Software could be key to unlocking the circular economy

The circular economy concept seeks to eliminate waste, circulate products and materials, and regenerate nature. Typically, discussions around the idea focus on the role of physical technologies, covering areas such as transportation, recycling raw materials and repurposing processed materials.

However, there are often significant barriers to implementing new physical technologies. They are frequently in a nascent stage of development, requiring considerable financial backing to scale.

Computer says yes

Software-oriented strategies present an interesting way to achieve circular economy objectives while bypassing some of the drawbacks associated with physical technologies. We believe the move from a physical to a virtual world creates significant opportunities to improve production processes, reduce consumption of raw materials and deliver greater efficiency.

By creating a virtual model of the physical world, we believe software can allow companies to re-imagine, model and test circular solutions faster and cheaper than prototyping in a physical space. Critically, this drives faster development and can lower the cost of R&D, which is important as a source of competitive advantage.

In sectors ranging from automotive to aviation, the growth of virtual environments could, we believe, benefit both the bottom line and the environment.

Digital twins

At its recent investor day, Spectris*, an instrumentation measurement specialist, illustrated how the combination of virtual and physical testing could potentially support stronger, more sustainable organic growth for the business.

Taking the automotive sector as an example, circular mobility has the potential to reduce global emissions significantly. Spectris is able to create a ‘digital twin’ of a physical environment that can model the performance of car components in the real world. The product demos showcased customer examples including a European and US original equipment maker (OEM) as well as a Formula One racing team.

With just 10% of current automotive development deploying digital twins as part of the design and testing phase, the company sees considerable scope to grow share and embed its software into OEM workflow. Software R&D in the sector is expected to grow by 50% by 2030, with the dependency on physical prototypes prohibitively expensive. The value output is twice as fast manufacturing production, at 20% less cost and 14 times less emissions.¹

Sticking with the automotive sector, the company’s sensor technology can help to improve the efficiency of the powertrain, which can in turn increase the range of electric vehicles, leading to greater consumer adoption.

Design to decommission product modelling

Another company employing digital twins with potential circular economy benefits is industrial software provider Dassault Systèmes*, whose products have many possible use cases.

The company’s management believe physics-based modelling of products from design to end of product life will be an essential driver of industrial transformation.

Scaling Dassault Systèmes’s 3DExperience platform is a key driver of its new medium-term financial target, which was outlined at its recent capital markets day. The group aims to triple revenues from the platform over the coming five years, and believes its total addressable market will grow tenfold to €1 trillion by 2040.²

A blueprint for progress

We believe software enablers have potential to increase organic growth rates, driving larger contract wins and market-share gains across multiple industries.

Through progress from companies such as Spectris and Dassault Systèmes, we now have a blueprint for a more circular industrial manufacturing ecosystem.

*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.

1. All statistics taken from Spectris’s 2023 investor day presentations.

2. Source: Dassault Systèmes’s 2023 capital markets day presentations.