Professional Documents
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How Asset
Management
Can Enable
the Circular
Economy
Executive Summary
The Institute of
Asset Management
The circular economy is an economic and societal or recycled because this is historically the cheapest,
shift towards sustainability and regeneration. It easiest, and quickest method of disposal. This practice
does this by maintaining and rebuilding natural contradicts the sustainability goals, such as cutting
and social capital stocks. The maintenance and the use of natural resources, minimizing carbon, and
rebuilding of these stocks can be greatly accelerated reducing waste.
through the deployment of systems thinking, where
sustainability and regeneration are the product of the By moving away from the linear asset life cycles of take-
interaction of the circular economy parts. By way of make-waste that our economies are currently built
example and within an asset management context, on and instead working towards a future economy
organizations can make existing assets last longer, that is regenerative and circular by design, asset
design products that can be refurbished over multiple managers can become champions of environmentally
life cycles, shift operations to service models, create sustainable systems (and subsequently, overarching
syndicates, networks, or value chains that offer greater asset sustainability) in their organizations, and develop
sustainability and regenerative outcomes compared to the circular economy as a means to address the
their competition. organization’s sustainability, carbon reduction, and
long term economic challenges.
The adoption of circular economy strategies and
principles can be seen as a response to Climate Circular economy principles eliminate the notion
Change Action Planning. There is a clear opportunity that an asset has an ‘end-of-life’. This shift from a
for the discipline of asset management to be more linear economy challenges asset managers to adapt
widely recognized as one of the key enablers in their products, operations, and services toward
significantly reducing the impacts of climate change, opportunities for new types of businesses and
supply chain delays, and creating regeneration through changes to business models. This can include the
the deployment of circular economy principles. development of new partnerships, reducing, reusing,
remanufacturing, repurposing, and recycling, to name
Many existing asset management practices focus on a a few. This way of thinking and working moves away
continuous cycle of procuring assets that are utilized from linear asset life cycles into a closed-loop system
to maximize their performance. When they reach the where fewer new resources are needed, and little
end of their useful life, they are often scrapped waste is generated.
How Asset Management Can Enable the Circular Economy | 3
The Institute of
Asset Management
The future circular economy needs asset and discussion on this white paper for potential ‘The Institute of Asset Management
management to define and support the next steps to be taken in promoting the circular
management of multiple asset life cycles and economy within asset management. Next steps is keen to understand how to
harness and unlock additional value streams that and opportunities may include the development accelerate the drive toward
the assets enable. of guidance documents (including those related
to the IAM’s white paper, Climate Emergency
regeneration and sustainability and
Currently, there is limited evidence that asset Action Planning – Guidance for asset owning is looking to develop and embed
management strategies incorporate circular organizations published in 2021), incorporation into
circular economic principles more
economy approaches unless the business’s vision, international standards, the IAM SSGs, tools and
goals, and stakeholders dictate that it should. techniques to measure readiness for the circular deeply into the practice of asset
The Institute of Asset Management is, therefore, economy, linking to climate change initiatives and management.’
keen to understand how to accelerate the drive sustainability within the organization’s context, or
toward regeneration and sustainability and is even influencing future regulatory requirements.
looking to develop and embed circular economic
principles more deeply into the practice of asset
management.
Traditional asset management practices generally To reduce the impacts of climate change,
follow a linear take-make-waste philosophy, where organizations (and subsequently, asset managers) The emerging circular economy will call upon the
resources are taken as raw materials and made are focused on understanding their assets’ carbon discipline of asset management to design and
into new assets. Those assets are then utilized to emissions (and, increasingly, environmental deploy asset systems that are regenerative by
maximize their performance and then disposed of, impact). By looking to the future, they aim design, innovate to increase asset resilience, reduce
making them waste. This cycle is then repeated to to measure and reduce these overall limits, reliance on global supply chains, and create the
fulfill the business need using new assets. to meet net-zero targets and commitments. need to grow strategic, local, and regional
However, when applied to the traditional take- capabilities, whilst also meeting or exceeding
Historically, this has been a convenience for linear make-waste business model, these objectives organizational and global sustainability targets.
