Investments that make it happen
Today's investments in the 'circular economy' will pay off in the years to come, as innovative eco-design, repair, recycling and reuse technologies generate new jobs and business opportunities.
In a world where populations are growing, consumer demand is increasing, and natural resources are becoming scarcer and more expensive, the circular economy is the business model of the future. Designing more durable goods, recycling, repairing and reusing reduce the environmental impact and cuts consumption of new resources and costly waste disposal.
Vice-President Jyrki Katainen
To make this change actually happen, financing will be key. Access to finance can be difficult for companies in environmental sectors due to a lack of understanding of new business models or the issues driving them, as well as issues of scale and challenges to get from innovation to the market. Projects can be too risky or too long-term for traditional investors.
While the public sector has a role to play, the bulk of investment needed for this transition will have to come from the private sector from both traditional and alternative investors. Innovative solutions are required, such as using public funds to leverage additional (private) investment from other actors, to incentivise private-sector investment.
"EU finance can help," explained Environment Commissioner Karmenu Vella. To reinforce circular economy-related innovation and attract investors, the EU is mobilising European Structural and Investment Funds, its flagship research and innovation programme Horizon 2020, and the European Investment Bank.
European Fund for Strategic Investments
Within one year of taking office, Commission President Jean-Claude Juncker launched a €315 billion Investment Plan designed to make smarter use of new and existing financial resources. Developed in partnership with the European Investment Bank (EIB), the European Fund for Strategic Investments (EFSI) finances infrastructure, education, research and innovation projects and offers risk finance for small businesses. The new European Investment Advisory Hub gives advice on funding and helps firms to overcome obstacles to growth.
"EFSI is meant especially to support those projects that could not have been financed by other means alone. We are bringing the value added of innovation and research back into our calculations," said Commission Vice-President Jyrki Katainen. Resource efficiency and circular economy have been identified among the key objectives of the Investment Plan. The package provides an excellent opportunity to take forward positive environmental projects. It is estimated that investment needs for resource efficiency, security of access to resources and raw materials, and increased resilience to climate change are in the range of €422-527 billion over the next three years.
Investments that will go ahead thanks to EFSI support are, for example, offshore wind farms off the coast of south-east England, decontamination of an old urban industrial site in Belgium to turn it into building land for places to live and work, a new environmentally friendly paper-and-pulp mill in Finland, and energy efficiency in residential buildings in France.
The EFSI complements existing support from EIB advisory and financing tools, such as InnovFin – EU Finance for Innovators. The scope of InnovFin has been amended to include support for business model innovation, such as the transition from selling products to selling services.
New tools for innovation
Research and innovation are vital to encouraging this transition while simultaneously modernising EU industry and making it more competitive.
Horizon 2020 is already backing fresh thinking in areas including sustainable agriculture, food security and the bio-economy. The bio-based sector, for example, has the potential to develop new materials and processes but needs investment in bio-refineries able to process biomass and bio-waste for different end uses. The EU is funding innovative bio-economy-based projects such as Whey2Value in Slovenia, which turns dairy waste into protein-rich animal feed.
Under the "Industry 2020 in the Circular Economy' initiative in the Horizon 2020 programme for 2016-2017, €650 million have been earmarked to demonstrate the economic and environmental feasibility of the circular economy approach. At the same time, this will be a strong impetus towards the reindustrialisation of the EU, addressing a wide range of industrial and service activities, including process industries, manufacturing and new business models.
The EU's Eco-innovation Action Plan promotes access to a range of funding sources including the EU's LIFE environment programme and COSME, which helps small and medium-sized enterprises (SMEs) to be more competitive. SMEs, including social enterprises, are especially active in areas like repair and recycling and should be an integral part of the circular economy. The new European Resource Efficiency Excellence Centre advises SMEs on funding from the EIB, private sources and elsewhere.
Innovation is the lifeblood of green growth, as is greening the financial system. New and innovative funding solutions, such as vendor finance, inventory financing, finance leases, factoring or crowdfunding show that the financial sector is reacting to the needs of new business models. These first steps need to be encouraged and scaled up – as green investment is a sound investment.