Industry

New Report Highlights Circular Economy as an Avenue for ESG Investment

Top financial institutions and investors increasingly channelling funds due to potential to reduce emissions.

Projects promoting transition to a more circular economy are attracting increasing levels of investment from leading institutions, according to a new report from UK charity the Ellen MacArthur Foundation, ‘Financing the circular economy – capturing the opportunity’.

Investors and banks representing USD 18 trillion in assets are backing the circular economy, including BlackRock, Citi, Credit Suisse, HSBC, LGIM, JP Morgan, Morgan Stanley and UBS.

From no dedicated funds in 2017, the circular economy is seeing unprecedented investment growth with the launch of 10 public equity funds focusing partially or entirely on the area by leading financial providers in the last three years.

In 2020 alone, the total amount of assets managed through these funds increased six-fold, from US$0.3 billion to over US$2 billion.

This growth, in part, is a result of the increasing understanding of the central role circular economy can play in tackling climate change and other ESG issues. In short, the circular economy incorporates reusing and recycling of products and materials instead of producing new ones, saving costs and improving efficiency, in addition to the environmental benefits.

Research published by the foundation in September 2019 stated that adopting circular economy approaches in five key areas – steel, aluminium, plastic, cement and food production –  could reduce annual greenhouse gas emissions by 9.3 billion tonnes in 2050, equivalent to the reduction achieved by eliminating all transport emissions globally.

Implementing the circular economy would enhance biodiversity by reducing dependency on the extraction of resources and regenerating farmland. It is also estimated that it could create over half a million jobs in Britain alone by 2030.

Asset owners can invest in circular economy either by launching or investing in public equity funds that invest in companies that are involved in circular economy, or investing in early-stage circular innovators, and businesses generating positive environmental impacts.

Andrew Morlet, CEO, Ellen MacArthur Foundation, said, “We have seen huge growth in circular economy financing over the past three years, with major players capitalising on its value creation potential while meeting their climate change objectives. Investors, banks, and other financial services firms can play a vital role in rapidly scaling the circular economy by supporting businesses to make this shift, and in doing so seize new and better growth opportunities.”

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