Circular economy attracting $1.3trn in annual investments, but dwarfed by linear spending models

A new report from Chatham House found that governments, companies and private financial institutions invest $1.3trn into initiatives that reduce waste and promote reuse and recycling each year.

The analysis found that corporates are currently investing around $800bn annually into the circular economy. However, this accounts for a little over 2% of the $35trn that the private sector funnels into a linear economy of ‘take, make and dispose’.

Governments aren’t faring much better. Despite issuing $510bn a year on closed-loop systems, this accounts for 4% of a collective $13trn.

As for financial institutions, around $46bn is spent on closed-loop initiatives, with $21bn allocated to specific circular funds and $24.5bn issued via green bonds.

Chatham House’s senior research fellow Patrick Schröder said: “Recycling, reusing materials and reducing waste makes clear business sense, which is why spending on the circular economy is rising rapidly. However, funding remains far below where it needs to be to reap the full investment rewards. Moving from a linear ‘take-make-throw away’ economy to circular, sustainable business models will create jobs, promote investment and protect the planet.”

Of the $800bn spent in corporate finance on the circular economy, the analysis found that fashion and the automotive sector are proving the most attractive. Circular initiatives accounted for 5% of spending in the fashion industry – with an alternative materials market now valued at $40bn. Automakers allocated 6% of total spending on the circular economy.

However, the research warns that agriculture is lagging behind, with just 0.1% of its annual $8trn going into circular initiatives.

The report’s co-author, Jan Raes, global sustainability advisor for Dutch bank ABN Amro, which has ringfenced $1bn for circular funds, added: “Tackling the climate crisis is one of the great challenges of our time – and financial institutions have a vital role to play. At the heart of the circular economy is a set of rapidly growing market opportunities. It’s time for all financial institutions to invest in our shared future and back this new paradigm for sustainable growth.”

Closed-loop spending

Last year, more than 30 chief executives from some of the world’s largest banks and asset managers, including BlackRock, Barclays, Lloyds, ING and the European Investment Bank, backed research from the Ellen MacArthur Foundation (EMF) highlighting how green finance can spur the circular economy.

The report notes that no circular economy funding mechanisms existed three years ago, but now 10 public equity funds focus partially or fully on closed-loop models. Additionally, In the last 18 months, at least 10 corporate circular economy bonds have emerged, issued by the likes of Barclays, BNP Paribas, HSBC, ING and Morgan Stanley.

Since 2016, there has been a 10-fold increase in the number of private market funds focused on the circular economy, while the total amount of assets managed through these funds increased six-fold since the beginning of 2020, from $0.3bn to more than £2bn. In 2019, for example, BlackRock launched its first investment fund dedicated to accelerating the global development of a circular economy.

The report is supported by companies representing more than $18trn in assets under management who are eager to gain the benefits of investing in the circular economy. 

Join the conversation at edie’s Earth Overshoot Day webinar 

Thursday 29 July 2021 marks Earth Overshoot Day – the calendar date at which humanity will have used up nature’s resource budget for the entire year.  

To mark the occasion and help organisations of all sizes and sectors accelerate the transition to a circular economy, edie is hosting a free webinar at 1PM BST. Hosted in association with Centrica Business Solutions, the hour-long session will feature expert speakers from Elvis & Kresse, ReLondon and Centrica Business Solutions. 

For a full agenda and to register for the webinar, click here.

Matt Mace