All lights are green: GO finance!

in Industry Insights, 18.12.2015

In December 2013, Xavier Bettel, Prime Minister of the Grand Duchy of Luxembourg, gave the mandate for Luxembourg to properly dive into the circular economy. The aim is to integrate the ideologies of the circular economy—i.e. one that runs on the sustainable cycling of materials—into the business community and into Luxembourg as a whole. Mr Bettel commented that “the circular economy (CE) is what we need for the future, and Luxembourg is ready for that future. I strongly encourage all of you to help us today in developing the required know-how to finance the transition to a circular economy in Europe.”

This mandate has been in place for some time, and KPMG Luxembourg has already teamed up with KPMG Netherlands in the effort.

Financing the circular economy

At the EIB conference in Luxembourg on 9 and 10 December 2015, the European Commission (EC) and the European Investment Bank (EIB) announced changes to certain EU financial tools, in an aim to help circular economy projects and businesses secure funding—and also to realise the EU climate goals proposed at the COP 21 conference in Paris. A 4th amendment to the InnovFin Delegation Agreement was signed, enabling access to funding for innovative, but higher-risk, business models.

The first day of the conference marked a gathering of the circular economy pioneers and ambassadors. The discussions were intellectual, intense, and edifying… it was the perfect time to step away from the idealistic and utopic vision of the circular economy, and to critically evaluate and identify the difficulties associated with its implementation instead. Realistically, such an economy will face opposition from businesses and linear economy advocates as it is new, and requires a great deal of adaptation to be successful in its application.

On the second day, apart from the monumental signature of the 4th amendment to the InnovFin Delegation Agreement, the goals of the European Union Circular Economy Package were also highlighted. The package includes (amongst others) revised legislative proposals on production, consumption, and waste, all of which aim to stimulate Europe’s transition towards a circular economy. The idea is to boost global competitiveness, foster sustainable economic growth, and generate new jobs. The day was therefore policy-driven, involving high-level experts who endeavoured to challenge the conventional linear economic model. The discussions sought to highlight the benefits and risks of change to a concept that is considerably new.

Another major announcement was that the EU has opened up €24 billion in existing finance to circular economy businesses in support of EU climate goals.

What does a circular economy mean for the financial sector?

The circular economy will be disruptive. It will affect the basis on which we do business, because it challenges the linear economic model that we have become so familiar and comfortable with. It would be foolish to go into this new model without preparation. Therefore, thorough research of the integral instruments and an analysis of current business successes need to be employed. A great emphasis needs to be put on understanding the risks of the linear economy and benefits of the circular economy. An understanding will allow greater perspective and will assist in the creation/amendment of policies/legislation designed to fight the risks of linear economy as well as provide a sound decision-making basis for the financial sector.

The strategic transition to a circular economy requires an open mind and a willingness to change from a sector otherwise known for being highly traditional. Actors in the financial world like KPMG must act as facilitators and organise awareness-raising events such as conferences, seminars, and thought-leadership debates, in the hopes of kick-starting practical circular action and enabling the first pilot projects to get off the ground.

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