was previously impossible. When everyone measures differently, comparisons are meaningless. Standardization creates market pressure—companies with demonstrably lower circularity face harder questions from investors and customers.

Digital Product Passports

The EU's Digital Product Passport mandate, beginning with batteries in 2027 and extending to textiles and construction products, is forcing infrastructure investments that enable genuine circularity measurement. Unlike self-reported metrics, DPPs create auditable trails from raw material extraction through end-of-life. Early adopters are finding that DPP infrastructure reveals previously invisible material flows, enabling both better reporting and actual operational improvements.

One Click LCA's integration of LCA with circularity assessment for construction has demonstrated that coupling environmental impact data with material circularity indicators produces more actionable insights than either approach alone. Their CalGreen Tool for California construction projects shows how regulatory requirements can drive tool adoption that benefits broader measurement capability.

Hybrid Measurement Architectures

The best-performing organizations use tiered approaches: detailed LCA for strategic decisions, simplified circularity indicators for operational tracking, and automated data collection where possible. Pure LCA is too resource-intensive for continuous monitoring; pure circularity metrics miss environmental trade-offs (recycling isn't always better than virgin material depending on energy inputs). Hybrid architectures capture both dimensions.

What's Not Working

Measurement Theater

Many organizations report impressive circularity metrics that collapse under scrutiny. Common problems include counting recycled content without verifying actual recycled material certification, measuring collection rates rather than actual recycling (much collected material ends up in landfill or downcycled), and using favorable system boundaries that exclude difficult-to-measure value chain segments.

The 6.9% global circularity rate despite growing recycling volumes illustrates the gap between activity metrics and outcome metrics. Organizations should focus on closed-loop material flows verified by third parties rather than process metrics that can be gamed.

Ignoring Data Quality

Circularity metrics are only as good as underlying data. Most organizations underestimate the challenge of tracking material flows across complex supply chains. Primary data on recycled content is expensive to collect; default values from databases may not reflect actual practices. Without systematic data quality assessment, reported circularity improvements may reflect better measurement rather than genuine progress.

Organizations should implement sampling-based verification for key metrics and maintain transparency about data sources (primary vs. secondary, modeled vs. measured). ESRS E5 requires disclosure of data quality, and auditors are increasingly scrutinizing methodology.

Premature Indicator Selection

Organizations frequently adopt circularity indicators based on what competitors report or what software supports, rather than what matters for their specific business model. A packaging company and an equipment manufacturer have fundamentally different circularity value drivers. Generic indicator sets produce compliance documents but not strategic insight.

The solution is materiality-first indicator selection: identify which circular economy impacts are material to the business (per ESRS double materiality requirements), then select indicators that track those specific impacts. This typically yields 5-8 core indicators rather than 20+ generic metrics.

Key Players

Established Leaders

• SAP — Launched its Circular Economy module in 2021, integrating circularity tracking with existing ERP systems. Strength in large enterprise adoption and supply chain visibility.
• Sphera — Comprehensive LCA and product stewardship platform with deep environmental database coverage. Strong in manufacturing and chemicals sectors.
• One Click LCA — Dominant position in construction LCA with integrated circularity assessment. Developer of the CalGreen Tool for California regulatory compliance.
• PRé Sustainability (SimaPro) — Long-established LCA software with extensive methodology support and academic credibility.
• iPoint-systems — Specializes in product compliance and supply chain traceability with growing circularity capabilities.

Emerging Startups

• Circular IQ — CTI framework implementation platform focused on mid-market companies with supply chain mapping.
• Rheaply — Asset exchange platform that enables internal reuse tracking and generates circularity data as byproduct of operations.
• Ecochain Technologies — Automated LCA platform designed for non-specialists, reducing consultant dependency.
• Makersite — AI-powered product sustainability platform integrating LCA, cost, and supply chain risk.
• Resortecs — Smart disassembly technology for textiles, generating end-of-life data that feeds circularity metrics.

Key Investors & Funders

• Circularity Capital — Dedicated circular economy growth fund, €200M+ AUM, backing measurement and infrastructure plays.
• SYSTEMIQ — Combines investment with advisory, backing circular economy transitions with measurement requirements.
• European Investment Bank — Major funder of circular economy infrastructure including measurement systems through InvestEU.
• Closed Loop Partners — US-based investor focused on circular economy infrastructure and enabling technology.