global economies, where the negative impact can often contradict, prioritizing the generation
on externalities is almost invariably not counted and consumption of new assets when practiced The circular economy is a strategy that engages
(e.g., the negative impact of climate change, our alongside relatively novel sustainability systems thinking, enabling organizations to link
societies, and the environment). This has called goals. Meeting net-zero targets should not together important drivers and networks of actors,
into question the suitability and effectiveness of be constrained by a purely sustainability or stakeholders, and value chains that, when
linear economies and the businesses that operate environmental view but must also include combined, create greater value than the sum of
within them that have supported the asset life economic opportunities driven by innovation. its parts. And in so doing, it delivers regeneration,
cycle as we know it. This view should also be enacted beyond the seeking to accelerate the reduction of carbon (and
asset’s operational life to consider its prospective is sustainable by definition).
Moreover, asset managers will now be only impact across elements such as the asset’s
too familiar with the existing and looming crisis production, supply chain, and disposal. The future challenge for asset managers will be,
associated with interruptions in global supply given the organization’s transition towards a
chains, the increased degradation of assets due circular economy, what can we already capture
to climate change, and the increased demand for that we are doing now in our asset management
limited resources. The concept of a future with systems that is going to add value and how can
an uninterrupted or abundant supply of new and we exploit asset management further given the
replacement assets within a take-make-waste way organization’s revised strategy and purpose?
of working will become unsustainable for some
industries.
How Asset Management Can Enable the Circular Economy | 5
The Institute of
Asset Management
Asset system utilization boundary The vision is an asset management system that is
restorative and regenerative by design and aims
to keep products, components, and materials near
their highest utility and value at all times. The asset
Additional Re-use assets life cycle is a continuous positive development
resources or components
cycle that preserves and enhances natural capital,
Lost
resources optimizes resource yields, and minimizes system
risks by managing finite stocks and renewable
Resource utilization flows (Ellen MacArthur Foundation, 2013), such
as in a closed-loop asset management system
(Figure 2-2, see page 7).
Figure 2-1: Asset resource utilization boundary within a traditional take-make-waste management model.
How Asset Management Can Enable the Circular Economy | 7
The Institute of
Asset Management
Figure 2-2: Asset resource utilization boundary within a closed loop circular economic model.
How Asset Management Can Enable the Circular Economy | 8
Finally, the widest boundary to consider are the Here and now
overarching practices, which influence how assets Utilizing principles from the Circular Economy to optimize assets already
are used, and the value (e.g., the externalities) that generated and in operation.
the assets enable. Value management needs to be
applied, but its application should extend beyond
the asset and the asset creation project. It’s what Assets
externalities the asset enables that matter. Those
externalities that the assets enable must be tied
back to the organization’s purpose and the value
that organizations create. Asset managers need to
work continuously at all three entry points. Figure 3-1: The three entry points to creating value through circular economy utilizing a systems-based approach.
How Asset Management Can Enable the Circular Economy | 9
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Asset Management
3.1 Here and now Activities asset managers can undertake in this
For organizations wanting to start their circular area can include:
economy transformation and asset managers
looking to start adopting circular economy • Develop tools and processes that extend
practices, one of the most effective interventions the life of assets you already own (e.g.,
is either to extend the life of current assets or component replacements that ensure longer
develop alternative practices that make the life and less maintenance)
need for new assets redundant. Within an asset • Develop tools and processes that enable you
management context, the asset management to have a greater understanding of your asset’s
system is no longer running the asset down condition (such as through utilizing the Internet
toward the end of its life. Instead, it determines of Things (IoT) or digital twins to enable
in more detail using a circular economy lens how condition-based monitoring (CBM))
asset life could be extended, considering options • Evaluate the risks and opportunities of the
beyond those currently considered. Good asset status quo against any interventions, including
management already considers this by considering, the potential added value that can be created
for example: (such as multiple life cycle costs and the
inherent benefit of carbon reductions).
