Circular economy, banks and other financial institutions: what’s in it for them?

Ozili, Peterson K (2021): Circular economy, banks and other financial institutions: what’s in it for them? Forthcoming in:

Abstract

In this paper, I highlight the benefit of the circular economy to banks and other financial institutions. The paper uses discourse analysis methodology to present an overview of the circular economy concept and the benefit of the circular economy to banks and other financial institutions. The findings show that some benefit of the circular economy to banks include: (i) greater loan diversification opportunities, (ii) promotes responsible and sustainable banking, (iii) increased lending to circular clients and the recycling sector which means more profit for banks, and (iv) correcting the bad perception about banks in society. Some benefit of the circular economy to other financial institutions include: (i) issuance of special insurance policies for reused products; (ii) greater sustainability-adjusted return on investment; (iii) greater funding to microfinance institutions; and (iv) more opportunities for collaborative funding to circular businesses. This study contributes to the scant literature that examine the role of the finance industry in the circular economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: circular economy, linear economy, banks, financial institutions, criticism, sustainability, climate change, waste, insurance, sustainable finance, sustainable banking, hedge funds, microfinance institutions
• Subjects: G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies; G - Financial Economics > G2 - Financial Institutions and Services > G29 - Other; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q01 - Sustainable Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q20 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth

References

Asokan, P., Saxena, M., & Asolekar, S. R. (2010). Recycling hazardous jarosite waste using coal combustion residues. Materials Characterization, 61(12), 1342-1355.

Bao, Z., Lu, W., Chi, B., Yuan, H., & Hao, J. (2019). Procurement innovation for a circular economy of construction and demolition waste: Lessons learnt from Suzhou, China. Waste Management, 99, 12-21.

Bennett, R., & Kottasz, R. (2012). Public attitudes towards the UK banking industry following the global financial crisis. International Journal of Bank Marketing, 30(2), 128-147.

Blomsma, F., & Tennant, M. (2020). Circular economy: Preserving materials or products? Introducing the Resource States framework. Resources, Conservation and Recycling, 156, 104-698.

Bolger, K., & Doyon, A. (2019). Circular cities: exploring local government strategies to facilitate a circular economy. European planning studies, 27(11), 2184-2205.

Del Borghi, A., Moreschi, L., & Gallo, M. (2020). Circular economy approach to reduce water–energy–food nexus. Current Opinion in Environmental Science & Health, 13, 23-28.

Dewick, P., Bengtsson, M., Cohen, M. J., Sarkis, J., & Schröder, P. (2020). Circular economy finance: Clear winner or risky proposition? Journal of Industrial Ecology, 24(6), 1192-1200.

EMF (2013). Towards the Circular Economy. Ellen MacArthur Foundation. London, UK.

EMF (2020). Financing the circular economy: capturing the opportunity. Ellen MacArthur Foundation. London, UK.

Esposito, M., Tse, T., & Soufani, K. (2017). Is the circular economy a new fast‐expanding market? Thunderbird International Business Review, 59(1), 9-14.

Frosch, D., & Gallopoulos, N., (1989). Strategies for manufacturing. Sci. Am. 261 (3), 94–102

Geissdoerfer, M., Savaget, P., Bocken, N. M., & Hultink, E. J. (2017). The Circular Economy–A new sustainability paradigm? Journal of cleaner production, 143, 757-768.

Ghisellini, P., Cialani, C., & Ulgiati, S. (2016). A review on circular economy: the expected transition to a balanced interplay of environmental and economic systems. Journal of Cleaner production, 114, 11-32.

Goyal, S., Esposito, M., & Kapoor, A. (2018). Circular economy business models in developing economies: lessons from India on reduce, recycle, and reuse paradigms. Thunderbird International Business Review, 60(5), 729-740.

Hartley, K., van Santen, R., & Kirchherr, J. (2020). Policies for transitioning towards a circular economy: Expectations from the European Union (EU). Resources, Conservation and Recycling, 155, 104-634.

Ilic, B. S., Djukic, G. P., & Balaban, M. M. (2020). Sustainability of Mandatory Pension Insurance in the Circular Economy: A Comparative Analysis. In Handbook of Research on Entrepreneurship Development and Opportunities in Circular Economy (pp. 125-143). IGI Global.

Ivashina, V., & Scharfstein, D. (2010). Bank lending during the financial crisis of 2008. Journal of Financial economics, 97(3), 319-338.

