The report provides a simple, yet rich overview of the barriers and enablers of circular economy business models as identifed by stakeholders, drawing upon a range of interviews, workshops and events, and a survey conducted with representatives of the European business sector.

Within businesses, stakeholders have identified high-level commitment accompanied by long-term perspectives, the personal drive and attitudes of staff, as well as the promise of enhanced competitiveness as key in supporting the transition towards circularity. Yet, from an internal company perspective, a number of factors were highlighted as getting in the way of the transition. Difficulties in financing new business models, taxation systems, resistance to change and the perceived lack of consumer demand are key examples of obstacles that hamper the circular transformation.

Importantly, stakeholders have provided interesting insights into possible solutions and recommendations able to overcome the challenges posed by circular economy barriers: tax incentives, the development of wealth-measurement systems other than GDP, material passports and quality standards, to name a few. Future solutions should also focus on ensuring safe areas for innovation out of tendering calls, green public procurement and increased financial support.

When deciding on which circular strategies to implement, the financeability of a business is also affected. For example, product-service combinations are seen as a promising, future earning model, but they currently encounter considerable funding challenges such as securing stable cash flows, reducing risks and matching investments with payback periods. Additionally, evolving business strategies, including changing value propositions and chain collaborations, should be topics on the agenda. Enabling the transition towards these new business models is key to successfully implementing circular business strategies and future proofing our economy.

In order to better understand how these challenges could be addressed, Circle Economy and the Sustainable Finance Lab worked with circular business managers and financiers to identify ways to fund circular business strategies, a key element they desperately need to achieve. Building on this research the authors outline the following 10 Steps to Financeability in this report: 

1. Decide on a logical starting point 
2. Generate profit through multiple use cycles 
3. Align incentives throughout the supply chain 
4. Be transparent about the value proposition 
5. Redefine the role of retail 
6. Gradually transition to product-service systems by combining revenue models 
7. Secure stable cash flows through a robust contract 
8. Mitigate debtor risk 
9. Match asset value, payback period and contract duration 
10. Measure environmental impact on financial performance.

The Circularity Gap Report 2019 finds that the global economy is only 9% circular - just 9% of the 92.8 billion tonnes of minerals, fossil fuels, metals and biomass that enter the economy are re-used annually. Climate change and material use are closely linked. Circle Economy calculates that 62% of global greenhouse gas emissions (excluding those from land use and forestry) are released during the extraction, processing and manufacturing of goods to serve society’s needs; only 38% are emitted in the delivery and use of products and services.

It highlights the vast scope to reduce greenhouse gas emissions by applying circular principles - re-use, re-manufacturing and re-cycling - to key sectors such as the built environment. Yet it notes that most governments barely consider circular economy measures in policies aimed at meeting the UN target of limiting global warming to 1.5°C above pre-industrial levels.

This report thus highlights three key circular strategies which could be adapted throughout the economy to help limit global warming and gives examples:

1. Optimising the utility of products by maximising their use and extending their lifetime. Ridesharing and carsharing already make it less important to own a car. Autonomous driving will accelerate this trend, potentially increasing the usage of each vehicle by a factor of eight. At the same time electric powertrains, intelligent maintenance programmes and software integration can enhance the lifetime of cars.
2. Enhanced recycling, using waste as a resource. By 2050 there will be an estimated 78 million tonnes of decommissioned solar panels. Modular design would enable products to be easily disassembled, components to be re-used and valuable materials to be recovered to extend their economic value and reduce waste.
3. Circular design, reducing material consumption and using lower-carbon alternatives. Bamboo, wood and other natural materials have the potential to reduce dependence on carbon-intensive materials such as cement and metals in construction. Instead of emitting carbon, these materials store it and will last for decades. They can be burnt to generate energy at the end of their life.

The report also provides recommendations for governments: while The Netherlands has set itself a target of becoming 50% circular by 2030 and 100% by 2050, most governments have yet to wake up to the potential of the circular economy. The report recommends joining up climate change and circular economy strategies to achieve maximum impact, through the use of tax and spending plans to drive change. They should:

• Abolish financial incentives which encourage overuse of natural resources, such as subsidies for fossil fuel exploration, extraction and consumption;
• Raise taxes on emissions, excessive resource extraction and waste production, for example by implementing a gradually increasing carbon tax;
• Lower taxes on labour, knowledge and innovation and invest in these areas. Lower labour taxes will encourage labour-intensive parts of a circular economy such as take-back schemes and recycling.