1. Relevance of a digital circular economy
Strengthening the circular economy (CE), in which product and material life cycles are closed and become circular, is a central element of the European Green Deal and many current EU strategies and regulations. This central course set at EU level is now being reinforced at national level with the National Circular Economy Strategy (NKWS). Targets, measures, instruments and indicators for the implementation, monitoring and evaluation of the strategy are defined under the guiding principle of reducing primary raw material consumption in Germany, closing material cycles and preserving the value of raw materials and products for as long as possible. In doing so, the German government is creating a long-term orientation for the transition to a circular economy. Digitalization is also identified as one of eleven fields of action (BMUV, 2024). In a CE, customer support for the company is extended over the entire product life cycle. After sale and use, the return of products to their value chains becomes more relevant so that the components and materials can be kept in the cycle for as long as possible (Neligan et al., 2023a).With the political efforts at European and national level, industry in North Rhine-Westphalia (NRW) is not only facing new challenges, but entrepreneurial opportunities for innovative circular products, services and business models are also opening up. NRW is also active with regard to CE. For example, a circular economy strategy is currently being developed. There are extensive funding opportunities within the funding policy, for example in the European Regional Development Fund (ERDF), the Just Transition Fund (JTF) and the funding for the Rhineland mining area. There are also numerous events and committees such as the “Circular Value Creation Round Table”. The following article is based on the study by Berg et al. (2024), which was produced as part of Sci4Climate.NRW.
The transition to a CE requires cooperation in the value creation network. The central prerequisite is knowledge of the upstream stages as well as knowledge of the effects of one's own actions on downstream value creation stages. In order to function in complex value networks, this requires digitalization (see Wilts/Berg 2017; Neligan et al., 2022). Digitalization not only makes circularity measurable, but also harnesses potential resource savings (Neligan et al., 2021). This concerns, for example, a better supply of previously missing information, including on the quality and performance of secondary materials, but also product information to enable circular strategies such as repair and remanufacturing in a more targeted manner. Closing this information gap not only leads to greater trust in these materials and products, it also reduces transaction costs within the circular economy and creates transparency to mitigate information gaps (Berg et al., 2020). Digitalization can also promote disruptive innovations, new business models and novel forms of collaboration, thus accelerating the transition to CE (Neligan et al., 2022). The availability of data thus becomes an important resource and a central instrument for the implementation of a CE. As this affects the entire product and material life cycle and can even span several cycles and value creation systems, a data and value creation network is created that can be mapped in a data room, for example (Ramesohl et al. 2022).
2. Circular economy readiness of industry in NRW
In addition to the ecological effects, a CE also has economic potential. The development of a circular product portfolio that is competitive with non-circular alternatives is central to this. It is becoming more important for companies to focus directly on the product - be it through design adaptations (eco-design) or by offering additional services (Lichtenthäler/Neligan, 2023). Based on the 2022 summer wave of the IW Future Panel, Berg et al. (2024) carried out an evaluation for 200 companies in the manufacturing sector in NRW to discuss where they stand in terms of circularity. Only one in five companies in the manufacturing sector in NRW is realigning its business model or planning to do so in the short term in order to enable or improve circularity within the company. Instead, the focus tends to be on adapting products and/or services as well as manufacturing processes. This is the case for a good three out of ten companies in NRW. However, companies do not have to choose just one path, but can also pursue different approaches in parallel. 16% of industrial companies are not only making incremental adjustments, but are also reorganizing their business model in parallel. One in four industrial companies in NRW is doing nothing at all. The majority of companies do not currently recognize digitalization as a key enabler for circular products and services. Currently, only three out of ten companies see new technological opportunities for circularity due to digitalization. This means that there is still potential to be leveraged in order to make a circular product offering more attractive for companies.
With the exception of durability, a typical characteristic of the “Made in Germany” quality promise, many other circular product features required for the transformation, such as reparability, easy maintenance and refurbishment and retrofitting, are not yet being implemented in a targeted manner by NRW companies, similar to the Germany-wide comparison. At 61%, the issue of resource consumption in production is more of a cost factor for industry in NRW than the reduction of overall environmental impact (51%). There is a need for action here. The top priority in the waste hierarchy is waste avoidance, followed by reuse, recycling and disposal. A similar hierarchy can be seen in the product characteristics required for this: Three out of five of the industrial companies in NRW see waste prevention, including packaging waste, as a fundamentally important product characteristic. However, this is followed by recyclability (49%) before reusability (45%). Although the relevance of recyclability has so far been rated higher than the use of recycled raw materials in production, if the recyclability of products increases, new ways of using secondary raw materials will also open up. Finally, reducing the consumption of non-renewable resources through the use of renewable or recycled materials is an important pillar of a CE (Neligan et al., 2023a). Almost three out of ten industrial companies in NRW consider renewable raw materials to be unsuitable for their product range, for example because there are no renewable substitutes for the industrial products. Companies need additional information on ways to reliably use renewable raw materials. More confidence in the quality and availability of recycled raw materials must also be created, as well-functioning secondary raw material markets are essential for a CE (Neligan et al., 2023a).
