Financing the transition

Support from the financial services industry for the circular economy creates two mutually reinforcing benefits.33

Financial institutions can capture part of the upside potential generated by a circular economy, a growing market that is estimated to generate 1 percent to 4 percent economic growth over a 10-year period, while also hedging the risks from their portfolio of linear businesses.
Better access to funding accelerates the growth of the circular economy and improves the economic performance of circular businesses. This, in turn, alleviates investment and credit risks and provides more sustainable returns.34

As a result, financing the circular economy is becoming a strategic interest for many financial institutions. HSBC released Waste Less, Grow More, an in-depth research report, in September 2019 highlighting why the circular economy matters and how this can help drive significant economic activity. It states that “the transition to the circular economy could unlock $4.5tn of global GDP by 2030 as a result of resources being better utilized and more jobs being created in higher-skilled industries away from resource extraction and waste disposal.”35

As a report by the FinanCE working group of financial institutions highlights, the benefits for the sector are clear. Understanding the circular economy enables financial institutions to:

  • understand the economic impact of a circular economy;

  • accelerate value creation through innovation;

  • anticipate linear risks in the economy;

  • contribute to economic growth opportunities and other positive macroeconomic impacts;

  • mitigate economic instability; and

  • be responsible entrepreneurs and contribute to sustainability goals.36

According to a recent report from the Club of Rome, it is estimated that an additional 3 percent of GDP per annum needs to be invested from now until 2030 to deliver a circular economy. According to the report, this would primarily be required in the following sectors.

Circular finance

Delivering this level of investment in circular initiatives will not be straightforward for many financial institutions. This is largely because circular business models are different to traditional ones as they don’t seek to maximize the sale of goods but instead seek to deliver alternative revenue models focusing on sharing, leasing and extending the life of products. In a recent report on the topic, ING draws the following conclusions.

Circular economy finance guidelines

To address some of these challenges and promote the financing of circular solutions, Dutch banks ABN AMRO, ING and Rabobank published the Circular Economy Finance Guidelines (CEFGs) in 2018. They are designed to create and stimulate a common understanding of circular economy finance in the European market, and in turn accelerate financing and investing in circular business models. The CEFGs, which apply to all equity and debt products, have four core components.

1 A framework for assessing the circularity of investment opportunities. Only those that have a circular business model and generate long-term positive impacts should be considered circular propositions.

2 A process for project evaluation and selection, to support financiers in communicating how financial products are eligible under the use of investment criteria.

3 Management of investments to ensure that the investments from circular economy financing are tracked to verify that they continue to contribute to the shift toward a circular economy during the lending/investment period.

4 Reporting – financiers that want to prepare their finance administration for traceability and auditability should make, and keep, readily available up-to-date information on their debt and equity activities to support the transition toward a circular economy.

One example of the application of these is the Green Innovation Bond, which Philips issued in 2019.

Circular investments

Focusing investments toward circular initiatives will not only deliver circular benefits and returns to investors but will also drive economic activity. For example, Closed Loop Partners – a dedicated investor in the circular economy, which has $86m of assets under management, has deployed $50m to date and its co-investors, which include Goldman Sachs, have invested more than $200m – estimates that every dollar invested will have a 1:1 economic benefit to the communities in which the business operates by 2030. To date its activities have delivered $9m in economic benefit and wages to communities, as well as 400 jobs.

In October 2019 BlackRock, the world’s largest asset manager, set up the BlackRock Global Funds Circular Economy fund to invest in companies dedicated to the circular economy and capitalize on the opportunities created for companies that are seeking to develop circular solutions.40

Case study

Closed Loop Partners – investment in the Emerald Coast Utilities Authority

When the Infinitus materials recycling facility (MRF) in Montgomery, Alabama, closed suddenly, the Emerald Coast Utilities Authority (ECUA) and its neighbors were left without a replacement facility within a five-hour drive. Rather than wait for another privately owned MRF to enter the market, ECUA decided to build its own single-stream facility. A loan from Closed Loop Partners provided about 30 percent of the required capital, and the site opened in September 2016.

Since then, the ECUA MRF has become a regional asset for an area that had not previously had a long-term or reliable solution for processing recyclables. Escambia County has continued to expand its own collections and has entered into collection contracts with 11 municipalities in Florida and Alabama as well as three private hauliers. The facility is processing close to 39,000 tons of materials a year and, in doing so, generating three primary economic benefits:

1 savings to ECUA in the form of avoided tipping fees;

2 tipping fees collected from other municipalities and hauliers; and

3 revenues from commodity sales.

As of September 2018 ECUA has avoided $2.3m in tipping fees and generated $1.9m in revenue, for an average total economic benefit of $96 per ton. An additional 30 jobs were created as part of this process.41


Oliver Wyman, Supporting the Circular Economy Transition: The role of the financial sector in the Netherlands (August 2017). Available online via:


ING, Rethinking Finance in a Circular Economy (2015). Available online via:


HSBC, Waste Less, Grow More: Why the circular economy matters (2019). Available online via:


FinanCE, Money Makes the World Go Round (2016). Available online via:


Wijkman, A., and Skånberg, K., The Circular Economy and Benefits for Society, Club of Rome


ING, Rethinking Finance in a Circular Economy (2015). Available online via:


Sanderson, H., “BlackRock launches fund to cash in on recycling push,” Financial Times (October 8, 2019)