Circularity is the new IT imperative

The circular economy, an economic model of minimizing waste and making the most of resources through reuse and recycling, has gained new relevance in recent years as the impact of climate change, ocean pollution, and the environmental impacts of rampant disposal have become more pronounced.

Many organizations now embrace sustainability as a core corporate social responsibility (CSR) objective. More than 90% of CEOs say sustainability is important to their company’s success, according to the Stanford Social Innovation Review. 98% of S&P 500 companies published a sustainability report in 2022, up from just 20% in 2011, according to the Governance & Accountability Institute’s 2023 Sustainability Reporting in Focus research.

This issue is particularly applicable for IT executives, whose organizations are major electric power consumers and a growing source of hazardous waste. Electronic waste (E-waste) created by the disposal of end-of-life equipment such as computers, servers, smartphones, and printers is the fastest-growing solid waste stream in the world, according to the World Health Organization. And the issue continues to escalate. Over 61 million metric tons of electronic devices were discarded in 2023, and the annual total is expected to increase to nearly 75 million metric tons by 2030. Less than 18% is currently being recycled.

E-waste is a problem on two levels. Environmentally, it is a ticking time bomb. IT assets contain hazardous materials such as mercury, lead, arsenic, beryllium, and cadmium, which can leach into the environment if disposed of improperly. Heavy metals pollute the soil and groundwater, creating health hazards for people and wildlife, and they are difficult to clean up. A slew of new regulations in the European Union, China, India, and portions of the U.S. impose severe penalties for irresponsible dumping of electronic gear.

There are also privacy and data security hazards. Discarded or recycled devices frequently contain sensitive data such as personally identifiable information and intellectual property. A 2021 Kaspersky audit of second-hand devices in the U.K. found that 90% contained traces of private and business data and 74% held data that could be recovered with special tools. That confirmed a 2019 experiment by the University of Hertfordshire that found that more than two-thirds of second-hand USB drives sold on eBay included sensitive data. Failure to scrub data from discarded devices can result in regulatory fines and reputational damage that can take years to repair.

An economic model for the new world

The linear build-use-discard model of resource usage is a vestige of a time when resources and energy were abundant and “out of sight, out of mind” thinking dominated the approach to disposal. This mindset became so entrenched in the 20th century that a 1955 issue of Life magazine celebrated the virtues of “throwaway living.” This model needs to change as the environmental and societal impacts of excessive energy use and reckless dumping have become more compelling in recent years.

The emerging circular economy seeks to keep resources in use for as long as possible, extract the maximum value from them during use, and recover and repurpose products and materials at the end of their service life. For IT asset management, this means reusing, refurbishing, remanufacturing, and recycling assets to minimize waste and resource consumption.

The circular economy model envisions making something that is old new again. As a closed-loop cycle, it pays off in lower capital expenditures, improved resource efficiency, and reduced risk by keeping resources within a managed system.

Even more important for business leaders is that circularity is economically superior to linearity. It avoids the costs of disposing of old equipment and purchasing new supplies. Organizations can also lower their Total Cost of Ownership (TCO) by remarketing end-of-life equipment and components that would otherwise be discarded. Revenue generated from circular economy transactions is expected to more than double from $339 billion in 2022 to nearly $713 billion in 2026. In addition to the economic benefits of extended asset lifecycles and resale, a circular approach to IT asset management can reduce greenhouse gas emissions, generate less E-waste, and lower manufacturing costs.

Several factors have driven the surging popularity of circular principles in IT asset management:

Environmental concerns - There is growing awareness of the environmental impact of E-waste and the adverse impact of hazardous substances on the environment and human health. The circular model reduces E-waste by recovering materials from existing equipment instead of manufacturing or mining them. It maximizes the reuse of existing equipment and promotes the recovery of materials from retired assets. If a piece of hardware cannot be reused for any reason, then it can be demanufactured into parts that can be reused.