3. Data economy readiness in industry in NRW
Companies need the technical prerequisites to be able to develop circular business models, products and services. Comprehensive data storage, efficient data management, intelligent data use and the necessary processes and technologies play a key role here. As part of the CE, companies will have to provide their products with a digital product passport in future, which is why all product-specific information should ideally be available in digital form. On the one hand, this presupposes that data on the preliminary products used is available, although this depends on the extent to which suppliers provide product data digitally. On the other hand, companies should be able to process transmitted data on preliminary products in a structured manner. This is the only way to effectively combine received data with their own production or product data and issue digital product passports themselves.
Based on a representative survey of more than 1,000 industrial companies and industry-related service providers from fall 2023, the digital requirements for a CE in Germany and NRW can be examined (Bakalis/Büchel, 2024). The results show that only a third of companies in Germany meet the requirements to manage data efficiently. In NRW, the proportion is slightly higher at 37%. The same applies specifically to companies in the manufacturing sector in Germany (34%) and NRW (36%). With regard to the Digital Product Passport, two thirds of companies are likely to have difficulties processing product-relevant data efficiently and making it available digitally themselves. In addition, only around two thirds of all companies in Germany and NRW store product data in digital format.
However, it is also important that companies share data, i.e. both receive data from other companies or institutions and provide it themselves. In order to determine the status quo of data sharing in Germany, companies are asked whether and how intensively they share data with other companies. The intensity of data sharing is measured by its quality and quantity (Büchel/Engels, 2023). For example, some companies can only provide data to government agencies in isolated cases because they are legally obliged to do so. For other companies, data sharing can be part of the business model, for example if a lot of data of particularly high quality is provided for a fee. Data sharing also shows that companies in Germany are still in the early stages: Only 19 percent provide data and 39 percent receive data - both roughly half with high and low intensity. This means that there is still a lot of untapped potential. If as many companies as possible share standardized product information in common data pools, the overall transparency of CE can be increased and ultimately more recycling opportunities can be identified.
4. Paths to a digital circular economy for an NRW strategy
A digital circular economy must be a central component of North Rhine-Westphalia's location policy, not only in terms of a sustainable economy, but also against the background of security of supply and future competitiveness. With its high proportion of export-oriented industry, NRW is strongly integrated into German, European and global markets and value chains. This means that the security of supply of North Rhine-Westphalian companies is susceptible to external crises. Circular economies can contribute to greater resilience, but will only work with the appropriate digital skills and complete solutions. Other barriers include the lack of financial strength to set up a fully digitalized system and the inadequate ability to retrofit existing systems (Neligan et al., 2021). In order for more companies in NRW to implement digital circular strategies and associated measures, it is essential to create corresponding investment incentives. Here, NRW is embedded in the EU's extensive regulatory activities. The European Green Deal, including the Ecodesign Regulation as well as sector-specific policy measures and new reporting obligations, among other things, result in numerous new requirements in which the special role of digital transformation is already becoming apparent, for example in the form of digital product passports. In Germany, the recently adopted NKWS also focuses on enabling the circular economy through digitalization. This offers NRW the opportunity to use these activities for a transformation towards greater sustainability and to position itself proactively. NRW is already active in this area through funding offers, e.g. from the ERDF or NRW.Bank, but a more consistent bundling and strategic orientation is possible. The following options for action are proposed to ensure that the transformation to a resource- and climate-friendly industry in NRW with a digital-circular economy succeeds:
1. Coordinate and promote flagship projects and initiatives in key areas
There are already a number of initiatives in NRW that aim to promote the circular economy with the help of circular business models and production methods. With Circular Valley, based in Wuppertal, a global hotspot for the CE is being created in the extended Rhine-Ruhr region to jointly develop solutions with all relevant stakeholders and offer start-ups development and networking opportunities (NRW.Bank, 2024a). The Effizienz-Agentur NRW also offers numerous advisory and information services on the topic of the circular economy and resource efficiency as well as an initial overview of “Resource Efficiency 4.0”. The Digitalization & Circular Economy Transfer Hub, which will be funded from 2025 as part of the ERDF/JTF NRW 2021-2027 programme, is also set to become a new contact point for cutting-edge research and application-oriented, digital innovations in the circular economy in the northern Ruhr region. The aim is to strengthen the transfer of knowledge between science and industry and provide practical support for companies in particular (MWIKE, 2024). However, it is now also important to further develop flagship initiatives for the implementation of digital product passports and CE data rooms in economic sectors with high relevance for NRW (e.g. basic industries such as chemicals, steel, metals and SMEs in mechanical/electrical engineering). In addition, NRW stakeholders should be involved in (inter)national standardization activities for digital CE and in flagship projects at federal/EU level (e.g. Manufacturing-X) in order to position NRW as a leading location. It is also important to set up an NRW “Digital CE” coordination office as a mirror to national institutions.
