Governments, companies and private financial institutions invest over $1.3 trillion a year in the circular economy, according to Chatham House, in the first-ever estimate of its kind.
“Recycling, reusing materials and reducing waste makes clear business sense, which is why spending on the circular economy is rising rapidly,” said Patrick Schröder, senior research fellow at Chatham House.
“However, funding remains far below where it needs to be to reap the full investment rewards. Moving from a linear ‘take-make-throw away’ economy to circular, sustainable business models will create jobs, promote investment and protect the planet.”
The analysis by Chatham House and Just Economics found that companies invest around $800 billion a year in the circular economy – just over 2% of the $35 trillion that goes towards the linear economy.
Governments allocate $510 billion a year to the circular economy – about 4% of the total $13 trillion spent.
Recycling, reusing materials and reducing waste makes clear business sense, which is why spending on the circular economy is rising rapidly
Financial institutions channel an estimated $46 billion into the circular economy each year, including $21 billion in specific circular funds and $24.5 billion via green bonds.
Of the $800 billion in corporate finance, the research finds that the fashion and automotives sectors attract the most circular investment.
Circular initiatives accounted for 5% of spending in the fashion industry, driven by a thriving eco-fibres market worth $40 billion.
6% of spending in the automotives industry went to the circular economy – a result of growing investment in electric vehicles, improving battery technology and investment in transport systems that promote sharing and renting.
Agriculture lags furthest behind, with just 0.1% of its annual $8 trillion economy going into circular initiatives.
Circular business models
As countries grapple with the accelerating impacts of climate change and biodiversity loss, circular business models can reduce waste, tackle poverty and develop more resilient economies, the report finds.
However, the report suggests that the Sustainable Development Goals related to the circular economy are the least-funded, with SDG 12 – ensuring sustainable production and consumption – drawing 1-2% of all Official Development Assistance spending between 2012-2017.
The authors say improvements in renewable energy and batteries are ‘vital’ to speed up a low-carbon transition, but warn against treating these technologies as automatically ‘sustainable’.
“Many low-carbon technologies are hugely resource-intensive, such as the dwindling and precious metals used for batteries, the iron for wind power and the sand and lithium we use for solar panels,” said Schröder.
To be truly sustainable, new technology needs to be built according to circularity principles – designed for durability, job creation, reuse and remanufacturing
“To be truly sustainable, new technology needs to be built according to circularity principles – designed for durability, job creation, reuse and remanufacturing.”
“As economies build back from Covid-19, we must use this moment to break into a profitable, future-proof and circular economy.
“To get there, governments should use circular finance to support sustainable development, regulators should incentivise investment in the circular economy, and more companies and investors must realise that resource-intensive investments are unsustainable – and therefore unprofitable in the long-term. Only then will we have a global economy that works for all.”
Jan Raes, co-author of the report and Global Sustainability Advisor from ABN Amro, the Dutch bank investing $1 billion in specific circular funds, said: “Tackling the climate crisis is one of the great challenges of our time – and financial institutions have a vital role to play.
“At the heart of the circular economy is a set of rapidly growing market opportunities. It’s time for all financial institutions to invest in our shared future and back this new paradigm for sustainable growth.”