Circular economy: An investment that pays off

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Commissioner Vella has highlighted the environmental benefits of the circular economy. [European Commission]

There is a new way of thinking, known as the circular economy, which means that products are designed and produced to be used for as long as possible, easily repaired and, once they reach the end of their lives, recycled or disposed of effectively, writes Karmenu Vella.

Karmenu Vella is European Commissioner for the Environment, Maritime Affairs and Fisheries.

By rethinking the way we produce, work and buy we can generate new opportunities and create new jobs. The transition to a circular economy brings many advantages. It can create new jobs and services and promote new innovative technologies that can help give European companies a competitive edge. It is good for the environment as resources are used efficiently and waste is reduced. And it brings benefits for consumers who can enjoy more durable and innovative products.

The European Commission last year presented a new set of proposals for the Circular Economy including a detailed action plan in order to enable this transition to happen as smooth and as fast as possible. Our focus is now on turning those words into action and we are preparing all the different elements foreseen.

We have also started to put some of these actions into practice. Already at the end of last year, we launched Horizon2020 calls on “Industry 2020 in the Circular Economy” and we adopted a proposal for online sales of goods. In March this year, we presented a revised Fertilisers Regulation which includes measures to improve the market access of organic and bio-waste-based fertilisers in the EU and we are currently finalising the new Eco-design Work Plan.

Other actions are envisaged for the rest of the year, including a stronger focus on the financial dimension of the Circular Economy. The G7 Toyama Communiqué recently agreed by environment ministers of the seven biggest economies in the world also shows that our new more ‘resource aware’ way of thinking is gaining grounds internationally.

The transition to a circular economy is far from simple and requires also requires reliable access to sustainable finance for the years to come. Access to finance can be difficult for companies applying innovative, circular economy solutions because of a lack of understanding of the new business models driving them. Projects can be too risky or too long-term for traditional investors.

But not taking into account environmental pressures is a risk in itself for investors, as resource scarcity can lead to supply shocks and price fluctuations that have a strong impact on investment performance, and these factors need to be increasingly taken into account by fund managers and investors.

Various initiatives in the coming months will also help to raise awareness of the circular economy and its enormous potential. For instance, the circular economy will also be discussed at the forthcoming #EUGreenWeek, Europe’s biggest annual event on environment policy, which will take place – with online and live activities planned every day – from 30 May to 3 June. Focusing on the theme ‘Investing for a greener future’, this EU-wide initiative will contribute to put focus on making Europe’s economy more circular.

The Investment Plan for Europe addresses precisely this element. The European Fund for Strategic Investments (EFSI), the heart of the Investment Plan, has an overall target to mobilise investment of at least €315 billion in Europe over three years, with an estimated €50 billion of investment already triggered by the end of 2015.

EFSI investments will help raise private finance, especially in areas where commercial banking is hesitant to get involved. The fund, which has been developed in close partnership with the European Investment Bank (EIB), brings together public and private financing and can provide help for small scale circular economy projects and support innovative projects that lack funding.

The EIB can also provide financing directly to circular economy initiatives. It has already co-financed circular economy projects worth some €15 billion over the last decade. The bank’s advisory services have recently carried out a study into the role of finance in supporting the transition to a circular economy. This emphasises the need for promoters to include circular elements in their projects.

Given that circular economy projects often involve investment in innovative technologies and new business models which can be prone to higher risks, the EIB is making increasing use of risk sharing instruments, such as InnovFin – EU finance for innovators. This initiative provides finance and advisory services for innovative firms and aims to make over €24 billion of debt and equity financing available by 2020.

Combining this with the investment fund, the EIB can help banks and other financial institutions support the circular economy agenda. And the EIB not only provides funding, but also financial and technical advice and expertise to turn ideas into projects, such as through the recently created European Investment Advisory Hub, which offers technical assistance to help companies move towards a circular economy.

Investing in the development of the circular economy is a high priority for me and for the Commission as a whole. With the Investment Plan for Europe we have taken the first steps, but there is still much to be done before we can declare our economy fully “circular”.