Scaling the Circular Economy in Canada: The role of the finance sector

Guest blog by Elizabeth Shirt, Managing Director, GLOBE Series, in collaboration with UNEP FI

As we all struggle though another summer of heat domes, wildfires, and other extreme weather brought on by climate change, the circular economy seems almost too good to be true. Moving from a ‘take-make-waste’ model to a circular model could help us solve so many of today’s challenges: Climate change, with deeper GHG reduction potential since 45% of emissions are linked to the way we make and use products. Biodiversity loss and pollution, given a circular model reduces waste and maximizes the use of our existing resources to minimize the impact on land use. But that’s not all. There is a huge economic upside to the circular economy: we can create tremendous value while reducing waste, consuming fewer resources, and conserving our environment.

The circular economy delivers opportunities for better growth

According to a new report published by the Ellen Macarthur Foundation, in collaboration with Bocconi University and Intesa Sanpaolo, circular economy strategies can curb investment risk and drive superior risk-adjusted returns.

Specifically, the paper finds that:

• The circular economy can be used as a de-risking strategy. Analysis of 222 European companies across 14 industries has highlighted that the more circular a company is, the lower its risk of default on debt over both a one-year and five-year time horizon.
• Investing in the circular economy can also drive superior risk-adjusted returns. Research suggests that higher levels of circularity are driving superior risk-adjusted stock performance for European listed companies.

Potential drivers of these circular economy benefits include a focus on design and business model innovation and diversification, achieving greater resource decoupling, anticipation of stricter regulation, and changing customer preferences.

The financial sector will help us realize the trillion-dollar opportunity

Circular business models work. Growing these models will require innovation and system-wide, structural change. Financial resources are needed to fund that change, and financial institutions have a critical role to play in supporting the transition – a transition that could generate USD 4.5 trillion in annual economic output by 2030, according to Accenture.

Over the last two years, there has been tremendous progress. New debt and equity instruments have been created related to the circular economy. Circular investments have seen rapid growth across asset classes and sectors. According to the Ellen Macarthur Foundation’s latest report, assets under management (AUM) in public equity funds focussed on the circular economy have grown from USD 0.3 billion in December 2019 to over USD 8 billion at the end of the first half of 2021.

An earlier report from the United Nations Environment Programme Finance Initiative (UNEP FI) on ‘Demystifying Finance for the Circular Economy’ outlines how the financial sector can scale up financing to accelerate the shift to circular business models even further. Opportunities include rethinking of the design and manufacturing of products and services, reducing inputs in agricultural production, and digital solutions to transform industries, coupled with waste management models designed to close material and resource loops.

“Banks, insurers, and investors can play a critical role in accelerating the transition to the circular economy, conserve natural resources, and avoid or reduce waste by innovative approaches and products providing businesses with the right financing solutions. Moving towards circularity away from linear business models will support the transition to a net zero future” said Peggy Lefort, Resource Efficiency Coordinator at UNEP FI.  “Financial institutions currently lack awareness of circularity as well as the expertise, tools, and products to harness business opportunities and align their portfolios to meet net zero targets.”

Show me the money: Financing the circular economy transition in Canada

Canada is behind Europe and other parts of the world when it comes to financing the circular economy. There is a huge opportunity to create solutions at speed and scale in Canada, and to create value for the financial sector.

Don’t worry, we got you! As part of the World Circular Economy Forum 2021, GLOBE Series, UNEP FI, and Circular Economy Leadership Canada (CELC) are hosting a special complimentary event: Financing the Circular Economy Transition Accelerator Session on September 15^th. The session will focus on advancing and scaling up circular financing, from the global to the local level.

The Financing the Circular Economy Transition virtual event will begin with a global view of circular finance opportunities and challenges curated by UNEP FI, followed by an in-depth look at local Canadian applications and case studies curated by CELC.

Powered by GLOBE Series, the outcomes-oriented virtual session will focus on key questions including:

• Despite a lack of harmonized frameworks, taxonomies, and metrics, what circular financing solutions are being implemented today?
• How can we accelerate the scale-up of circular finance within the financial sector, to financial institutions not yet actively involved in circular financing, and across the supply chain, including SMEs?
• What are the potential returns and associated risks of investing in circular products, services, and solutions?
• How can we leverage the intersection of circular economy with broader ESG investment opportunities, the UN SDGs, net-zero climate commitments, and green economic recovery objectives?

For more information on this event, check out GLOBE’s website: https://www.globeseries.com/wcef-2021-accelerator-session-financing-the-circular-economy-transition/