Over the past two years, climate change and other environmental, social, and governance (ESG) issues have become key boardroom topics for asset managers, banks, and other financial services firms. Clients expect solutions and regulatory pressure is rising. The question is no longer whether climate change and other ESG issues matter to the financial services sector, but how it will address them. The circular economy is a crucial part of the answer to this question.
Moving past today’s extractive ‘take-make- waste’ linear model, the circular economy offers a positive vision of an economy in which products are designed to be reused, repaired or repurposed, and natural systems are regenerated.
The circular economy can help meet global climate targets by transforming the way we produce and use goods. Relying solely on energy efficiency and switching to renewable energy will only address 55% of global greenhouse gas (GHG) emissions.
1- By adopting circular practices, we can reduce a significant proportion of the remaining 45%. For example, circulating products and materials – instead of producing new ones – can help cut energy demand, by maintaining the energy that went into making them. In agriculture, adopting circular principles is an effective way to sequester carbon in the soil.
Research suggests that if a circular approach were adopted in just five sectors (steel, aluminium, cement, plastic, and food), annual GHG emissions would fall
by 9.3 billion tonnes of CO2e in 2050, equivalent to the reduction that could
be achieved by eliminating all transport emissions globally.
2- In this way, the circular economy can play an important role in managing climate-related risks. Implementing a circular economy can also help address other ESG issues. For example, a circular economy enhances biodiversity by reducing the need for resource extraction and by regenerating farmland.
More and more companies across industries are adopting circular principles to reduce costs, increase revenues, and manage risks.
The circular economy has started transforming entire industries: in fashion, clothing resale is expected to be bigger than fast fashion by 2029; and in plastics and consumer packaged goods, profit pools along the value chain are being transformed by increasing regulation, public pressure, and innovation.
Governments are accelerating this shift, with the circular economy being a key pillar of the European Green Deal and circular economy roadmaps and legislation in place in countries including China, Chile, and France.
All aspects of finance will play an important role in bringing forward the transition to
a circular economy. Investors, banks, and other financial services firms have the scale, reach, and expertise to stimulate and support businesses to make the shift.
This is not just about investing in perfectly circular companies or divesting from extractive ones, but about engaging with and encouraging companies in every industry to make the transition.
Governments, financial regulators, and central banks are also taking action to turn climate-related risks into opportunities. Policymakers are putting in place enabling standards and regulations, such as the EU’s classification system for sustainable activities (EU Taxonomy), green bond standard, and climate benchmarks. Central banks are
also exploring the role, they can play in the transition to a climate-neutral economy.
Considering that the financial and technological sector can contribute faster to address climate and environmental problems is that GBM has launched the first cryptocurrency backed by Natural Capital intending to protect 1 million hectares of forests around the world. And also, when GBM will issue green bonds the users of its coin will be entitled to access green bonds markets.
Source: ELLEN MACARTHUR FOUNDATION
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