Examples

IKEA's Circular Product Scorecard: IKEA developed an internal circularity assessment tool evaluating every product across nine dimensions including renewable/recycled content, durability, repairability, and recyclability. By 2024, 67% of materials used were renewable or recycled, tracked through this systematic framework. The scorecard drives design decisions—products scoring below threshold cannot launch. Critical success factor: integrating circularity metrics into product development gates rather than measuring after design completion.

Philips Circular Economy Dashboard: Philips reports circularity KPIs including equipment take-back, refurbishment volumes, and recycled materials in new products. Their 2024 report showed 13% of revenues from circular products (refurbished, leased, or upgraded). The measurement system distinguishes between different circularity strategies rather than collapsing everything into a single indicator, enabling targeted improvement programs for each circular business model.

Interface's ReEntry Program: The carpet manufacturer implemented product-level LCA combined with circularity tracking across its global operations. They measure both virgin material displacement (recycled content) and end-of-life material recovery, with verified third-party data on closed-loop recycling percentages. The dual measurement—input and output—prevents the common error of counting recycled inputs without ensuring recyclable outputs.

Action Checklist

• Conduct double materiality assessment to identify which circular economy impacts require measurement for your specific business
• Adopt ISO 59020 or CTI framework as baseline methodology before customizing indicators
• Map data sources for each indicator, classifying as primary/secondary and modeled/measured
• Implement sampling-based verification for top 3-5 circularity claims (minimum 10% of relevant transactions)
• Establish system boundaries explicitly and document exclusions—auditors will ask
• Calculate both inflow (recycled content) and outflow (end-of-life recovery) indicators together
• Integrate circularity metrics into operational systems rather than building parallel reporting infrastructure
• Set science-based circularity targets aligned with sector roadmaps, not arbitrary improvement percentages

FAQ

Q: How do I choose between ISO 59020, CTI, and MCI for circularity measurement? A: These frameworks serve different purposes and can be used together. ISO 59020 provides methodological requirements—the "how" of measurement. CTI offers a practical implementation framework aligned with CSRD requirements—best for company-level reporting. MCI works at product level for design decisions and procurement. Most organizations need all three: ISO 59020 for methodology rigor, CTI for company reporting, and MCI for product assessment.

Q: What's the minimum investment to achieve CSRD-compliant circularity reporting? A: For mid-sized companies, expect €50-150K in the first year covering framework adoption, data system integration, and limited consulting support. This assumes existing ERP and sustainability data infrastructure. Companies starting from scratch should budget 2-3x higher. The investment pays back through reduced audit findings and lower ongoing compliance costs as requirements intensify. Don't underbudget data collection—it typically represents 60% of total effort.

Q: How should I handle circularity metrics for complex products with hundreds of components? A: Use tiered materiality. Identify the 10-20% of components representing 80%+ of material mass or environmental impact, and measure those precisely. Apply default values or supplier declarations for remaining components. Document this approach explicitly. Regulators and auditors accept tiered approaches when justified by materiality—they don't expect identical precision across all components. Update component categorization annually as data availability improves.

Q: Are circularity metrics applicable to service businesses? A: Yes, though the focus shifts from product material flows to operational resource use and procurement. Service businesses should measure: circular procurement (recycled/renewable content in purchased goods), asset utilization and extension (equipment lifetime, refurbishment), and waste from operations. ESRS E5 applies to all in-scope companies regardless of business model. Service businesses often find procurement circularity is their largest impact area.

Q: How do I verify recycled content claims from suppliers? A: Require certification to recognized standards (SCS Recycled Content, UL ECVP, or equivalent) for material claims. For significant spend categories, conduct periodic third-party audits or site visits. Implement mass balance tracking where possible. Accept that verification has costs—build these into supplier contracts rather than accepting unverified claims. CSRD auditors are increasingly requesting evidence of supply chain data verification.

Sources

• Circularity Gap Reporting Initiative, "The Circularity Gap Report 2025," January 2025
• Precedence Research, "Digital Circular Economy Market Size 2024-2034," December 2024
• Fortune Business Insights, "Life Cycle Assessment Software Market Size, Growth 2032," October 2024
• ISO, "ISO 59020:2024 Circular economy — Measuring and assessing circularity performance," May 2024
• WBCSD, "CSRD and Circular Economy: Navigating Sustainability Reporting with CTI," November 2024
• World Benchmark Alliance, "European Company Circular Economy Readiness Assessment," September 2024
• Ellen MacArthur Foundation, "Material Circularity Indicator Methodology," 2019 (updated)
• EY, "How EU's New Regulations Embrace Circular Economy Principles," 2024