Driving change: how banks can support the transition to a circular economy
By ING | www.ingwb.sk
The concept of the circular economy has become an increasingly popular business model in recent years. But despite its obviousness, widespread implementation still has a long way to go. In order to start realizing this vision, we need to first understand exactly what it means to move from a linear to a circular model and how banks and other financial institutions can accelerate this transition.
Circular economy is about rethinking how we use raw materials and resources to create a sustainable economy free of waste and emissions. It means shifting from the current linear model of “take, make, waste” to an economy where we “reduce, reuse, recycle and regenerate”. The circular economy isn’t only about sharing or recycling, it’s about change. Taking a different approach to how we design, sell, value, assess risk and finance.
The role of financial services
Financial services have an important role to play in creating a healthy and sustainable world. Not just by reducing direct footprints, but through the choices made in lending, investing and the services offered to customers. Within the circular economy, new business models arise. Existing companies might transition from selling products to offering products as a service; platforms emerge to facilitate collaborative consumption through sharing assets; or new technologies are developed to substitute virgin materials. As a result, both new and existing businesses need funding to develop, scale or produce their solutions. Although capital is available for funding, deploying the right type to the right initiative can prove challenging.
Another challenge to consider is that it is simply easier for businesses to continue with traditional resource-intensive production and distribution methods. In part this is because, unlike the traditional linear business model, the circular business model involves new forms of collaboration and transaction with companies along, and even outside, existing supply chains. By getting involved at an early stage in the process, banks gain a better understanding and can play a key role in helping create durable new circular business models. Therefore, ING took the lead in the set-up of a ‘circular supply chain accelerator’ (CiSCA) together with Accenture Strategy and Circle Economy. CiSCA helps large multinationals and their small and medium-sized suppliers shift to a circular economy by conceptualizing business models, identifying economic value drivers, testing business cases, assessing risk, and financial structuring.
Walk the talk
It’s one thing to raise awareness and share knowledge of the circular economy with clients. It’s another to put it into practice. And that’s exactly what ING is doing with the construction of its new global head office. For example, the thousands of tons of concrete from the old building are being recycled to build the new one, with the rest being used for a new nearby highway. ING’s new headquarters will have the highest BREEAM certification level (outstanding) in terms of sustainable building standards. The building will also be energy-neutral. And of course, it’s about financing circular business models: For example, ING financed Black Bear Carbon, a circular company that converts used car and truck tires into raw materials for new products. ING Sustainable Investments, a portfolio specifically designed to drive new business models and technologies in the scale-up phase, took an equity stake in this innovative and circular scale-up. ING’s role as advisor and sole underwriter in a merger between Shanks and Van Gansewinkel to form Renewi, now one of Europe’s leading circular economy companies that turns waste normally destined for incineration or landfill into valuable products, also shows our commitment to stimulate the circular economy.
As it stands, the market lacks guidance on how to uniformly apply circular economy thinking in the financing and transition phases. By launching the circular-economy finance guidelines in 2018, ING took the lead together with ABN AMRO and Rabobank, to develop guidelines in what constitutes circular financing. The industry needs to find a way to measure the impact of circular economy activities and establish how much these initiatives contribute to the transformation from a linear business model to a circular one. Furthermore, it is also important to measure the improvement a company makes in its journey to becoming circular. These are pivotal considerations in realizing the goals of a truly circular economy. Imagine a world free of waste and emissions. I believe we can make this happen by driving positive change. But only when we collaborate as an industry to help define, recognize, select and stimulate circular economy initiatives can we make a lasting impact.