Circular Economy and SDGs Goals: A Case Study in the Textile Industry in Indonesia

Circular economy is a tool needed to enhance decision-making capabilities related to environment, social, and governance (ESG) to achieve sustainable development goals (SDGs).

Circular economy is a tool needed to enhance decision-making capabilities related to environment, social, and governance (ESG) to achieve sustainable development goals (SDGs). In the last decade, business practices generally have no relation to ESG or SDGs, especially businesses that heavily involve technology in their operations. Combining the circular economy with ESG and SDGs is important to implement in reducing the damage caused by climate change through the latest and urgent business policy and development models.

European countries have long made the goals and principles of the SDGs the core of policymaking, strongly embedded in the European Union (EU) treaties, and proposed in major projects, initiatives, and sectoral policies. The integration of socio-economic development and environmental preservation through the development of green technology priorities by considering ESG factors is the goal of SDG implementation (Cudečka-Puriņa et al. 2022). The role of the government is crucial to implementing SDGs by considering ESG through promoting innovation transformations that minimize environmental impact and compensate for market failures that cover various areas, such as public financing, environmental taxation, legislative improvement, and the development of international cooperation in rational environmental management.

Role of The Circular Economy in ESG and SDGs

Policies that consider how to minimize the amount of waste produced through increased recycling, recovery, and reuse have been initiated earlier by EU countries. Forming symbiosis within an industry becomes an appropriate solution to save resources and move towards the implementation of a circular economy (Cudečka-Puriņa et al. 2022). The circular economy has its special value for various sectors, both EU and non-EU countries, in setting targets for reducing damage caused by climate change (Cudečka-Puriņa et al. 2022). Its scope is not only to change business practices but also to change the daily habits of society.

The energy transition from non-renewable energy to renewable energy is a crucial consideration for various industries, requiring increased recycling capacity, environmentally friendly technology, and the creation of recycled materials. The textile industry is one of the industries that contributes significantly to waste in various production processes. The role of the circular economy is very important in addressing waste problems from the textile industry to achieve SDGs by considering ESG factors, and how the utilization of industrial waste for renewable energy and maximizing recycling becomes a combined and appropriate solution for the textile industry. Looking at Indonesia as an “emerging country” with rapid economic growth gaining attention from many countries, its responsibility to consider ESG factors is not yet optimal.

Circular Economy in The Textile Industry

The circular economy, has its special value in various industries, when looking at the textile industry, there are supply chain management practices that have been developed to integrate ESG issues into its business practices by reducing negative effects in manufacturing and purchasing processes. The circular economy is present to push the boundaries of sustainability by referring to the idea of innovative goods, creating a viable relationship between ecosystems and economic growth (Jia et al. 2020; A and R 2023).

The circular economy aims to enhance sustainability by restoring the value of a product through a narrower “closed-loop” of reuse and restoration to improve economic and environmental performance by increasing recycling and energy recovery. Waste ending up in landfills can be reduced by redesigning products, manufacturing procedures, and supply chains to keep the resource value of their products continuously circulating in a closed loop (Jia et al. 2020). A closed loop is defined as the design, control, and operation of systems that maximize value creation for a product throughout its life cycle through the dynamic recovery of value from various types and volumes of product returns.

The textile industry is considered the most polluting industry and one of the most important industries with a long supply chain. Manufacturing in the textile industry requires a very large volume of water and energy, which, if not managed well, will result in wastewater from production processes that significantly pollute the environment, even affecting communities, in addition to other waste from its production processes (Jia et al. 2020). In the textile industry supply chain, there are several domains, namely design, sourcing, fibre and garment production, packaging and shipping, use and restoration, and waste management.

The inputs and outputs of the textile industry have a significant impact on ESG, particularly on the environment, at a surprising scale. Its large scale is because the manufacturing industry is the third largest industry after automotive and technology, with greenhouse gas emissions exceeding the combined emissions of international air and maritime transport. Therefore, the circular economy is very appropriate to be implemented in the textile industry to achieve SDGs by considering ESG factors because the long supply chain requires complex schemes to minimize waste and maximize resources (Jia et al. 2020).

SDGs that follow the principles of the circular economy, such as recycling, reuse, and waste reduction, are important aspects of the green economy that should be considered in national policies to change and adopt new habits and systems that benefit not only the environment but also the social and governance aspects of a country.

Environmental Problems of Textile Industry in Indonesia

The textile industry is very attractive for Indonesia’s economic growth, but its negative environmental impact is disheartening. In Indonesia, the disposal of chemical waste in large volumes often occurs, as Indonesia produces 2.4 per cent of the world’s textiles and is one of the largest textile exporting countries. Around the Citarum River area, there are a thousand textile factories that frequently release toxic chemicals, such as mercury, cadmium, and arsenic, into the river, which is often used by nearby residents for bathing and washing their clothes (Mearns 2021). This waste is driven by high consumer demand and marketing activities on social media that continuously introduce various clothing styles, sparking consumer addiction to these clothing products.

The Indonesian government has responded to this issue through policies made by the Ministry of Industry to ensure that the industry pays more attention to reducing its environmental impact from production activities. This policy is outlined in Circular No.2 of 2023, which emphasizes the importance of reducing hazardous gas emissions. This policy requires companies in the textile industry to integrate Continuous Emission Monitoring Systems (CEMS) into their operations for strict monitoring of hazardous gas emissions (Kohan Textile Journal 2023). This policy has been implemented by PT Indo Bharat Rayon and PT South Pacific Viscose by adding Electrostatic Precipitators (ESPs) to their production facilities. After both companies implemented this, they were proven to have met environmental quality standards based on emission tests using the Adaptive Monitoring System (AiMS).

Application of Circular Economy by Textile Industry in Indonesia

So far, the implementation of a circular economy in the textile industry continues to be discussed, creating various collaborations in Indonesia. Indeed, stakeholders in the textile industry for the implementation of a circular economy are still lacking. Collaboration occurs between academics and industry players directly at The Hermitage Hotel on May 8, 2023, to find the right circular economy solutions for the textile industry in Indonesia because each country and industry surely has different implementations of circular economy due to economic and cultural differences (Lukman 2023). In this collaboration, what needs to be emphasized for Indonesia are products and services, materials, and society (Lukman 2023). Everything must be interconnected, starting from products that can be recycled by providing services close to consumers so that products continue to circulate circularly and do not end up in final disposal. Involving the community in the recycling process can create job opportunities for many people.

Indonesia has many tasks in implementing a circular economy for the textile industry, starting from consumer behaviour that is not yet concerned about its waste, complex supply chains in the manufacturing industry, investment, and waste management facilities. The Indonesian government’s push to implement a circular economy for the textile industry is strong, but its implementation by the industry has not yet reached its maximum potential. The key to solving this is through policies that can simplify the long supply chain through a “closed loop”, by always adding value at each stage of the supply chain. Added value through products that can be recycled or reused, and Indonesia can create specific policies at each stage or overall, policies that not only govern but also provide solutions, which can be created through collaboration from upstream to downstream in the textile industry or even across industries.

Changing societal behaviour can be done through vigorous promotion by either the public or private sectors. If the intentions and plans of the public and private sectors in the textile industry are strong, it will attract a lot of investment for Indonesia. Waste management facilities can be through cooperation with waste management service providers because the textile industry if it manages its waste independently, is less effective, which will incur more costs and prevent the waste management industry from developing.

Rizki Faisal Ali
Rizki Faisal Ali
Student in Master of International Relations Universitas Gadjah Mada