In its new publication—Roadmap Circular Finance 2030—the Sustainable Finance Platform has developed four concrete actions that will promote cooperation within the financial sector, allowing this sector to become a driver of the circular transition.
The circular economy is a means to an end—our end goal being an ecologically safe and socially just space. And the financial sector plays a crucial role in realising the transition to a circular economy. But it's not easy to go circular in a linear world: companies and projects seeking financing still face many obstacles in transitioning to circularity.
Download the English summary of the study at the bottom of this article.
From linear to circular
Circular companies must operate within the framework of a predominantly linear economy, in which negative externalities are not factored into the prices of products and services. And what's more: the risk and return profiles of circular business models are not yet well understood and estimated. The financial sector will have to invest in knowledge development about the dynamics of the circular economy. In the current system, linear investments are largely still prioritised.
The financial sector plays an important role in financing circular companies and thus in accelerating the transition to a circular economy.
Therefore, the Circular Economy working group under the Sustainable Finance Platform (of the Dutch central bank) states that in 2030, circular economy will have to be an integral part of the assessment of financing applications and investment decisions.
What solutions does the Sustainable Finance Platform offer to the financial sector?
Action one. Assess linear and circular risks.
Linear risk—the risk incurred by continuing to do business under the unsustainable assumption of infinite resources—must be explicitly included in financing decisions. Circular risk needs to be assessed more realistically by focusing (risk) models on the future and seeking assurances in future cash flows, long-term stability, chain cooperation and contracts.
Action two. Factor circular metrics into financing.
This can increase transparency, enable external verification and benchmarking, and reduce greenwashing. Standardised circular metrics will lead to a level playing field in which circular activities (or lack thereof) will become visible and accounted for in financing and investment decisions.
Action three. Gain experience by closing landmark deals…
…and fine-tuning circular propositions for financing. Financing a company that explicitly pursues circularity and applies at least one new element of circular finance constitutes a landmark deal. Insights gained from the experience—like how best to measure circularity, how to weigh risks and opportunities and how financiers can structurally use this information—can be shared with the sector. This will produce standard and publicly available documentation to spur future deals.
Action four. Expand and optimise financing instruments…
…to make circular financing the new business-as-usual. This means developing appropriate financing with more risk capital for early-stage circular companies. Blended finance, government funding and financial innovation also all play an important role in accelerating the timeframe within which this shift can happen.
The financial sector depends on its customers, governments, regulators and supervisors. All these players will have to work together and share insights with each other so that circular financing is business-as-usual by 2030.
By following these actions, the financial sector can become a lever for and driver of the circular transition.
Are you a financial institution representative, a financial sector advisor or a policymaker? Would you like to accelerate your circular transformation?
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About the working group
The Circular Economy working group was established in 2021 under the Sustainable Finance Platform. Members of the working group are representatives of financial institutions and various other organisations: Circle Economy, Invest-NL, Rabobank, ABN, Ministry of Infrastructure and Water Management, PGGM, ING, Bird&Bird, KPMG, Dutch Professional Organization of Accountants (NBA), NEN, European Investment bank, Nederlandse Waterschapsbank (NWB), Sustainable Finance Lab, Fair Capital Partners, Doen Participaties, Copper8, Nyenrode Business University
Download the English summary of the study below.