Financing the circular economy - Capturing the opportunity
Published in September 2020
The circular economy offers a major opportunity for the financial sector to deliver on climate commitments and other ESG objectives, whilst tapping into sources of new and better growth and long-term value creation.
Nearly half of the emissions that cause climate change come from how we make and use products and food. A circular economyA systems solution framework that tackles global challenges like climate change, biodiversity loss, waste, and pollution. It is based on three principles, driven by design: eliminate waste and pollution, circulate products and materials (at their highest value), and regenerate nature. gives us the tools to tackle climate change and biodiversity loss together. It can scale fast across industries to create value and jobs, while increasing the resilience of supply chains and delivering massive economic growth potential, estimated at 1.8 trillion EUR a year in Europe alone.
Analysis by Bocconi University of 200+ listed European companies across 14 industries has shown that the more circular a company is, the lower its risk of defaulting on debt, and the higher the risk-adjusted returns of its stock.
The adoption of circular practices has the potential to reduce risk and increase resilience through business model diversification, decoupling economic growth from resource use and environmental impact, and better anticipation of stricter regulation and changing customer preferences.
The question is no longer whether climate change and other ESG issues matter to the financial services sector, but how it will address them. The circular economy is a crucial part of the answer to this question.
Circular economy investment opportunities are to be found across nearly every sector. This steep growth covers a range of financial products and services, including public equity funds, bonds, private market funds and banking. For example:
Assets managed through public equity funds increased 28-fold since the end of 2019, from USD 0.3 billion to almost USD 9.5 billion at the end of November 2021
The annual issuance of corporate and sovereign bonds with a circular economy focus increased 5-fold between December 2019 and December 2021, with at least 40 bonds issued in the last three years.
The world’s largest investor embraces the circular economy
BlackRock is the world’s largest asset manager investing on behalf of clients – ranging from pension funds and sovereign wealth funds to family offices and individuals – in assets such as shares of publicly-listed companies, corporate and sovereign bonds, and real assets, such as infrastructure and housing.
The concept of circular economy is so important, as I said, it’s a foundational blueprint and if we could get more and more of the money owners to agree that this is a good way to invest, not just for social reasons, not just for environmental reasons, but for investment reasons, performance reasons.
Larry Fink, CEO & Chairman, BlackRock
Improving future data quality and availability by scaling dedicated circularity measurement tools, such as Circulytics, and integrating circularity metrics into reporting and disclosure frameworks, can support finance and investment decision making and circular economy adoption by policymakers, business, and the financial sector.
Now is the time for the financial services sector to capitalise on new growth and investment opportunities. The following papers offer new analysis that highlights rapid growth in circular economy financing and investment, and evidence demonstrating how circular economy strategies can de-risk investments and drive superior risk-adjusted returns for investors and financial institutions.
Published on 22nd July 2021
The Ellen MacArthur Foundation works to accelerate the transition to a circular economy. We develop and promote the idea of a circular economy, and work with business, academia, policymakers, and institutions to mobilise systems solutions at scale, globally.
Charity Registration No.: 1130306
OSCR Registration No.: SC043120
Company No.: 6897785
Ellen MacArthur Foundation ANBI RSIN nummer: 8257 45 925
The work of the Ellen MacArthur Foundation is supported by our Strategic Partners and Partners.