Kirchherr, J., Reike, D., & Hekkert, M. (2017). Conceptualizing the circular economy: An analysis of 114 definitions. Resources, conservation and recycling, 127, 221-232.

Korhonen, J., Honkasalo, A., & Seppälä, J. (2018). Circular economy: the concept and its limitations. Ecological economics, 143, 37-46.

Kristensen, H. S., & Mosgaard, M. A. (2020). A review of micro level indicators for a circular economy–moving away from the three dimensions of sustainability? Journal of Cleaner Production, 243, 118-531.

Lag-Brotons, A. J., Velenturf, A. P., Crane, R., Head, I. M., Purnell, P., & Semple, K. T. (2020). Resource Recovery from Waste. Frontiers in Environmental Science, 8, 35.

Lin, B. C. A. (2020). Sustainable Growth: A Circular Economy Perspective. Journal of Economic Issues, 54(2), 465-471.

Lo, A. Y., & Yu, X. (2015). Climate for business: opportunities for financial institutions and sustainable development in the Chinese carbon market. Sustainable Development, 23(6), 369-380.

Machado, M. A. D., de Almeida, S. O., Bollick, L. C., & Bragagnolo, G. (2019). Second-hand fashion market: Consumer role in circular economy. Journal of Fashion Marketing and Management: An International Journal. 23(3), 382-395

Mezher, T., Jamali, D., & Zreik, C. (2002). The role of financial institutions in the sustainable development of Lebanon. Sustainable Development, 10(2), 69-78.

Mitschke-Collande J, and Narberhaus, M. (2019). Circular economy isn't enough. We need system change. The Green economy coalition. https://www.greeneconomycoalition.org/news-analysis/circular-economy-isnt-enough-we-need-system-change

Morseletto, P. (2020). Targets for a circular economy. Resources, Conservation and Recycling, 153, 104-553.

Ozili, P. K. (2020a). Effect of climate change on financial institutions and the financial system. In Uncertainty and Challenges in Contemporary Economic Behaviour. Emerald Publishing Limited.

Ozili, P. K. (2020b). 100 Quotes from the Global Financial Crisis: Lessons for the future. In Uncertainty and Challenges in Contemporary Economic Behaviour. Emerald Publishing Limited.

Ozili, P.K. and Opene, F.U. (2021). The role of banks in the circular economy. World Journal of Science, Technology and Sustainable Development.

Peeters, H. (2005). Sustainable development and the role of the financial world. In The World Summit on Sustainable Development (pp. 241-274). Springer, Dordrecht.

Sauvé, S., Bernard, S., & Sloan, P. (2016). Environmental sciences, sustainable development and circular economy: Alternative concepts for trans-disciplinary research. Environmental Development, 17, 48-56.

Shen, K. W., Li, L., & Wang, J. Q. (2020). Circular economy model for recycling waste resources under government participation: a case study in industrial waste water circulation in China. Technological and Economic Development of Economy, 26(1), 21-47.

Singh, J., & Ordoñez, I. (2016). Resource recovery from post-consumer waste: important lessons for the upcoming circular economy. Journal of Cleaner Production, 134, 342-353.

Stahel, W. R. (2016). The circular economy. Nature News, 531(7595), 435.

Stanislaus, M. (2018). Barriers to a Circular Economy: 5 Reasons the World Wastes So Much Stuff (and Why It's Not Just the Consumer's Fault). World Resources Institute. Available at: https://www.wri.org/blog/2018/05/barriers-circular-economy-5-reasons-world-wastes-so-much-stuff-and-why-its-not-just

Van Loon, P., Delagarde, C., & Van Wassenhove, L. N. (2018). The role of second-hand markets in circular business: a simple model for leasing versus selling consumer products. International Journal of Production Research, 56(1-2), 960-973.

Velenturf, A. P., Purnell, P., Tregent, M., Ferguson, J., & Holmes, A. (2018). Co-producing a vision and approach for the transition towards a circular economy: perspectives from government partners. Sustainability, 10(5), 1401.

Wang, P., Kara, S., & Hauschild, M. Z. (2018). Role of manufacturing towards achieving circular economy: The steel case. CIRP Annals, 67(1), 21-24.

Weber, O. (2014). The financial sector's impact on sustainable development. Journal of Sustainable Finance & Investment, 4(1), 1-8.