Financial institutions are a fundamental part of society and therefore have a crucial role in facilitating the transition to a circular economy. Currently, companies are valued based on the linear premise of infinite resources. To invest in the circular economy, however, financial decisions must be made differently. The circular perspective needs to be integrated in the core of finance, risk- and valuation models.
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The circular economy is restorative and regenerative by design. In a circular economy, healthy and resilient ecosystems provide us with the resources we need. This is different from our current way of operating, in which we are putting our needs above the capacity of the Earth. However, this requires a completely new way of doing business and financing.
Matter becomes subordinate to function
In a circular economy, products and services are innovated to de-materialize. This means that they will be based on what we already have and maintaining and optimizing that. Return of material is guaranteed. The real need of the consumer is put first and not the product need. The matter becomes subordinate to the function. This is different than our current business logic, where success depends on selling as many products as possible.
In the circular model, ownership disappears and is traded for responsibility. Responsibility for resource use and durability is placed on those that have the most influence on it. This is different from the current linear model, in which responsibility moves to the next in the chain as soon as products, materials or parts are sold.
Stakeholders are dependent on each other
In collective circular services, stakeholders are dependent on each other to co-provide their service; without the motor working, clean laundry can’t be delivered, and all stakeholders suffer. The circular chain is only as strong as its weakest link. Yes, this is different. In the current, linear economy, indifference and competition are the norm.