How to Finance a Circular Economy in the Modern World
Like most of our current systems, our wasteful linear economy has been wreaking havoc on the environment for years, and it’s finally catching up to us. The effects of creating more and more waste while simultaneously depleting non-renewable resources has already been felt, and will continue to be a detriment until a new, fully circular economy is integrated. While just years ago it might have seemed like financing this large-scale economic change would be impossible, the changes that have already been taken to move closer to a full circular economy have proven that it’s possible.
What is a circular economy?
The Ellen MacArthur Foundation, modern-day champions of adopting a global circular economy, defines it as an economy which
“aims to redefine growth, focusing on positive society-wide benefits… [and] entails gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system”
A circular economy, to put it simply, resembles the already-existing cycles found in nature.
In a recent interview for the Overlap Blog, bio-designer, creative consultant and Overlap Knowledge Provider, Kassandra Huyng explains that, while “nature is dynamic, constantly changing and adapting,” our current built environments are “much too rigid, as if we are swimming upstream, when it’s much easier to go with the flow of the current.”
It is imperative to adopt an economic system which not only meets the needs of industries, businesses, and consumers today, but can adapt to the unpredictable nature of our world. By replicating the cycles already existent in nature, a circular economy will benefit every industry, business, and consumer within it, without destroying the planet’s biomes and resources necessary for all life.
How does the circular economy work?
In nature, nothing is wasted. All living things work on a cycle, live off resources provided in nature, and are absorbed once again throughout the ecosystem upon death. A circular economy strives to follow the same cyclical nature, by adhering to the three following principles:
Just as nothing is wasted in nature, a closed cycle for materials means they will never end up in a landfill, even when they’ve served their original purpose. Instead, they are repaired, repurposed, and given new life (Kenniskaarten, 2020). This process necessitates ending the use of toxic substances that cannot be reused, and are harmful to the natural cycle.
It is necessary within a circular economy to utilize renewable energy from sunlight, wind, and other non-finite natural resources, continuing on in the cycle of energy vs. depleting non-renewable sources that cannot flow back into the natural cycle.
One of the most lacking aspects of our current economy is it’s individualistic nature. A circular economy recognizes that every action has a reaction that impacts the greater system, and that collaboration between companies, industries, countries, and more, is essential to utilize the absolute maximum potential of every resource (Ellen MacArthur Foundation, 2015).
What are the benefits of a circular economy?
In a recent study conducted by GreenBiz, they found that “in the plastic value chain alone… a circular economy has the potential to reduce the annual volume of plastics entering our oceans by 80 percent... (and) reduce greenhouse gas emissions by 25 percent” (Financing Circularity, 2020). And the benefits don’t end there.
While a circular economy is a sustainable approach to manufacturing and consumption that will ultimately help the world’s natural ecosystems and cycles, it will also greatly benefit industries, businesses, and individuals. The same study projected the impact of a circular economy, again on the plastic value chain alone, could “generate savings of over $200 billion a year, and create 700,000 additional jobs by 2040” (Financing Circularity, 2020).
Is a circular economy realistic?
Not only is a circular economy possible-- it’s already happening. Countless businesses are transitioning to a circular economy, and public demand is growing along with it.
In fact, research from the Ellen MacArthur Foundation shows that fast fashion-- a booming industry despite being one of the biggest polluters in our world today--is expected to be beat out by resale fashion as soon as 2029, proving just how quickly the elements of circular economy are being adopted by businesses and consumers worldwide.
The time to adopt a sustainable circular economy is now. So, how in the world do we finance it?
How to finance a circular economy
Adopting the elements of a circular economy will lead to massive financial benefits in the long-term, with experts estimating that the transition could generate 4 trillion USD in economic output annually by 2030, create millions of jobs, and more. However, it will take a change in our current financial systems, if we wish to make this transition.
According to the Ellen MacArthur foundation, transitioning into a circular economy will not be possible until big players like large financial institutions work in collaboration alongside governments and existing corporations and industries (Financing the circular economy), to achieve this goal.
Luckily, there multiple adjustments these sectors can apply to already-existing systems to help promote and incentivize a circular economy:
Sustainability bonds (also known as green bonds) are exactly what the name implies. As defined by the International Capitol Market Association, these are “bonds where the proceeds will be exclusively applied to finance or re-finance a combination of both Green and Social Projects” (ICMA, 2018).
Various governments have already seen great success in the implementation of sustainable bonds. Luxembourg, for example, raised a whopping 1.5 billion euros when they became the first European government to sell sustainability bonds, and more countries are quickly following suit.
These bonds not only stimulate the current economy but help to guarantee further sustainable buildings, technology, and practices throughout a massive array of industries, companies, and individuals.
Incentivize & De-incentivize
There are various monetary incentive programs already being used by local and national governments, which can be expanded on to further the financing of a fully circular economy.
Various cities have introduced green tax credits to businesses practicing sustainability, financial programs for green businesses, and more. And you may be asking yourself, but where does that money come from? Governments don’t have endless finances to assist companies in going green, which is where de-incentivization becomes important.
By creating regulations and fee requirements that discourage unsustainable business practices, local governments can make it more difficult to operate with unsustainable practices. De-incentivization programs have already begun, including putting a carbon tax in place, setting caps on emissions and non-renewable resource usage and charging fees when those caps are exceeded, and more.
How companies and individuals can finance a circular economy
While no one company can lead us to a full circular economy, it is entirely possible for the business itself to follow the circular economy principles within its own practices, paving the way to a more sustainable world. Whether an existing business wants to transition to green practices, or a new company wants to build a fully sustainable business, here’s how they can finance a circular economy:
Take advantage of incentive programs
All those examples of incentives for sustainable businesses we mentioned above? Take advantage of as many as you can! All it takes is a quick search to find out what kind of help is available to you for your business, in your area.
There is a global focus on sustainability right now, from entire countries and governments, to individual consumers. What does this mean for you and your business? Consumers are willing to pay more for sustainably-made products, and are seeking out businesses that have adopted green models. If you’re an existing business, introducing sustainable products at higher prices can help you gradually finance going green, as opposed to making the changes all at once.
Implement send-back programs for used products
Reusing products isn’t just good for the environment-- it’s good for your business. Why pay for entirely new materials to make your products when you could utilize the used products?
There are various businesses already implementing send-back programs. For example, Nespresso sends free recycling bags to their customers to dispose of their used coffee pods in. Once the bag is full, it can be sent back to Nespresso, once again for free, who then uses the leftover materials to be used in brand new coffee pods. This not only saves the company money, but makes a great selling point for potential customers. Win-win!
In our current, tumultuous economy that relies heavily on ever-depleting resources, the future is dismal. Faster than many realize we will be facing the affects of this system, unless we make a change, and do it now. Transitioning to a circular economy is one of the most vital steps we can take to ensure a more sustainable, adaptable way of life. Luckily, the reality of adopting a circular economy is not the far off pipe-dream many once believed it to be. With the necessary financial assistance from governments and financial institutions, businesses and consumers can successfully make this transition and help guarantee a system that continues to sustain itself, even as the world around it continues to change.
To learn more about the circular economy and connect your business with an Overlap Expert. Overlap takes the work out of finding and booking pre-vetted and qualified sustainability experts from around the world - all on one easy to use platform. Take your business' sustainability game to the next level, learn more about Overlap today.
Produced by: Canopi Marketing, LLC
Written by: Jordan Safranski