1. Different areas (beyond those already
being considered) of asset criticality (i.e., how
much additional risk are you willing to accept
on your asset’s condition) to prolong the ‘... one of the most effective
asset’s useful operation
interventions is either to extend
2. New asset breakdown structures (i.e., the life of current assets or develop
components and sub-components) to enable
the retention of parts that have a longer life
alternative practices that make the
than the whole asset system or sub-system. need for new assets redundant.’
How Asset Management Can Enable the Circular Economy | 10
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Asset Management
The here and now - There are already many Moreover, Eversholt Rail and Vivarail have signed
asset operators incorporating CBM into their asset an agreement aimed at developing battery power
management processes. This includes capitalizing and range extension to the class 321 ‘Renatus’
on the recent advances in digital connectivity and fleet. This proven and reliable fleet is an excellent fit
sensors to enable live data capture and decisions to in terms of characteristics, fleet size, and availability
be made on real-time asset condition. for conversion to a battery electric multiple unit
This technology has been available for some time, (BEMU). Vivarail, as the designers and manufacturers
and its exploitation has recently been prioritized of the UK’s only battery and hybrid trains currently
because of the need to extend asset life and in passenger service, are well positioned to progress
minimize asset failures. One example of this is this development. They commented:
within the power sector, where the distribution
networks collaborated to produce a standardized “We will be working together to develop a design to
“Network Asset Indices Methodology” (Ofgem, 2021) integrate battery technology to provide between 20
framework to aid with assessing and managing to 30 miles of self-propulsion. Enabling the fleet to
assets based on their health (or condition). This operate on non-electrified or partly electrified routes
basic philosophy is already embedded in good asset would offer the opportunity to increase the range
management and these practices can be exploited of modern, low-carbon options to accommodate
further during the organization’s circular economy passenger demand; to enable fleet cascades; to
transition. improve the passenger experience; and to bring air
quality and decarbonization benefits to local areas.”
How Asset Management Can Enable the Circular Economy | 11
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Asset Management
3.2 Before and after and develop a circular economy that enables the
The circular economy provides an opportunity design and management of closed-loop asset
to fundamentally challenge traditional business management systems for their specific assets,
models through a drive to design assets that can taking into consideration the different barriers to
extend their useful life, develop components that widespread deployment.
can be reused and remanufactured, and utilize
new materials that can then later be reclaimed, Activities that could be considered in this area
all while facilitating new business models that include:
promote the continued development of the
circular economy. For example, the assets-as- • The adaptation of business models that work
a-service business model where organizations towards assets as-a-service
lease their assets to operators, which are then • The development and strengthening of strategic
returned at their end of life. In this case, the partnerships and links with relevant markets
asset is worth more to the manufacturer because and sectors that enable secondary re-use or
the manufacturer will have already planned other circular economy activities
its remanufacture or will upgrade to the next • Modelling multiple life cycle costs of an asset
generation of the asset. that utilizes circular economy activities (e.g.,
remanufactured parts vs. new)
Although technically everything can be shared, • New commercial frameworks that establish
repaired, reused, or recycled, there are constraints circular economy syndicates involving the client
in how the circular economy can create value and a network of circular economy actors and
from asset management systems (for example, stakeholders working within the supply chain
due to intellectual property protection blocking • Redesign of assets so that they are:
reuse designs from becoming widely adopted or - Designed for life extension interventions
legislative barriers preventing the life extension of (i.e., designed for repair)
certain assets due to increased risk). This is where - Designed for remanufacturing
and how the value of deploying systems thinking - Designed for reuse
counts (which is central to good asset management - Considering innovative materials which
practice) – by allowing asset managers to adopt enable all the above.
