Seminar report | The role of finance in accelerating circular business models

The finance sector plays a crucial role in enabling and stimulating the development of a circular economy. On the 16th of May, the Embassy of the Netherlands in Stockholm, Mistra - The Swedish Foundation for Strategic Environmental Research and NMC - The Swedish Association of Sustainable Business organised a seminar to discuss how the finance sector can take on this role, with a focus on circular business models and other circular solutions.

Which challenges do companies face in terms of financing when they want to go circular? Where can they attract financing to develop or launch new circular ways of doing business? What could a financial win-win-win business case look like, and what is needed to enable it? To help us answer these questions and to look ahead, we invited speakers representing finance, business and research from both the Netherlands and Sweden.

The complete programme as well as the slides of all presentations can be found below the summary.

Summary

Circular economy: what and why?
The seminar started with a short introduction by the organisers. The Embassy’s policy officer for economic affairs, Eva Blom, explained how a government-wide agreement has created a roadmap for making the Dutch economy circular by 2050. To implement this ambition, however, we will need to collaborate with other countries and organisations. Mistra CEO Åke Iverfeldt added that it is crucial to foster more awareness of the circular economy in the financial sector. Without sufficient financing, we cannot set the necessary steps to create solutions for the future. NMC Secretary-General Kristina AtKisson ended by noting that “business, finance, academia and civil society will need to come together” to find ways forward in the field of circular economy.

Moderator Ingela Wickman Bois then took over to provide a “helicopter view” on the topic of the afternoon.  With rising commodity prices, scarcity of resources and population growth, a circular economy becomes an increasingly attractive alternative to the linear economy of the past. It is an optimal combination of “doing good” and “doing business”. However, a major challenge to this development is that “circularity” lacks a commonly agreed definition. An effective transition requires a level playing field – that is, a harmonisation and alignment of criteria.

Unfortunately, the financial world tends to stick to an incomplete understanding of circular business, which it believes to be “inherently risky”. Interest is growing, however, as the risk factors of the linear economy are becoming more obvious. But we still need to de-risk the circular economy, Wickman Bois stressed, and clarify that it has a great potential for value creation and capture. While financial institutions have to improve their knowledge and pool assessment experience, there is also a need for business management to become more involved, set strategic priorities, build internal capacity and find cross-industry partnerships to strengthen their circular business case.

Financial sector: gaining knowledge, sharing models
How is finance dealing with the challenges of circular business? According to Joost van Dun, Circular Economy Lead at ING Bank, there is a lack of guidance on this topic. The financial sector hardly knows what is meant with the “circular economy” and – consequently – what to do with it. Therefore, three Dutch banks published a joint set of guidelines for financing the circular economy in 2018. The report aims to help accelerate financial involvement in the circular transition, by providing common criteria for business model assessment and the assessment of social/environmental impact. At the same time, it demarcates the field, clarifying what business activities are excluded from circular finance.

Van Dun expected that these shared guidelines can contribute to various solutions: not only by financing circular activities through regular products, but also by implementing “green” financial products whose proceeds are used for circular purposes and – most promisingly – by stimulating the development of altogether new business models. This reflects the fundamental change from a linear to a circular economy from a financial perspective. “We will have to finance services instead of assets, assess future cash flows instead of historical financials, work with partnerships instead of single companies, and realise that value is no longer fixed but can change continuously,” Van Dun succinctly summarised.

Susanne Glykofrydis, General Manager Nordics at DLL, then gave some examples of the circular solutions that finance providers can offer through long-term partnerships. “Due to the need for a regenerative and sustainable economy,” the need for such products is becoming more urgent. The key to DLL’s life-cycle asset management (LCAM) approach is that “assets should be produced to be recycled.” LCAM contributes to a circular economy in at least three ways: by implementing modular product architectures, leasing rather than selling products, and expanding refurbishment operations. DLL provides these possibilities through solutions such as operational lease, inventory finance and upgrade finance. The goal, Glykofrydis recapped, should be to “offer function instead of ownership!”

Between finance and business: challenges and opportunities
But how do businesses experience the financial challenges of going circular? Emanuela Vanacore, researcher at RISE, spoke about her investigation into this topic. If the ownership of products stops at the manufacturer instead of the customer, then how does that impact the financing of new business models? Vanacore expected that much potential would be missed due to the perceived risk of the new model. Based on the interviews she conducted, it turned out that funding was not the first problem that companies encountered, yet flexible access to loans and capital was still a major challenge.

