Gone are the days of traditional linear economy models; a promising, transformative shift is coming. As the economy curves inwards, a circular approach takes the spotlight, sparking a revolution for greener practices. This signifies a departure from repeating patterns and behaviours, propelling us into a new realm focused on sustainability. Through this we begin to prioritise practices like reusing, repairing, recycling, and extending product life. On a product level, embracing the circular economy is easily understood. But how can this approach be applied to the financial sector? And why do we see it as essential?
In the financial sector the circular economy refers to an economic model that aims to support and invest in sustainable and regenerative businesses. The significance of the circular economy being embraced here is multifaceted. With successful implementation we see it not only addressing pressing sustainability challenges but also offering tangible benefits to financial institutions, clients, and society as a whole. By 2025, the sustainable global transaction banking sector is projected to experience substantial growth, with the revenue opportunity estimated to range between $28 billion and $35 billion. This makes the transition to a circular economy, a strategic move linked to profitability, as well as sustainability.
“We need both the private and public sectors to transform our economies to address climate change, reduce pollution and improve resource efficiency. Collective action is critical to delivering on the Agenda 2030 for Sustainable Development. The financial sector and policymakers in particular have a central role to play in the shift from linear, wasteful growth to embedding circularity in finance and our economies.” Inger Andersen, Executive Director of UNEP.
Pursuing Sustainability: Transforming Banks for a Greener Future
Intesa Sanpaolo, a prominent European banking group, stands as an example of a financial institution that is known for its strong ESG commitment, social impact focus, and dedication to climate initiatives. They exemplify a bank embracing the circular economy to achieve positive impacts on both profitability and sustainability. This shift in mindset has boosted the bank’s investments and resilience against risks. Their Plafond initiative meets client demands for financial products that promote a low carbon and circular economy, creating new business opportunities. Through these efforts, the bank supports sustainable economic development while addressing the urgent need for ecological solutions.
Rabobank, based in the Netherlands is another financial institution that saw the adoption of circular economy practices to be of great opportunity to both them, and their customers.
“Companies who minimize waste and the use of raw materials have a strategic advantage, a cost advantage. As a bank those two topics are of course crucial to the long term success and survival of your clients. That is why we think we can help them on these topics and at the same time also act in the interest of the bank by lowering risks of our financing.” Bas Rüter, former Global Head of Sustainability at Rabobank.
Rabobank has supported clients by launching The Circular Business Challenge, aiming to identify circular opportunities for regions and individual businesses. It brings entrepreneurs together to brainstorm new ideas and solutions to achieve their goals, creating business opportunities and fostering an industry-changing movement.
Strategies for Sustainable Financing and Investments
Embracing a circular financial economy beckons in sustainable finance practices. This shift allows us to explore innovative approaches to our traditional financial activities, including; ESG Investing, Green Loans, Green Mortgages and Green Bonds. Answering your customers’ demands with environmentally informed services will increase awareness and carbon literacy. Cultivating an environment where Net Zero becomes an obtainable and desirable goal for your business customers.
Circular supply chain finance is another service model born from sustainable finance initiatives. It refers to financial mechanisms and solutions that support and incentivize circular practices within supply chains. It aims to provide funding and financial support to businesses that adopt circular business models and practices. Key aspects of circular supply chain finance include:
- Supply financing; where financial institutions offer working capital solutions and financing options to suppliers who implement circular practices.
- Pay-for-performance models; where financial incentives are tied to the achievement of circular goals and metrics.
- Extended Producer Responsibility (EPR); a policy approach where producers take responsibility for the entire lifecycle of their products. Circular supply chain finance can support EPR programs by providing financial resources for product take-back, recycling infrastructure, and eco-design initiatives.
Collaborative Efforts for Sustainable Finance Solutions
Collaboration is essential for accelerating the transition to a circular economy. Financial institutions can drive innovation, share knowledge, and leverage expertise by building connections with stakeholders such as businesses, governments, academic institutions, FinTechs, and ClimateTechs.
Relationships between financial institutions, universities, think tanks, and NGOs can help disseminate knowledge about sustainable finance, conduct research on emerging sustainable technologies and practices, and build the capacity of financial professionals to integrate sustainability into their decision-making processes. Without the discourse around the circular economy and sustainable finance being amplified, we will not make progress.
At Connect Earth, we strongly advocate for collaboration between the FinTech, ClimateTech and financial sectors to drive innovative solutions for sustainable finance. Through our API-based solutions, we strive to enhance transparency within the sustainable finance sector. By leveraging FinTech capabilities, we enable efficient investments in sustainable projects, provide valuable ESG data analytics, and enhance access to sustainable financial products and data for both individuals and businesses. Our goal is to create a financial landscape where sustainability becomes an inherent part of every financial institution’s ethos. As a visionary sustainable financial institution, you hold the power to be a catalyst for change within your network.
While we have covered the basics, it would be naive not to acknowledge the challenges associated with transitioning to a circular economy framework and embracing sustainability. It is important to recognise that achieving Net Zero and embracing a circular approach is not without its difficulties. If it were a simple task, we would have already reached our goals. However, by acknowledging these challenges, we can address them head-on and work towards overcoming them.
A report released by The Copernicus Institute of Sustainable Development, Utrecht University, the Netherlands and Deloitte has identified the four main barriers to adopting CE as: Cultural, Technological, Market and Regulatory. In the report the barriers are noted to be interrelated.
‘A business with a company culture hesitant towards circular economy will not develop circular designs. Hence, consumers will lack awareness and interest regarding circular designs since none of these are offered in the market. This means that cultural barriers can induce technological barriers which induce further cultural barriers.’ Pg. 7 Breaking the Barriers to the Circular Economy, Barriers to the Circular Economy.
The future of the Circular Economy
“Our industrial system was shaped in an era when the global population was far smaller and resources were seemingly plentiful. Yet as the world has grown, business-as-usual has reached its limits. Despite international awareness of the economic and environmental advantages of a circular economy, powerful dynamics lock us into business-as-usual.” Ellen MacArthur Foundation, Locked in: what is linear lock-in and how can we break free?
At Connect Earth we see our economy evolving, more SMEs, financial institutions and individuals are taking accountability for their impact on our environment and our API based solutions are being called over and over again to work out the carbon emissions of financial institutions and their customers.
With new regulations such as the Corporate Sustainability Reporting Directive (CSRD) in the EU being introduced; and states in the US such as California adding to their Climate Change legislation and action plans, things are gearing up across the globe.
We see a gap for financial institutions to step up and take a lead in reframing our economy. Waving goodbye to our outdated, linear routes and creating a new circular standard for ‘business-as-usual’. We’ve seen institutions taking risks and defining new initiatives across the globe with great success, but there’s still room to make your mark. Afterall, how can you become an industry leader without making a move that differentiates you from the crowd?
Reach out to discuss how we can collaborate to create a more circular, sustainable economy. We at Connect Earth are here to help you gain insight into your business and portfolio emissions through automated carbon accounting; taking the first step to decarbonisation and Net Zero.
About Connect Earth:
Founded in 2021, Connect Earth is a London-based environmental data company that democratises easy access to sustainability data. With its carbon tracking API technology, Connect Earth is on a mission to empower consumers and SMEs to make sustainable choices and bridge the gap between intent, knowledge and action. Connect Earth supports financial institutions in offering their customers transparent insight into the climate impact of their spending.