Technology alone will not suffice. An interview with Martin Pauli, Global Circular Economy Services Leader, Arup

Are global climate policies, like the Paris Agreement, and recent COP decisions sufficient to keep us within safe environmental limits? If not, what immediate priorities should governments and businesses pursue?

Martin Pauli: Despite the establishment of international frameworks such as the Paris Agreement and the outcomes of recent COP conferences, current progress suggests we are not on track to remain within safe environmental boundaries. In particular, the construction industry is lagging in its efforts to decarbonize, restore biodiversity, and respect broader planetary limits.

This stagnation indicates that existing policy instruments are not driving the necessary transformation at the required pace. As a result, the window to meet environmental targets by 2050 is narrowing. Pressure is mounting for the construction sector to evolve rapidly, which may lead to more stringent policy interventions alongside increased investment from both public and private stakeholders.

Encouragingly, initiatives like the Clean Industrial Deal announced in February signal a shift in public sector focus toward decarbonization. Such moves enhance competitiveness and help to de-risk European supply chains.

To stay on course, a coherent and unified approach at both the European and global levels is essential. Unfortunately, current geopolitical trends – characterized by fragmentation, protectionism, and in some instances a retreat from sustainability goals – pose a risk to this needed alignment. However, political winds can change quickly and in the long run hopefully we’ll see a renewed focus on sustainability and resilience.

How can companies integrate sustainability into their business models while maintaining profitability, and what role do ESG frameworks play in this transition?

Many companies already engage with sustainability in a structured way. At a foundational level, they ensure regulatory compliance to remain operational. Increasingly, businesses are using ESG (Environmental, Social, and Governance) and circular economy principles to de-risk supply chains, improve procurement strategies, and enhance efficiency. These efforts include adopting green technologies to reduce energy costs and optimizing material use to uncover new value.

However, the transformative opportunity lies in viewing ESG and sustainability not just as compliance or risk mitigation tools but as strategic frameworks for growth. By embedding sustainability into core business models, companies can unlock new customer value, enter emerging markets, and develop a durable competitive advantage – particularly in sectors like construction, where commoditization is high.

What are the biggest challenges in shifting from a linear to a circular economy, and what innovations are making this transition more feasible?

A key challenge in transitioning to a circular economy is the absence of economies of scale. The supply of circular and sustainable materials often falls short of demand, and consumers remain hesitant to pay green premiums that could otherwise fuel further innovation.

To bridge this gap, targeted policy interventions are essential. Regulatory and financial instruments must be designed to stimulate demand and level the playing field. Today, many policies remain fragmented or overly focused on reporting rather than enabling real progress.

However, there are positive examples. Whole-life carbon targets for buildings in countries such as Denmark, Finland, and France have proven effective, offering clear guidance and creating momentum for circular innovation. Green public procurement also holds tremendous potential due to its scale, yet remains underutilized.

How can industries accelerate renewable energy adoption and decarbonization while sustaining economic growth?

The circular economy offers a framework to align decarbonization with economic growth by decoupling value creation from resource and energy consumption. Through strategies such as reuse, refurbishment, and recycling, businesses can reimagine their value chains and reduce reliance on finite critical materials.

For instance, the aluminium industry now supplies nearly 100% recycled content, and similar progress is evident in the steel and glass sectors. Cement producers are turning to urban mining, viewing existing buildings as material banks. These examples demonstrate that circularity can underpin viable and profitable business models.

The challenge now is to scale these efforts across industries and embed them into mainstream economic planning.

How can businesses and investors collaborate to drive large-scale sustainability initiatives and green financing?

Businesses increasingly recognize that sustainability goals cannot be achieved in isolation. As a result, new collaborative models are emerging – particularly upstream and downstream within value chains – to enable decarbonization and drive product innovation rooted in circular principles.

One major obstacle is that up to 85% of emissions in many sectors stem from external sources (scope 3 emissions). Addressing these requires strong partnerships and trust across the entire supply chain.

For collaboration to be effective, regulatory frameworks must offer clarity and consistency, enabling companies to work confidently within established rules and expectations.

Are current regulatory frameworks and carbon pricing mechanisms adequate, or is there a need for more aggressive policy interventions?

Many existing mechanisms, such as the EU Emissions Trading System (ETS), are proving effective. Rather than introducing entirely new frameworks, increasing the cost of carbon emissions may be a more efficient lever to drive further reductions. Companies operating on narrow margins will be compelled to decarbonize or face economic risk, while early movers in sustainability will be better positioned as carbon costs rise.

Aggressive policy shifts must be approached with caution. Overregulation can be counterproductive. Instead, a balanced, consistent approach – grounded in industry-specific realities – is more likely to produce durable outcomes.

With the rise of AI, smart grids, and cleantech, what innovations give you the most optimism about a sustainable future?

Emerging technologies such as renewable energy, green hydrogen, and carbon capture and storage (CCS) offer significant promise for accelerating decarbonization. However, technology alone will not suffice.

Material transition – rethinking the use of core materials like cement, aluminium, and steel – is equally important. The development of renewable alternatives and the application of circular economy principles are essential to achieving sustainability at scale.

While AI and data technologies will enhance transparency, efficiency, and performance, they are not a panacea. A comprehensive, multi-faceted strategy that integrates policy, innovation, and systemic change is required to build a truly sustainable future.

Martin Pauli is the Global Circular Economy Services Leader at Arup.

He has extensive experience in strategy, innovation and management consulting in the circular economy sector and is an expert in circular product and business model innovation and organisational development.

Martin and his team work closely with clients in the public sector and leading companies and organisations in the construction industry. Together with a global team and the Ellen MacArthur Foundation, he has developed the Circular Buildings Toolkit, which is used along the entire construction value chain.

Martin Pauli is on the Innovation Advisory Board and the Circular Building Committee of the German Sustainable Building Council (DGNB). He is also part of the global Circular Design Leaders Program of the Ellen MacArthur Foundation. He is a regular keynote speaker and guest lecturer on the topics of innovation and sustainability in the construction environment.

He holds a Master’s degree in Architecture from the Technical University of Berlin and a specialisation in Sustainability Leadership Management from Cambridge University.

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Last Updated on June 18, 2025 by Krzysztof Kotlarski