Financing a European Circular Transition: From investment-readiness to investment alignment

This brief proposes three complementary areas of action: 

1. Integrate resource dependency into bank risk assessment and supervision. The EU should develop a common methodology to help banks and supervisors identify how reliance on critical materials, concentrated suppliers, virgin inputs and exposed regions can affect financial risk. Resource-related risks should be incorporated into loan assessment, portfolio mapping, scenario analysis, and supervisory review, with Pillar 3 public disclosure introduced once methodologies have been tested and options to implement more directive action considered. This would improve financial resilience and allow circular strategies that reduce resource risks to be recognised more effectively 
   
   2. Use credit guidance to align bank lending with European industrial and resource-security priorities. Public authorities should use credit guidance to influence where bank lending flows, including the price, quantity, and conditions of credit. A democratically governed European framework should identify priority areas for expanded lending, support industrial transformation and restrict finance for activities that deepen incompatible forms of extraction and material dependence. The European Investment Bank, national promotional institutions and participating commercial banks could provide affordable, long-term loans for eligible investments, supported where appropriate by targeted central-bank refinancing. Strong additionality, pass-through and allocation conditions would be needed to ensure that public support changes lending outcomes rather than simply lowering banks’ funding costs. 
   
   3. Expand direct public investment and ownership where private finance is inadequate or inappropriate. Public institutions should provide patient equity and quasi-equity to strategic circular businesses that do not fit conventional venture capital models, while retaining meaningful ownership and governance rights where appropriate. Public authorities should also take a more active role in planning and financing shared infrastructure required for circular value chains. Public, cooperative, private and blended models should be assessed according to their long-term public