Financing the circular transition at home and beyond

A circular economy requires circular finance. At Circle Economy, we recognised this early on and launched our Circular Finance programme in 2015. Since then, it has gained momentum both in our home country, the Netherlands, and beyond.

The Netherlands’ ambition to become a fully circular economy within one generation was clearly set out in the Nederland Circulair 2050 roadmap. But when it came to implementation, the Ministry of Infrastructure and Water Management realised that circular business models couldn’t thrive in a financial system built to accommodate linear practices. 

Circular companies in the Netherlands faced numerous challenges. For example, pioneers such as Swapfiets and Fairphone struggled to secure financing on favourable terms due to accounting conventions that failed to recognise their value. Banks deemed circular business models too risky and withheld lending. Recycling facilities faced the prospect of bankruptcy, while virgin materials were still cheaper than secondary ones. In other words, the invisible hand of the market seemed blissfully unaware of the Netherlands’ circular ambitions and continued to reward the linear economy. The government needed to intervene.

Then came the pandemic 

The COVID-19 pandemic put an additional strain on the economy, reinforcing this sense of urgency. In 2020, while much of the country was working remotely, the ministry’s largest meeting room was reserved for a rare physical gathering. Carefully spaced 1.5 metres apart, representatives from the government, pension funds, major banks, investors, and regional development companies came together to work out a common approach to circular finance. 

During this meeting, four key sub-areas were defined as the foundation for action: knowledge development, circular supply chains, circular procurement, and financial incentives and taxes. Out of that carefully distanced meeting emerged something remarkably close-knit: the Circular Economy Working Group. This group brought together all major financial institutions and relevant governmental bodies to accelerate the circular transition. 

In 2022, the group acquired a joint agenda: the Roadmap to Circular Financing. It was developed by banks, the Ministry of Infrastructure and Water Management, the Province of Utrecht, the Municipality of Amsterdam, and InvestNL (the Dutch Investment Agency).Circle Economy played a key role in the Circular Economy Working Group by providing expertise, facilitating connections and acting as an independent convener. By leading the metrics working group, we helped establish a shared data foundation, ensuring that ambition was matched with credible measurement. 

Going global

Soon after the working group was established, the Dutch approach to circular finance went on a world tour. The Dutch government commissioned the Circularity Exchange Network (CEN) and entrusted Circle Economy to develop and facilitate it. The network hosts representatives from leading Multilateral Development Banks (MDBs) as well as circularity experts from several international organisations. Its mission is to support MDBs in scaling their investments in the circular economy as a key approach to meeting their sustainable development goals.

Engaging MDBs is crucial for two reasons. First, they deploy vast volumes of capital, meaning that even small shifts in their investment logic can make or break circular businesses. Second, they invest with a social mandate—not only to generate returns, but to catalyse economic development and sustainable growth. The circular economy is a natural fit for that mission.

Our work with MDBs has culminated in a shared vision for the circular economy. Presented at the World Circular Economy Forum 2024, this document was backed by the African Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, and the World Bank. Together, these MDBs recognised the importance of circularity for advancing the sustainable and just development agenda and committed to supporting the circular transition. 

The work is far from finished. As our Circularity Gap Report Finance highlighted, investment in the circular economy is growing, but it remains a drop in the ocean, representing just 2% of global tracked investment. Still, the circular economy is no longer an unfamiliar concept to financiers and investors. Slowly but steadily, capital flows are shifting towards a circular future.