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Demystifying Finance for Circular Economies

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Demystifying Finance for Circular Economies Financing Circularity: Demystifying Finance for Circular Economies October 2020 Financing Circularity: Demystifying Finance for Circular Economies 1 Published by UNEP Finance Initiative The United Nations Environment Programme Finance Initiative (UNEP FI) is a partnership between UNEP and the global financial sector to mobilize private sector finance for sustainable development. UNEP FI works with more than 350 members—banks, insurers, and investors—and over 100 supporting institutions – to help create a financial sector that serves people and planet while delivering positive impacts. We aim to inspire, inform and enable financial institutions to improve people’s quality of life without compromising that of future generations. By leveraging the UN’s role, UNEP FI accelerates sustainable finance. Copyright © United Nations Environment Programme, 2020 This publication may be reproduced in whole or in part and in any form for educational or non-profit purposes without special permission from the copyright holder, provided acknowledgement of the source is made. The United Nations Environment Programme would appreciate receiving a copy of any publication that uses this publication as a source. No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the United Nations Environment Programme. For bibliographic and reference purposes this publication should be referred to as: UNEP Finance Initiative (2020), Financing Circularity: Demystifying Finance for Circular Economies Disclaimer The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the United Nations Environment Programme concerning the legal status of any country, territory, city or area or of its authorities, or concerning delimitation of its frontiers or boundaries. Moreover, the views expressed do not necessarily represent the decision or the stated policy of the United Nations Environment Programme, nor does citing of trade names or commercial processes constitute endorsement. The research is funded by United Nations Environment Programme. ISBN: 978-92-807-3803-2 Job no.: DTI/2301/GE Financing Circularity: Demystifying Finance for Circular Economies 2 ISBN: 978-92-807-3803-2 Table of Contents Acknowledgements ...........................................................................................2 Foreword ...........................................................................................................3 Executive summary and recommendations .......................................................4 Introduction ......................................................................................................8 From a take-make-waste linear economy to a circular economy ...................... 11 Innovative business models underlying finance for circularity .........................16 Sectoral focus for financing circularity ............................................................ 21 Cross-cutting digital innovation for circular economies ...................................38 Circular economy and industry frameworks .....................................................43 Sustainable financial instruments integrate circularity .................................... 47 New metrics for financing circularity ...............................................................53 Drivers of the transition towards circularity in resource use............................. 61 Growth scenarios for financing circularity .......................................................66 Policy considerations for financing circularity .................................................70 Geographical variations in policy measures for circularity ...............................76 Appendices .....................................................................................................86 Appendix 1: Principles for Responsible Banking .......................................................87 Appexdix 2: Principles for Responsible Investment .................................................87 Appendix 3: Principles for Sustainable Insurance .................................................... 88 Appendix 4: Useful Resources ..................................................................................... 88 Appendix 5: Acronyms ................................................................................................... 89 Appendix 6: References ................................................................................................. 90 End notes ........................................................................................................93 Financing Circularity: Demystifying Finance for Circular Economies 1 Table of Contents Acknowledgements Peer Review Panel We would like to thank the following experts who participated in a Review Panel for providing recommendations during the drafting of this report: ◾ Charles Arden-Clarke, One Planet Network Secretariat, Economy division UNEP ◾ Elisa Tonda, Head, Consumption and Production Unit, Resources and Markets Branch, Economy Division UNEP ◾ Rob de Jong, Head, Air Quality and Mobility Unit, Economy Division, UNEP ◾ Sandra Averous, Chemicals & Health Branch, UNEP ◾ Mamta Patel, Director & Co-Founder, Chemical Watch ◾ Hugo Schally, Head of Unit, Multilateral Environmental Co-operation, DG Envi- ronment, European Commission ◾ Peter Hirsch and Astrid Motta, Energy Efficiency and Climate Change, Euro- pean Bank for Reconstruction and Development (EBRD) ◾ Arnold Verbeek, Senior Innovation Finance Advisor, European Investment Bank ◾ James Leaton, Vice-President, Moody’s Investors Services ◾ Gemma James, Head of Environmental Issues, Principles for Responsible Investment ◾ Luis Cecchi, Policy Analyst, Circular Economy in Cities and Regions Programme, Cities, Urban Policies, and Sustainable Development Division, Centre for Entre- preneurship, SMEs, Regions and Cities, Organisation for Economic Co-operation and Development ◾ Christian Tock, PhD, Attaché, Director Sustainable Technologies, Ministry of Economy, Le Gouvernement Du Grand-Duché de Luxembourg ◾ Professor Paul Ekins, Director; Professor of Resources and Environmental Policy, UCL Institute for Sustainable Resources and member of UNEP’s Interna- tional Resource Panel ◾ Michiel De Smet, PhD, Finance Programme Lead, Ellen MacArthur Foundation Author: Jan Raes, Circular Economy Expert (Affiliate), with inputs from Ali Aliyorbek Mumi- nov, UNEP Finance Initiative Project Manager and Editor: Liesel van Ast, Membership and Regional Coordination Manager, UNEP Finance Initiative Financing Circularity: Demystifying Finance for Circular Economies 2 Acknowledgements Foreword Harnessing finance to build back better and greener Economic disruptions during the pandemic in 2020 the way we produce and consume, addressing issues have brought to light the urgency of the transition to ranging from greenhouse gas emissions to plastics, more sustainable consumption and production. resource scarcity, waste management, and use of hazardous chemicals, while increasing resilience. Emerging from this crisis is an opportunity to address vulnerabilities in our systems that have been exac- This report offers emerging evidence of the potential erbated and exposed, including biodiversity loss, to scale up finance to accelerate the shift away from a resource flows, and pollution impacts on the resil- take-make-waste model of resource use and pollution ience of human health. to a circular economy, and practical steps to embed circularity into financing. The insights in this report The better we manage our production and consump- can guide financial institutions to address the oppor- tion, the better we manage the health of ecosystems tunities and threats offered by the transition, providing that underpin our economies. The recovery has to be recommendations for policymakers for frameworks transformative to ensure the post-COVID-19 world to accelerate financing for a circular economy, with improves human well-being, tackles climate change, examples of measures that have proven effective protects nature and cuts pollution. This is critical to around the world. address underlying fragilities and identify opportuni- ties to shift swiftly towards more just, equal and resil- The global financial system has a tremendous oppor- ient societies and economies.1 tunity to scale up financing of solutions to tackle soci- ety’s critical challenges, while managing downside Instead of going back to linear, wasteful and inher- risks from changes in business models and econo- ently unstable supply chains, we need to to align our mies at all levels. Financial institutions that take risks economies with the UN Sustainable Development and opportunities related to resource use, scarcity Agenda adopted by 193 UN Member States in 2015. and effects on pollution and people into account will Governments and the private sector can jointly trans- be well-positioned to be part of an economy fit for form resource use to shape a recovery that safe- the future. guards lives and livelihoods. It is increasingly urgent to accelerate and scale up Financial institutions have a critical role in stimu- the transition to a circular economy. Allocating capi- lating economic growth by investing in sustainable tal for the longer-term imperatives to address climate consumption and production, which sits at the heart of change, reduce pollution and improve resource
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