The relentless pursuit of economic and technological progress has given rise to climate change, biodiversity loss, waste, and pollution. The historical approach to human development through a linear economic model has resulted in a triple planetary crisis. However, the circular economy presents a new model for our economy that fosters economic and environmental resilience, while promoting growth for the benefit of business, society, and the natural environment.
The transition to a circular economy is currently underway, with collective commitments, initiatives led by major corporations, startups nurturing innovative ideas, and developing solutions. The separation of revenue from production and resource use has now entered a crucial “work in progress” phase. Various sectors, including fashion, the built environment, and the food system, are embracing circular design principles and nature-positive approaches.
Despite advancements, the pace of the circular economy transition is not swift enough. Finance is a critical missing component that could expedite solutions. The current financing model for the circular economy transformation needs to be reconsidered, as economic policies are currently designed to support the linear economy. Early adopters who acknowledge the path towards a circular economy can reap substantial rewards.
Policies such as Extended Producer Responsibility (EPR) for textiles, ecodesign rules for repair, and the Global Plastics Treaty are shaping the policy landscape as essential facilitators of the circular economy. National circular economy roadmaps are also increasing, promoting confidence in future market conditions.
Circular economy business models offer significant potential for growth. The upcycled food market, projected to reach $46 billion, is expected to grow annually by 5 percent, and seven rental and resale platforms in the fashion industry have achieved unicorn status, demonstrating the value and competitive advantage of circular economy business models. Additionally, the adoption of regenerative agricultural practices can reduce operating costs and increase long-term output prices.
Conversely, there are growing economic risks associated with continued investment in a linear economic model. As the global macroeconomic landscape becomes more unpredictable, traditional linear approaches are vulnerable to challenges such as price volatility, logistical issues, and supply chain disruptions.
To fully leverage the circular economy opportunity, finance needs to embrace innovative thinking, act differently, and collaborate in new ways. Circular economy financing is well-positioned to seize opportunities in nearly every sector of the economy. Flexible financing schemes and upfront cash injections can help address critical gaps and serve as catalysts for the entire market.
Diversifying pools of capital and funds across industries and asset classes is also crucial for achieving systemic transformation. Scaling the circular economy requires diverse solutions and funding sources. The time to invest in the circular economy is now, and diverse forms of finance are needed to drive the shift towards a more circular economy.
Author:
Emma Elobeid, Senior Editor, Ellen MacArthur Foundation