The main challenge to the financial sector is to gain deep knowledge of the (long-term) business model of their customers. According to Vanacore, it might be worthwhile to take a higher risk at the start in order to build that knowledge. Extra funding from the side of the government could moreover speed up the transition. Even though circular business has its specific risks, we have to recognise that “at some point, the risk of moving to the new model becomes smaller than the risk of staying in the old one.” Finance providers might need to review their internal processes and methods, but they also gain the opportunity to develop new business models and strategic partnerships, as Van Dun indicated earlier.

Business models: risk and innovation
The last speaker, entrepreneur Sepehr Mousavi, recounted his experiences with circular business. “How does impact innovation fly?” was the question he asked. He told the “failure story” of Plantagon, a company that ran vertical farms. Although the idea to use heat and space efficiently was good on paper, the enterprise went bankrupt. Two external factors can determine whether an idea “flies”: policy and finance. But your own business model also has to be sound, with an overlap between the impact and revenue model. By restarting their business in another form – integrating vertical farming into real estate property – Mousavi and his partners have so far been more successful in “flying”. External support remains necessary to guide the transition to a circular economy, however.

In the subsequent panel discussion, the experts crossed swords about the speed of the financial transition. Most speakers agreed that the change was not happening quickly enough. Tobias Lindbergh (Handelsbanken) was particularly reluctant. “Sustainable finance is still very marginal – it is more about communication than substantial investment.” Van Dun agreed, but stressed that banks first need a better understanding of business models to identify the actual risks of circular economy. Mattias Lindahl (Mistra REES) was more positive, expecting that companies will force a shift towards new models. “Finance will have to reply with new solutions.” Alexander Schenk (European Investment Bank) added that citizens also have significant leverage, for instance over their savings, investments and pensions. According to Vanacore, an important way forward is to complement the existing structures of public organisation – such as public procurement – with the demands of circular business.

Government as a facilitator
Ambassador Ines Coppoolse concluded the seminar with some final remarks, reflecting on the role which governments have to play in this complex transition. One crucial duty is to provide (additional) funding to business activities which have a hard time attracting “regular” financing. The new Dutch investment bank Invest-NL is a good example of this. However, the Ambassador added, government has a broader role to play, as exemplified by Dutch “Acceleration House” and the national “Green Deals”. These programmes aim to facilitate the transition to a circular economy by providing legal assistance, exchange of knowledge and inspiration, and opportunities to develop new business partnerships.

Do you have any questions related to the article above?
Please send an email to sto-ea@minbuza.nl.

Program

14.30 Start of seminar
Welcome
Eva Blom, Embassy of the Netherlands, Åke Iverfeldt, Chief Executive Officer, Mistra and Kristina AtKisson, NMC Secretary General

Introduction by the moderator
Ingela Wickman Bois, Senior Advisor Circular Business Strategy


Presentations
The “Circular Economy Finance Guidelines”
Joost van Dun, Circular Lead, Wholesale Banking, Sustainable Finance, ING Bank


Enabling a circular economy from a finance perspective
Susanne Glykofrydis General Manager Nordics, DLL Group

Financing circular business models - case studies in Sweden
Emanuela Vanacore, Researcher, RISE

15.45 Coffee break

16.10 Seminar continues
How could impact innovation fly?
Sepehr Mousavi, Chief Innovation and Sustainability Officer, SweGreen

Panel discussion
What are the challenges which companies that want to go circular face? How, and at which stage, can various financial actors support them – today and in the future?

  • Alexander Schenk, Head of Office, European Investment Bank Stockholm
  • Emanuela Vanacore, Researcher, RISE
  • Joost van Dun, Circular Economy Lead, Sustainable Finance/Wholesale Banking, ING Bank
  • Mattias Lindahl, Program Director, Mistra REES
  • Sepehr Mousavi, Chief Innovation and Sustainability Officer, SweGreen
  • Susanne Glykofrydis, General Manager Nordics, DLL
  • Tobias Lindbergh, Head of Sustainable Finance, Debt Capital Markets, Handelsbanken

Questions and comments from the audience

Final remarks and closing
Ines Coppoolse, Ambassador of the Netherlands to Sweden

17.00 – 18.00 Mingle