Michiel De Smet
Finance Programme Lead, Ellen MacArthur Foundation
Urgent global issues pose huge challenges to companies. To tackle them requires a transformation of business models, and even entire production and consumption systems.
Investing in circular economy models offers businesses the opportunity to address global challenges like climate change and biodiversity loss, by designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. Through circular business models, new revenue streams can also be generated, for example by valorising by-products, reducing costs through remanufacturing, and creating new markets, such as online resale platforms for luxury goods. While the task at hand may be significant, the rewards could be just as great.
Making the commitment to a circular economy
Many leading organisations are already making bold commitments and taking action to create a circular economy. As the issue of plastic pollution has risen on the global agenda, with policymakers putting bans and mandatory targets in place and citizens demanding solutions, businesses have responded.
Supporting industrial transformation both helps the financial sector deliver on its climate and other Environmental, Social & Governance (ESG) goals while providing them with a source of new and better growth.
Global brands such as Danone, Nestlé, and Unilever are taking action to tackle plastic pollution at its source – reducing their virgin plastics use by setting targets on elimination of problematic and unnecessary packaging and increasing use of recycled content.
Supporting the transition to a circular economy
To achieve the transition to a circular economy successfully, these companies and others like them will need both capital and guidance. Not only has the financial services sector a vital role to play here, this industrial transformation also offers a massive opportunity for them.
Supporting industrial transformation both helps the financial sector deliver on its climate and other Environmental, Social & Governance (ESG) goals while providing them with a source of new and better growth.
Growth in the financing sector
The circular economy financing market is taking off, with steep growth in activity across asset classes over the last two years. Notable examples include the launch of 10 public equity funds focussed on circular economy, including from large institutions such as Blackrock, Credit Suisse and Goldman Sachs. Also, the issuance of several corporate bonds to finance circular economy activity, including efforts helping meet the companies’ 2025 targets on plastics.
While growth in financing is promising, the opportunities the circular economy holds for the sector remain largely untapped, and far more capital and activity will be needed to fully seize them. Now is the time for finance to build on this initial momentum by helping companies accelerate their transition to a circular economy.
