Circular Australia and Mercer today released a new report and guide for practitioners demonstrating a transition to a more circular economy is expected to be profitable, actionable and achievable for the financial sector.
The report, Circular Economy for Investors and Lenders and its four step Circular Investor & Lender Guide – uses circular economy heatmaps to highlight sectors facing the highest risks in multiple areas to identify priorities for a linear to circular transition.
It shows a more circular economy:
- Is increasingly inevitable given the inherent risks in linear business models and the opportunity in circular solutions
- Addresses multiple risks at once by supporting more positive economic and risk/return outcomes; reducing both financed emissions by tackling embodied carbon; and reducing dependencies and impacts on nature
- Is now possible and practical to implement within investor and lender processes with qualitative and quantitative inputs and various portfolio actions
“Today the linear ‘take make waste’ economic approach comes with significant material risk with waste at every step of the value chain,” Circular Australia CEO Lisa McLean said.
“Enduring economic outcomes, net zero emissions and nature positive objectives cannot be realised with an ongoing dependency on linear supply chain models to deliver growth ambitions,” she said.
Leadership from the financial sector is essential to achieve Australia’s Circular Economy Framework targets to double Australia’s circularity rate by 2035, reduce the material footprint by 10%, lift material productivity by 30% and safely recover 80% of resources currently wasted.
Mercer Partner Sustainable Investment Jillian Reid said: “The financial sector is a critical enabler of the circular economy transition because of its diversified portfolio exposure to risk and the return opportunities across multiple industry sectors.”
“This report shows the evidence is mounting that a more circular economy can drive cost, volatility and default risk impacts,” she said.
“We have created new heatmaps which illustrate key risks including embodied carbon, dependencies on natural resources, supply chain and waste impacts on people and reputation – which need to be addressed.”
Newly developed Circular Economy Heatmaps have been used for the first time to clearly illustrate and collate key risks facing common sectors such as:
- embodied carbon in materials and products
- exposure to climate change impacts
- dependencies and impacts of operations on natural resources
- supply chain and waste impacts on people and reputation
The reports bring together practical tools and established frameworks to analyse and implement circularity. The Guide presents four steps that can be taken today with multiple examples and case studies evidencing the metrics available and the capital allocation already underway.
“These reports enable Australia’s finance sector to align with global economies – putting the circular economy at the forefront of productivity to design out waste and generate new jobs and industries – utilising secondary resources,” Lisa McLean said.
“They show where investors and lenders can make a positive start with risk assessments, applying a linear versus circular lens with available metrics to identify the leaders versus laggards by sector in the circular transition,” Jillian Reid said.
“This insight can inform portfolio actions such as engagement and capital allocation activities to support a circular economy.”
Defining circular economy
A circular economy aims to redefine growth, focusing on positive society-wide benefits. Decoupling economic activity from the consumption of finite resources, and designing waste out of the system, it is based on three principles:
1. Design out waste and pollution
2. Keep products and materials in use.
3. Regenerate natural systems.
