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