How Asset Management Can Enable the Circular Economy | 12
The Institute of
Asset Management
The Institute of
Asset Management
Strategy &
Planning Aquire/create Operate
As a service Performance
Informing design for CE
model and health Values &
Asset
monitor
Outcomes
Lifecycle Embedded CE
Delivery
Organization Risk values and
purpose
& People Asset Management Renew
Remanufacture
Maintain
Increase life
Management
Becoming more Decision-Making Less or
CE aware Incorporating more CE
CE contexts Here and now
Information Management
Captures information that can be used
to aid continued CE design
Overarching practices
Figure 3-2: Circular Economy Alignment with the IAM’s Asset Management concept model (Management, 2022).
How Asset Management Can Enable the Circular Economy | 14
The Institute of
Asset Management
Some questions for asset managers are, therefore: 3.5 Further Benefits of Circular Economy • Performance - through active maintenance and
The circular economy enables sustainability and continued development to understand assets
• Where are you in your systems thinking? Have regeneration. Asset management can play a and make them more circular, overall asset
you considered all possible entry points? What crucial role in enabling the circular economy. performance, and the impact that performance
does your ‘circular economy asset management Applying asset management in supporting the has on externalities, will be understood in more
system’ look like? Which network of actors and circular economy has several other potential detail.
stakeholders do you need to be part of to benefits. The overarching practices section above
leverage the circular economy? If the network touched upon ideas including supply chain security
doesn’t already exist, can you create one? and employment. Others include:
• What value from the circular economy are you
already creating which is currently going • Regeneration – in the broadest context:
unnoticed and needs to be captured? Is there a identifying value. The positive impact on
way to capitalize on this and create more? externalities that the assets and the
• What more can you be doing within each of the organization, through business change, is
entry points? What are the opportunities and enabling to put back
barriers to creating more value from the circular • Monetary - by maximizing the circular economy
economy for your assets in each of these areas? value of assets in operation and using them for
• What is unique to your organization and the as long as possible, less capital will have to be
assets it manufactures or manages? Are there invested in replacing assets
opportunities to adapt the business operating • Programme - actively maintaining and reusing
model and overarching practices which may assets currently owned will reduce reliance on
enable the creation of future value from the current lead times and potentially volatile global
circular economy? markets with regard to the creation of new assets
• What opportunities do you have for creating • Availability – understanding assets better will
additional value, i.e., strategic relationships and allow for an increased understanding of the state
partnering, by combining various circular of all assets and operations, allowing for more
economy activities across a network which results confident decision-making in the design of new
in greater value than the sum of their parts? assets of the future
How Asset Management Can Enable the Circular Economy | 15
4 Moving forward
The Institute of
Asset Management
This white paper aims to briefly explore how asset We see the way forward as being:
management can embrace circular economy
principles, highlight opportunities, and realize 1. Consultation – engaging stakeholders
greater value from assets. By aligning asset to provide views on the Institute of Asset
management and circular economy, organizations Management embracing circular economy
have the means to show how they impact principles more explicitly in asset management
sustainability, the environment, and regeneration
which all contribute towards their ESG 2. The development of Institute of Asset
(Environment, Social, and Governance) credentials. Management guidance on adopting circular
economy practices, similar to the Subject
Specific Guidelines that the IAM already
This is a new way to think about asset life cycles
produces
and will require both innovative thinking as well as
strong leadership to select the right interventions
3. Creation of a Circular Economy Readiness
at the right time, and at the right level. Throughout
measurement framework, or possibly gap
this white paper we have posed a number of
analysis method, which organizations could
questions, and we invite consultation and
use to assess their ability to adapt to the
comment on them (or any portion of the paper),
circular economy future, helping them to
to enable the necessary next steps to be taken to
target their priorities and activities.
help drive the integration of circular economy and
asset management.
How Asset Management Can Enable the Circular Economy | 16
Acknowledgements
The Institute of
Asset Management
Acknowledgments
This How Asset Management Can Enable the
Circular Economy document has been produced by
the Institute of Asset Management (IAM) through
the significant efforts of the following individuals
and organizations, and the Institute would like to
thank them for their contributions:
The Institute of
Asset Management