2. Mobilize and network economic actors for a digital circular economy
This NRW coordination office “Digital CE” should serve as a “hub of hubs” to network regional and specialist initiatives on digitalization and resource efficiency, with a focus on interfaces and digital solutions for the CE. This also includes training multipliers (so-called “train-the-trainer models”) and creating experimental spaces for new digital circular business models by promoting cooperation with innovative start-ups. Also important are programs for knowledge transfer through best-practice examples, targeted training and advisory services and better integration of public support services. A nationwide screening and mapping of initiatives, institutions and players in the field of digitalization and resource efficiency would initially be expedient for this. The demand for corresponding products could be increased by including digital circular business models in public contracts at state level.
3. Build and scale data ecosystems
Information offerings such as use cases and best practices should be expanded and designed in a sector-specific manner in order to highlight the opportunities of data management and data sharing. Politicians should support companies in reducing concerns about legal certainty and data sovereignty when sharing data by promoting initiatives such as model contracts, best practice guidelines and technical instruments for anonymizing data. In addition, data sharing platforms and technologies could facilitate data sharing (e.g. “data room as a service” offers as a cooperation between competence clusters and SMEs).
4. Research, innovation and qualification offensive “Digital Circular Economy” for NRW as a location for higher education and training
NRW universities should be involved as innovation drivers in flagship projects relating to technologies, corporate management and digital circular value creation. The transfer of knowledge and technology from universities and research institutions into practice could be accelerated by promoting research collaborations, start-up centers and cooperation with companies. In addition, new chairs and degree programs in digital CE should be established and existing curricula expanded. Content and courses on digital CE should also be systematically expanded in vocational education and training. Ultimately, an innovation partnership between NRW, the Netherlands and Belgium could promote the transfer of expertise and strengthen existing value chains.
5. Mobilize private investment for a digital circular economy in NRW
The transformation of the economy in NRW also requires private investment for the circular transformation. At national level, a transformation guarantee is now being examined in the event of insufficient collateral when borrowing for circular business models (BMUV, 2024). NRW is already playing a pioneering role here, as it is already supporting measures for the transition to a climate-neutral economy with particularly favorable conditions as part of the NRW Special Guarantee Program Green Transformation (PWC, 2024). It should be examined here whether these conditions can be extended to digital circular business models in future, taking into account the framework conditions under state aid law.
The NKWS also envisages strengthening access to transformation financing at development banks by the state development bank KfW working with the state development banks to establish, expand and support regionally specific co-capital instruments. NRW.Bank is also a pioneer here, as it already offers a wide range of products for the circular economy in the form of low-interest loans, open equity investments or convertible loans (NRW.Bank, 2024b). At the same time, as envisaged in the NKWS, innovative financial market instruments such as tradable financial market futures for the right to recycle, for example, renewable energy plants at a defined point in the future or circular impact bonds (also “pay-for-success bonds”, i.e. payment is only made if a measure is successful) are also needed, which, for example, take into account the time span between the manufacture of a product and its utilization for the potential extraction of secondary raw materials. Here too, Landesbank NRW could develop measures specific to NRW. However, it is essential for investments in digital circular business models that companies are sufficiently informed about the financing options, including from the nationwide raw materials fund via KfW. Another hurdle is the lack of assessment options for circularity. NRW should work to develop corresponding standardized evaluation and rating methods at (inter)national level so that SMEs, which often do not have access to green bonds, can also obtain loans more easily.
