The circular economy is a crucial part of the solution to climate change and Environmental, Social and Governance (ESG) issues. The question is no longer whether these global challenges matter to the financial services sector, but how it’s addressing them.
The circular economy is a source of growth and long-term value creation, and investment opportunities can be found across nearly every sector. Circular investments have seen rapid growth across asset classes and sectors.
As more companies move to the circular economy to reduce costs, generate new sources of revenue, and manage risks, now is the time to invest in a circular future.
The economic opportunity for financial services firms
Moving to a circular economic model has clear economic benefits. The financial sector can already capitalise on the circular economy opportunity by leveraging or adapting existing products and services.
It’s attractive to investors
Early evidence suggests that circular economy funds can meet client demand for investment strategies that seek competitive returns while benefiting society and the environment. BlackRock’s circular economy fund grew to USD 1 billion in assets under management (AUM) in its first year.
It generates financing and advisory business
Circular economy expertise and products are becoming key draws for CEOs and boards, and will help engage corporate and institutional clients. Morgan Stanley were lead structuring advisor and lead underwriter for PepsiCo’s USD 1 billion bond deal to fund key initiatives including reducing its use of virgin plastics.
It offers competitive risk-adjusted returns
By adopting circular principles, companies can generate new sources of revenue, reduce costs, spur innovation, and mitigate certain risks. Early adopters in the finance sector can gain competitive advantage by identifying companies and projects which are tapping into these new sources of value and mitigating risks associated with linear business models.
See actions and examples across asset classes, product and service types, and sectors in the real economy.
A way to meet climate, biodiversity, and ESG goals
The circular economy offers employees, investors, and other stakeholders a positive new narrative and direction for the economy. It can also inspire and inform the financial services sector to develop its role as a positive force in society.
Financing the circular economy can help financial institutions meet their ESG commitments and regulatory requirements. As well as tackling both the causes and effects of climate change, the circular economy contributes to addressing many other environmental issues, such as:
natural resource scarcity
pollution and waste