Resource extraction - As demand for IT equipment grows (worldwide, the average person now uses 3.6 connected devices and a stunning 13.4 in North America), so does the demand for raw materials required to manufacture it. The circular model reduces the need for some of the 100 billion tons of raw materials that are extracted from the earth each year.

Technological advancements - Innovations in refurbishing, recycling, and materials recovery have made the circular model more practical and reduced barriers to adopting these practices. Numerous businesses have developed profitable models based on electronics recycling.

Regulatory pressure - Governments and regulatory bodies worldwide are implementing policies to reduce E-waste and promote sustainability, giving businesses little choice but to adopt more circular practices. For example, the European Union's new “right to repair” initiative proposal seeks to promote greater sustainability in consumption by simplifying the process of repairing faulty products, decreasing waste, and bolstering the repair industry. The EU's proposed Digital Product Passport regulation would require hardware vendors to be more transparent about raw materials and accelerate circularity efforts. France has introduced a repairability index for electronic products that seeks to boost their useful life by encouraging manufacturers to prioritize repairability during design and informing consumers about repair options at the time of purchase.

Economic benefits

Whereas environmental initiatives are often perceived as involving trade-offs, E-waste reduction is a win-win proposition with both economic and sustainability benefits. Best practices save materials and reduce waste management costs, create new business opportunities in refurbishment and recycling, and enhance the brand reputation benefits of proactive CSR.

Being green is good for business. Management consulting firm McKinsey says customers are willing to pay an average of 5% more for “green” products and estimates that reducing resource costs can improve operating profits by up to 60%. An overwhelming 87% of American consumers say they prefer to buy products with social and environmental benefits. Ernst & Young found that sustainable companies record higher gross earnings than 73% of their less-sustainable industry peers.

Despite broad acceptance of the need for businesses to become more sustainable, IT organizations have mostly lagged in adopting circular principles. A 2021 Capgemini report found that 89% of organizations recycle less than 10% of their IT hardware, 57% of technology executives are unaware of their organization’s IT carbon footprint, and nearly half lack the tools or expertise needed to adopt and deploy circular IT solutions.

IT challenges

IT executives are under pressure to show progress against CSR goals. In addition to the E-waste problem, data centers consume about 1% of all electricity globally and 2% in the U.S., making them major sources of carbon emissions. The U.S. Department of Energy estimates that a typical data center consumes 10 to 50 times as much energy per square foot as an office building. Data centers and power generation facilities are also major consumers of water, a resource that has grown more precious amid climate change-induced droughts.

The current environment most IT organizations face creates impediments to becoming more sustainable.

• Budget-strapped chief information officers (CIOs) are tempted to put short-term savings ahead of long-term sustainability benefits, causing them to opt for cheaper but less environmentally-friendly products.
• The fast pace of technological advancement causes IT equipment to quickly become outdated. Rapid obsolescence encourages a culture of frequent upgrades and replacements, with recycling and sustainable disposal treated as an afterthought. The value of older equipment falls so quickly that there is little incentive to remarket it.
• The IT industry relies on complex global supply chains that are often opaque and difficult to understand. Verifying that vendors at all stages - from raw material extraction to manufacturing, distribution, and disposal - are embracing sustainable practices can be seen as “nice to have” information that is easily overlooked.
• Chronic skills shortages distract from big-picture initiatives. IT departments do not necessarily prioritize sustainability because it's not top of mind due to the ever-present need to get projects out the door. Sustainability practices have not historically been part of university computer science curricula, although a growing number are now including the topic in their curricula.
• For practical reasons, CIOs prefer to do business with a small number of strategic vendors. This can lock them into long-term contracts that make it prohibitively expensive to switch to vendors with more sustainable practices.

The burden of becoming more sustainable doesn’t need to rest on the shoulders of the internal IT group alone. By leveraging partners at every step of the procurement, usage, and retirement process, IT organizations can rapidly advance sustainability practices that reduce costs and recover value from equipment that would otherwise be discarded. Understanding how to do that starts with exploring the circular economy asset lifecycle value chain.

The supply chain and its value levers