Photo by UNEP/ Georgina Smith
16 Apr 2024 Technical Highlight Resource efficiency

How the world can finance the transition to a circular economy

At the sixth session of the United Nations Environment Assembly (UNEA-6) earlier this year, a call for collective action to accelerate the transition to circular economies was made by members of the Global Alliance for Circular Economy and Resource Efficiency (GACERE). Regional circular economy networks, including the Circular Economy Coalition for Latin America and the Caribbean, the African Circular Economy Alliance (ACEA) and CIRCULAR STEP, also joined in the call.  

“The circular economy is not an option. Looking at where we stand, it is a must,” said Uroš Vajgl, State Secretary, Ministry of the Environment, Climate and Energy of Slovenia.

According to the 2024 Global Resources Outlook report  released at UNEA-6, resource use has tripled over the last 50 years and is expected to increase by 60 per cent by 2060. The good news, said experts, is that humanity can reduce resource use while creating jobs and growing the economy by transitioning to circular economy approaches. 

Financing the transition to circular economies was the focus of a discussion at UNEA-6 hosted by the governments of Morocco, Costa Rica, Peru and Rwanda together with GACERE, the Circular Economy Coalition for Latin America and the Caribbean, the African Circular Economy Alliance and CIRCULAR STEP. 

Robust institutions and regulations are essential to enable the meaningful implementation of circular economy strategies by governments and other stakeholders, experts said at UNEA-6. These need to be backed by solid financing and investment plans, and by directing financial flows to pro-circular economy measures.  

The Governments of Peru, Rwanda and Slovenia presented case studies of mechanisms to mobilize finance for implementing the circular economy at UNEA-6. These include optimizing national budgets, establishing green funds, optimizing fiscal policy approaches and making public procurement circular. Officials said that governments can provide tax incentives and subsidies, as well as investments in innovation, capacity-building and awareness-raising.  

“Governments [must implement] stable policy and regulatory frameworks over time to encourage financial institutions to integrate circularity in their products and services,” said Leila Benali, UNEA-6 President and Morocco’s Minister of Energy Transition and Sustainable Development.  

Rosa Zavala, Vice-Minister of Environmental Management, Peru added: “GACERE and regional alliances could work on developing this homogeneous circular economy financing taxonomy to allow actors in the financial systems to identify which activities qualify as circular investments.”  

Speakers underscored the significance of circular economy alliances at the global and regional levels. 

“Circular Economy alliances, such as GACERE, are the perfect ground to catalyze standards which are key to promoting the circular economy,” said Claudine Uwera, Minister of State for the Environment, Rwanda. “As are regional alliances, like ACEA, that can help identify the resources we need to finance a circular economy transition.” 

Speakers from the World Bank, the African Development Bank, the European Investment Bank, and the UNEP-Finance Initiative (UNEP-FI) outlined their commitments to supporting the transition to circular economies. They emphasized the importance of subsidies, green finance initiatives, small and medium enterprise (SME) involvement, and public-private partnerships to driving progress.  

“SMEs are critical,” said Davinah Milenge, Principal Programme Coordinator, Climate Change and Green Growth Department, African Development Bank. “The jobs advancing the circular economy in the Africa continent are in the informal sector.”  

Strengthened regulatory frameworks and metrics to guide investments and benchmark success are needed, said other speakers.   

“We, as public banks, are tackling market failures and investment barriers,” said Nicola Pochettino, Director of the Environment and Natural Resources Department, European Investment Bank. “We cannot do this in isolation. We need to operate in a clear regulatory environment with clear international standards.’’    

Others emphasized the importance of international lenders.  

“Development finance institutions play a critical role in helping to mobilize commercial banks to finance circular economy projects,” said Liesel Van Ast, deputy head of UNEP FI. “UNEP has supported the development of a framework in Latin American and the Caribbean on taxonomies. This has made a real difference in enabling finance to flow from public and private sector into circular-economy models.”

Speakers concluded by emphasizing the need for continued collaboration. They highlighted that an international legally binding instrument on plastic pollution, now being negotiated, represents a significant step toward realizing circularity goals globally. 

“We used to say that circularity and climate-friendliness was about the environment,” said Slovenia’s Vajgl. “Actually, it is about building resilient economies which are less dependent on volatile energy and supply prices, and other outside shocks.’’  

UNEP-FI, the Government of the Netherlands and the Circle Economy Foundation are organizing a workshop on closing the circularity gap at the World Circular Economy Forum 2024 in Brussels on 16 April 2024. It will explore concrete measures to unlock finance for the development, implementation and monitoring of circular policies and support businesses in transitioning to more circular practices. 

 

About the Global Alliance on Circular Economy and Resource Efficiency (GACERE): GACERE is an alliance of governments at global level willing to work together on and advocate for a global just circular economy transition and a more sustainable management of natural resources, at the political level and in multilateral fora. GACERE was launched in February 2021. GACERE is an initiative of the European Commission on behalf of the European Union and UNEP, in coordination with UNIDO.  Visit www.unep.org/gacere for more information. 

About the Latin America and the Caribbean Circular Economy Coalition (LAC CEC): LAC CEC was formed in 2021 to provide a regional platform to enhance inter-ministerial, multi-sectoral and multi-stakeholder cooperation, increase knowledge and understanding on circular economy, provide capacity-building and technical assistance for the development of public policies for circular economy and sustainable consumption and production. It is currently coordinated by the United Nations Environment Programme (UNEP), and led by a steering committee composed of six high-level government representatives on a rotating basis.  

About the African Circular Economy Alliance (ACEA): ACEA is a government-led coalition of African nations with a mission to spur Africa’s transformation to a circular economy that delivers economic growth, jobs, and positive environmental outcomes. ACEA was conceived in 2016 during the World Economic Forum and has since served as a platform that supports the transition to a circular economy at the national, regional, and continental levels by pushing for policy development, scaling circular economy businesses, and leadership and advocacy. 

About CIRCULAR STEP: CIRCULAR STEP is a stakeholder engagement platform for stakeholders across sectors, including governments, businesses, academia, and civil society, to advance the transition towards a circular economy in the UNECE region. Launched in 2022 and coordinated by UNECE, Circular STEP facilitates knowledge sharing, policy dialogue, and the development of practical solutions to promote resource efficiency, reduce waste, and foster sustainable consumption and production patterns.