The circular economy offers great business opportunities. In 2015 McKinsey and the Ellen MacArthur Foundation estimated that it could even generate a net economic benefit of 1.8 trillion in Europe by 2030. But, the circular economy can never lift off without businesses putting the concept into action. And with innovative circular companies like Product-as-a-Service Models (PaaS) struggle to find financing, this remains a big barrier. On the other hand, we see that many financiers are starting to set ambitious targets to grow their circular portfolio. but to this day the PaaS love story between entrepreneurs and financiers has been lost in translation.
The main issue is a lack of knowledge on both sides and the absence of a financial narrative for Product-as-a-Service models that fit within the risk parameters of financiers. More concretely, PaaS models are, sometimes falsely, perceived as risky due to the way businesses present themselves and how financiers assess risk.
To close the knowledge gap between circular entrepreneurs and financiers, Circle Economy has developed the PaaS Question Kit: A comprehensive guide to PaaS business models. The Kit leads both entrepreneurs and financiers through a series of questions they need to ask themselves before starting their conversation. The ultimate goal of the PaaS Question Kit is to remove the knowledge barrier and open up more financing opportunities for circular companies.
After presenting the Kit to our network the initial responses from both sides have been positive. "The PaaS Question Kit gives a perfect overview of the advantages and the complexities of a PaaS business model. The questions and manual are an easy tool to use in preparation for financial interviews, both with financiers and end-users of our product" says Pim Dekkers, founder from Occony, a high-end circular furniture company.
Joost van Dun, Circular Economy Lead at ING Sustainable Finance commented: "Paas business models are seen as one of the most powerful business models of the Circular Economy. Within ING there is a clear ambition to increase our support to our clients who transition to this model. The PaaS Question Kit is a helpful tool in this process".
The PaaS Question Kit is available open-source. We would love to receive feedback from circular entrepreneurs and financiers alike to increase our understanding and make necessary improvements. We also provide tailored workshops and support to financiers and entrepreneurs on these topics.
We would love to hear from you! For more information, questions and comments please feel free to reach out to our finance team!
The Coalition Circular Accounting (CCA) brings knowledge partners together to co-create solutions in overcoming the barriers to transition from a linear to a circular economy. In order to better reflect the financial reality of circular companies, it is vital to adjust existing economic principles and reporting rules. The CCA, co-financed by Nederland Circulair, is a collaboration between Circle Economy, NBA, Dura Vermeer, ABN AMRO, KPMG, Province of Overijssel and scientists affiliated with Erasmus University, Open University, University of Groningen, Nyenrode Business University and Avans University of Applied Sciences.
NEW PRINCIPLES
The circular economy is characterised by principles including reuse and value retention. In many cases, these principles require innovative business models in which parties form long term collaborations, and in which material cycles are closed. New, circular business models require an adjustment of economic principles and reporting rules.
COALITION CIRCULAR ACCOUNTING
The NBA, together with Circle Economy, has taken the initiative to set up the Circular Accounting Coalition. The aim of the coalition is to jointly identify accounting challenges in the circular economy and to work together to co-create solutions and best practice in overcoming these barriers, e.g. valuation issues in circular products during and after their lifespan. Members of the coalition include senior financial decision-makers (CFO, finance manager), users (financiers, shareholders), and advisers/auditors (accountants) alongside science and advisory experts. The NBA's Annual Reporting Committee will act as a consultative group.
Findings will be consolidated in a quarterly open-source white paper.
'Circularity, the energy transition, sustainable entrepreneurship or sustainability are about economic lifetimes, cost price determination, valuation issues, depreciation periods, residual values and business models. That is 100% our profession'.
Fou-Khan Tsang, chartered accountant and booster Green Brigade NBA
CASE DURA VERMEER
The first case study is a pilot project from Dura Vermeer and the Province of Overijssel to operate a "Road-as-a-Service". The idea is that Dura Vermeer becomes the economic owner of the road and takes care of the maintenance while the Province pays a periodic fee for the use of the road. A crucial point is determining the residual value when entering into the contract and (being able to) include this residual value in accounting and financing. This
leads to the question: How can the residual value of the road be determined and what effect does this have on the revenue model and on the profit and loss account? The above parties will work on this case until November
Transitioning to a circular economy requires new business models that focus on optimising the lifespan and value of products. To unlock the value of a circular economy, we need to identify current barriers in accounting and valuation standards and redesign rules where needed.
