Rethinking Finance In A Circular Economy’ is a recently released report that analyses the opportunities for financial institutions in a transition to the circular economy. The report, written and produced by ING Group – a multinational banking and financial services corporation based in Amsterdam – discusses the emergence of circular business models and the implications for finance.
The financial sector has arguably been one of the least engaged during a period where the circular economy has gained traction and new models arise. In part, this is because the implications of a growing middle class and resource price volatility are less directly felt by financial institutions and the advantages to be gained are less evident.
In Rethinking Finance, the ING Group take a significant step towards highlighting the opportunities for the financial sector, in particular banks, to embrace the transition from linear to circular. They note that the circular economy is a model that can provide growth (est. 1-4%) in a period of stagnation for many of the world’s industrialised economies.
The report responds to the challenges including the changing nature of cash flows and the need for larger amounts of pre-finance offered by circular economy ‘service over ownership’ business models, but focuses on the options for the banking sector to take advantage of the transition.
It identifies a number of potential financial enablers including:
The acceptance of ‘contractual comfort’ instead of the need to attach assets to legal ownership.
The development of a cash-flow based approach to finance.
Producing valuation and risk models that reflect the higher values of circular supply chains and second hand markets.
Developing leasing arrangements for new models (see DLL’s work on this as well).
Potential partnerships with crowdfunding platforms to include the community aspect of the circular economy.
Integration of environmental and social costs and benefits into business valuations.
ING Group take finance and banking back to its routes and discuss thinking around the circular economy in the context of the basic function of financial services in a prosperous global economy. Out of that context they have released analysis that captures some of the initial opportunities and requirements of finance in a circular economy.
Source: ING Group – Rethinking Finance In A Circular Economy