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Financial institutions have a significant role to play in facilitating the transition to a circular economy. However, they face a number of obstacles, such as the lack of a track record and of suitable tools to assess the financial impact, or the specific risks of circular models.
In response to these challenges, Circul'R and the members of the "Circular Finance" Coalition - BNP Paribas, La Banque Postale, Oney and Cofidis - have published a report entitled "Financing the circular economy: obstacles and opportunities". The result of a year's work steered by Circul'R, this report takes stock of the main financing challenges and proposes concrete levers for overcoming them.
On the strength of these lessons, the coalition now aims to bring together new players to identify relevant circular economy projects to be financed by these institutions, particularly in areas such as Industrial and Territorial Ecology (ITE), reuse and critical materials.
THE ROLE OF FINANCIAL INSTITUTIONS IN THE CIRCULAR TRANSITION
The circular economy is a model that aims to preserve natural resources, limit waste production, reduce CO2 emissions and preserve biodiversity. According to an INEC study, 85% of manufacturers see it as a real opportunity to improve their competitiveness and develop new markets. Its growth is reinforced by an increasingly structuring regulatory framework (AGEC law, taxonomy, SFDR, CSRD) and by growing pressure on access to resources and the volatility of raw material costs.
Financial institutions have a significant role to play in accelerating the adoption and scaling-up of these models, by directing investments towards circular companies and projects, providing specific loans for these initiatives, and developing innovative financial instruments promoting circularity.
FINANCIAL AND STRUCTURAL OBSTACLES TO OVERCOME
Since the start of its work in September 2024, the coalition has studied seven circular business models in order to identify the levers that can be activated to strengthen their financing : long-term leasing of household appliances, packaging reuse, repair and reconditioning, automotive retrofitting, building materials reuse, bicycle leasing and industrial symbioses. The report highlights three main areas for improvement:
- Adapting financing to deferred profitability : circular models based on usage (rental, subscription, etc.) generate revenues that are spread over time. This time lag creates a significant working capital requirement, which calls for financing that complements conventional financing, generally designed for immediate purchase models. The report recommends developing financial instruments capable of covering this cash flow gap, and integrating the specificities of circularity into the structuring of financing.
- Better anticipation of the residual value of circular assets: the difficulty of estimating the value of certain assets at the end of the cycle, especially in markets that are in the process of being structured, such as that of household appliances, makes it difficult to value them. The report recommends working on appropriate valuation methods to better anticipate and ensure the reliability of the value of circular assets, in order to secure financing.
- Revise risk assessment tools: circular projects (reuse, reverse logistics, repair, etc.) lack historical data and specific indicators. This lack of data leads to an overestimation of risks and limits access to financing. The report proposes the development of dedicated criteria and indicators to integrate the specificities of these models into the analysis grids of financial players.
These findings illustrate the need to develop financial mechanisms to support the transition to a circular economy.
TWO PRIORITY USE CASES FOR TESTING SOLUTIONS
Of the seven models studied, two were selected as priority use cases. This choice is explained by three major criteria: a tangible environmental impact, significant market potential and financial obstacles representative of the difficulties encountered by other circular models. These two cases have benefited from in-depth analysis to identify concrete solutions, thanks to the support of experts and key players in the value chains of the sectors concerned:
- Long-term leasing of household appliances: this model helps to extend the life of appliances and reduce waste, but remains hampered by the difficulty of modeling profitability, uncertainty over residual value and cash-flow requirements linked to return logistics. In response, the report recommends the development of B2B2C models (lessors, student residences), the introduction of insurance linked to usage, the funding of repair infrastructures, the design of robust, repairable products and better risk analysis through data sharing.
- Packaging reuse (deposits): this model benefits from a favorable regulatory framework and growing demand. To speed up deployment, the report identifies a number of levers: financing players pooling standardized packaging, introducing impact contracts, and leasing collection and washing equipment to reduce entry costs.
According to Jules Coignard, co-founder of Circul'R, "This report demonstrates the strength of collective work: by bringing together financial institutions, companies and experts, we have been able to identify concrete obstacles and propose pragmatic solutions to overcome them. Our ambition is to continue this dialogue and cooperation to transform these ideas into action. That's what we'll be doing over the coming months, working to identify relevant circular economy projects to be financed by these institutions, particularly in areas such as Industrial and Territorial Ecology (ITE), reuse and critical materials."
Link to the webinar replay
Link to the report
Press contact
Sara Bonnet - sara.bonnet@circul-r.com - 06 08 68 56 83
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