Fieke de Haan, Lead Circle Finance Program, Circle Economy
RESULTS
The Coalition will deliver the following concrete results:
MORE INFORMATION OR PARTICIPATION?
If you are interested in participating in the Circular Accounting Coalition or would like to know more, please do not hesitate to contact the project manager Aglaia Fischer
The construction sector consumes 42 billion tonnes of resources annually, making it the most material-intensive sector. The construction sector also produces about one-third of all global waste, most of which is not recycled or reused, but ends up in landfills. This is a known problem faced by actors across the industry value chain. Changing one of the largest industries in the world is no easy feat, but change is already happening.
Circle Economy has teamed up with ROCKWOOL one of the frontrunners, committed to change the sector. ROCKWOOL recognises the potential of the circular economy and has decided to join Circle Economy's member community. They aim to address the global environmental and social challenges caused by the industry while simultaneously creating new commercial opportunities. The concept of a circular economy is not new to ROCKWOOL. For instance, the group upcycles secondary materials from industries such as the utilities and metallurgical sector. ROCKWOOL also recycles its own waste in closed loops and designs products for extended life spans and nearly indefinite recycling thereby leveraging the natural recyclability and durability of stone wool.
"Our membership with Circle Economy can help us better understand the opportunities we have in our value chain and help us connect with other stakeholders so the impact can be wider,”
Dorte Vigsø, Sustainability Manager, ROCKWOOL Group.
To further improve ROCKWOOL's operations, Circle Economy assessed the company's value chain and identified opportunities to increase impact. Applying a system mapping methodology to measure and assess circularity across ROCKWOOL’s value chain, from resource extraction to end of life, Circle Economy identified a range of opportunities to build on existing activities. It also showed that ROCKWOOL has the potential to become fully circular in the future.
"We need better incentives to improve the management of demolition and construction waste. Investigating ROCKWOOL's value chain helped us understand the structural issues holding back the industry. Far-reaching collaboration across the value chain and with legislators is needed to move forward."
Marc de Wit, Director Strategic Alliances, Circle Economy
Looking at the industry as a whole, a lot still needs to happen. The collaboration with ROCKWOOL uncovered three key levers to improve circularity: (1) Increase the sourcing of non-virgin and regenerative materials for both raw materials and energy supply; (2) Develop more high-value and circular product applications that can be integrated into modular, adaptive building components; (3) Reclaim more waste from the construction sector through ROCKWOOL’s internal recycling and partnerships with other players.
The biggest steps towards circularity can only be taken with the support of and collaboration with legislators and value chain partners. Circle Economy found multiple opportunities for ROCKWOOL to improve the circularity within its own operations. However, structural barriers in legislation and other parts of the value chain impede the development of the necessary recycling infrastructure for construction and demolition waste to become fully circular. ROCKWOOL and Circle Economy call on both legislators and value chain partners to join forces in developing pragmatic solutions to overcome the identified barriers. Doing so will drastically improve economic incentives for a circular utilization of construction and demolition waste thereby unlocking the full potential of the circular economy model. To start the dialogue, ROCKWOOL is open to discuss the opportunities identified in the report via sustainability@rockwool.com and through their Circle Economy membership.
Almaty is the world's first Central Asian City to identify circular economy opportunities. A resource metabolism scan uncovers how Almaty can use circular economy strategies to shape its future as an international trading hub at the intersection of Europe and Asia.
Almaty in Kazakhstan is the first city in Central Asia to identify circular economy opportunities. The city commissioned an international consortium -- Shifting Paradigms, Circle Economy, Centre for Sustainable Production and Consumption (CSPC), FABRICations and Emerging Markets Sustainability Dialogues (EMSD) -- to map resource consumption. The analysis produced new cross-sectoral circular economy strategies to achieve the city’s sustainable development ambitions.
This resource metabolism scan comes as Almaty achieves impressive economic growth, re-establishing its position as an exporter of agricultural commodities. An important station on the Belt and Road Initiative, China’s development plan to improve trans-continental cooperation, Almaty sees connectivity with Asia, Europe and other regions as key to growing international trade. At the same time, the government is opening new channels for public participation in urban planning decisions, to meet the needs of its citizens.
"This project helps strengthen international cooperation and share positive experiences, as well as fostering a dialogue between all stakeholders to achieve the principles of sustainable development".
