The UN Environment Programme Finance Initiative (UNEP FI) has unveiled a series of new resources aimed at helping banks leverage the circular economy to address major sustainability challenges such as climate change, nature loss, and pollution. These resources are particularly designed for the 300+ signatories of the Principles for Responsible Banking and the broader banking sector, offering practical guidance to transition from target-setting to delivering on sustainability commitments.
Central to this initiative is the embedding of circularity into banks’ internal policies and processes. The guidance encourages banks to engage with clients transitioning to circular business models, redirect financial flows towards circular solutions, and advocate for the mainstreaming of circularity. Given that resource extraction and processing account for over 55% of global greenhouse gas emissions, the circular economy is crucial to achieving net-zero and other sustainability objectives. “This new guidance supports banks as they take their first steps in fostering circular solutions critical to addressing climate change, pollution, and nature loss, while building a more sustainable, resilient, and inclusive global economy,” said a UNEP FI official. The initiative is not solely about investing in perfectly circular companies but involves providing banks with strategies to engage with companies across all industries to facilitate the transition to a circular economy.
Once sustainability targets are set, banks are urged to leverage the circular economy to advance their implementation phase of the Principles for Responsible Banking. Practical actions include introducing green loan products for businesses committed to circular economy principles, supporting companies adopting Product-as-a-Service models, providing loans for projects incorporating recycled materials, and prioritising funding for businesses with closed-loop supply chains. These reports also prepare banks for upcoming regulations as many governments are enacting circular economy roadmaps and policies. Such strategies are often incorporated into sustainable development plans and Nationally Determined Contributions (NDCs) to the Paris Agreement. Adopting circular models can mitigate risks associated with linear business models, especially as demand for raw materials intensifies and the regulatory landscape evolves.
Transitioning to a circular economy is projected to generate significant economic benefits, estimated at $4.5 trillion in annual economic output by 2030, through increased resilience to macroeconomic shocks and reduced costs from raw material and energy consumption, waste management, and emissions control. The circular economy also promises social benefits by creating green jobs and reducing inequality. The initial report launched today explores how the circular economy can enable responsible banking, linking circularity with environmental and social impact. A subsequent report delves into circular solutions to achieve climate targets, offering practical insights for banks to integrate circularity into their climate transition plans.
Two supplements, published alongside the climate-focused report, guide banks in developing sector-specific financing strategies that promote circular economy principles in the buildings and construction, and textile sectors. UNEP FI plans to complete the series with additional sectoral supplements focusing on the nexus with climate. From 2025, new guidance will be co-developed with banks, illustrating how transitioning to a circular economy can benefit nature, mitigate pollution, and aid the development of healthier and more inclusive economies. This comprehensive set of resources aims to equip banks with the necessary tools and methodologies to drive the transition to a circular economy, ultimately contributing to global sustainability goals.
