sustainable innovation

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Cities must step up to rescue circular economy innovations

Circular businesses are those that strive to minimise waste, keep products, materials and resources in use for as long as possible and regenerate natural resources. Among circular business models, Product-as-a-Service is perhaps the most common, which involves leasing or renting products rather than selling them, allowing customers to return, repair or upgrade products when needed.

The EU Circular Economy Action Plan (CEAP) recognises the value of such business models in reducing emissions and waste. But, although circular economy approaches are becoming increasingly popular in European cities, they have yet to become a common practice. In fact, circular initiatives often struggle to attract initial investment or scale-up funding, which is especially true for highly innovative enterprises. The recent bankruptcy of the Netherlands-based supermarket PieterPot, which delivered products in reusable packaging, serves as a stark reminder that the success of circular businesses in a linear, take-make-waste economy is far from guaranteed.

Targeted financial support is needed

To effectively compete with their linear counterparts, circular businesses will need targeted financial support, as highlighted by the Circularity Gap Report 2024. Although financial institutions and private investors have sufficient funding available, they often struggle to find enough 'bankable' projects that meet their strict investment requirements. One reason for this is that traditional financial assessments used by banks fail to capture the full value proposition of circular businesses and the risks they typically mitigate

Engaging with investors enables circular start-ups to better understand their requirements and formulate more robust investment proposals.

The novelty of circular models means that the track record is limited and deemed riskier as a result. On top of this, circular businesses often face unstable demand for and supply of recycled or recyclable materials while having higher transactional and operational costs. Because of this, the initiatives with the most impact potential are often the least bankable.

Now, several EU-wide initiatives are being rolled out to tackle these issues. The EU Horizon-funded project DEFINITE-CCRI, for example, provides project development assistance to high-impact circular economy projects to attract private investors. However, more could be done on the local level to ensure the circular economy transition takes place at the speed and scale needed to fulfil the European Green Deal.

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