B.K. Baibek, Mayor of Almaty City
The consortium worked intensely with local governments and industry players, to ensure the metabolism scan highlights circular strategies which take full account of cultural, socio-economic and geographic factors.
In agriculture, the most promising circular economy opportunities lie in diverting organic residues away from landfill and processing them into soil enhancers or organic fertilisers. Regional ambitions for agricultural output will require investment in soil quality. Applying processed organic residues on land can reduce the application of synthetic fertilisers, while also improving water retention, soil life and resilience to erosion.
Local industries already collect and recycle a significant share of mineral and metal residues. Improved connectivity to foreign markets through the Belt and Road Initiative can support the extension of manufacturing capacity with remanufacturing, whereby used products or components are refurbished as new; for example, car parts, furniture and construction elements. New service models can support this approach by incentivising companies to produce products that last, allowing suppliers to retain ownership and run take-back schemes to cycle products to second or even third users in different market segments.
“During the project it was encouraging to see the amount of traction on the ground, from grassroots initiatives to large government programmes. Since 40% of the carbon footprint of the city can be addressed with circular economy strategies, it is important to scale these initiatives.“
Jelmer Hoogzaad, Shifting Paradigms
Circular strategies in the construction sector are based on passive design and adjusting the design to replacing new, carbon-intensive construction materials with materials of secondary or renewable origin. This starts with design. Merely considering energy and resource use in the design phase of a building can bring down energy use with more than half. Design can also open opportunities for the use of secondary and renewable construction materials, potentially turning the construction sector into a net sink of CO2.
"It is encouraging to see the circular economy gaining momentum outside of Europe and recognised as a tangible tool for transition. It provides a change agenda to transform from an economy of depletion to an economy of opportunities that works for all people."
Harald Friedl, CEO Circle Economy
By showcasing also what is already happening in the city, the circular prospect becomes more comprehensible. Artist impressions in the report aim to make the circular future tangible, connect it with socio-economic challenges and show how circular initiatives can make Almaty an even more pleasant place to live.
Local government programmes that encourage and support circular economy practices, such as repair, recycling and circular design activities help attract new investment, create jobs and result in tangible socio-economic benefits for the city and its people, reveals the report: The Role of Municipal Policy in the Circular Economy: Investment, Jobs and Social Capital in Circular Cities.
The report explores the connection between municipalities pursuing circular economy policy and investments in circular business that create jobs.
In order to maximise the benefits for society of the circular economy, municipalities can employ a series of regulatory, economic and soft instruments. Municipal circular policies, especially strategy, targets, loans and subsidies, are conducive to generating employment.
“We know that circular strategies can create new, local, stable jobs and support an economy that is low carbon and human centered. Cities play such a key role to make the transition happen and it is the policy makers who now have the opportunity to make thriving cities. Governments can use the circular economy to make the sustainable development of their cities possible." – Harald Friedl, CEO, Circle Economy
Circle Economy has announced an updated participation offer for brands and retailers who wish to join the Cotton Recycling Pilot, a 12-14 month project designed to address barriers to the use of post-consumer recycled cotton and increase supply chain experience with circular textiles. Circle Economy and Recover will bring together supply and demand to establish a mutual understanding of the capabilities and limitations of post-consumer recycled cotton. This update expects to enable brands and retailers to meet their post-consumer recycling commitments and bring circular textiles one step closer.
Two new knowledge partners are joining the project. WRAP, the UK Waste and Resources Action Programme, works extensively towards catalysing change across sectors with a strong focus on resource efficiency and addressing the economic viability of solutions for the circular economy. As leader of the Sustainable Clothing Action Plan, WRAP expects to be a key partner in this project. KPMG Advisory S.p.a., the Italian branch of the global advisory group, will contribute their experience and expertise in delivering professional business services to support the growth of companies and markets, focused on innovation as a key pillar of the work they support.
Through this partnership, WRAP and KPMG Advisory S.p.a. (Italy) will join Textile Exchange and Reblend to support the work of the Cotton Recycling Pilot and share data and insights from past projects and ongoing work. The project is additionally supported by the Dutch Ministry of Infrastructure and Water Management. By combining knowledge and working together, industry uptake of recycled post-consumer textiles can be accelerated without reinventing the wheel.
Applications for brands and retailers to join the project will close on 30 September, so contact us now to work together and make a lasting impact in our industry!
Learn more about the project and get in touch here:
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