Financial institutions will be crucial to make the shift to circularity, ensuring the consumption and production patterns of the businesses they invest in making more efficient use of resources and minimize waste, pollution and carbon emissions. This is the conclusion of the United Nations Environment Programme report Financing Circularity: Demystifying Finance for the Circular Economy which outlines how financial institutions can help redesign global economies by changing the way we consume and produce.
The move to circular economies could generate USD 4.5 trillion in annual economic output by 2030 while helping to achieve the Sustainable Development Goals, protect the health of our ecosystems and enable sustainable recovery in the wake of the COVID-19 pandemic. Banks, insurers and investors can play a critical role by providing businesses with financial products that contribute to the circular economy, conserve natural resources and avoid or reduce waste. Financial institutions currently lack awareness of circularity as well as the expertise, products and services to harness business opportunities.
The growth of circular business models will require structural and technological change, including innovation in the design and manufacturing of products and services; reducing inputs to agriculture; cutting food waste and using digital technologies to increase transparency and sustainability in supply chains. The financial institutions surveyed for the report recognized that there are opportunities to boost circularity in the buildings and construction, food and agriculture, chemicals and electronics sectors in particular. The report explores transitions already underway in these sectors, as well as in manufacturing, apparel and fashion, mining and energy and cross-cutting innovation in areas such as digital technology.
The report highlights examples of innovation in financing circularity using examples from banks, insurers and investors. It also identifies the need for governments to provide the financial sector with incentives and an enabling policy and legislative framework to accelerate the integration of circularity into financial products and services and provides recommendations for policymakers, financial industry regulators and supervisors.