Insight & Analysis

Spike in companies issuing debt linked to circular economy

Published: Sep 2020

A growing number of companies are tapping keen investors’ interest to help finance the circular economy according to a new report by the Ellen MacArthur Foundation.

A growing number of corporates are issuing bonds to finance the circular economy. According to a new report from the Ellen MacArthur Foundation entitled ‘Financing the Circular Economy,’ over the last two years, ten of the world’s largest companies including Alphabet, BASF, PepsiCo, Philips plus Japanese construction group Daiken and plastics manufacturer Kaneka, have sold bonds to finance circular economy activities for the first time.

“In the last 18-24 months at least ten of some of the world’s largest corporates have issued bonds to finance their circular economy activities totalling over US$10bn,” said Michiel De Smet, Finance Programme Lead at the Ellen MacArthur Foundation.

Proponents argue that the circular economy, which espouses a transformative economic model that swaps today’s extractive, linear framework of ‘take-make-waste,’ for one that reuses, re-purposes or repairs products in a regenerative process that keeps natural resources within the production cycle, offers corporates and investors exciting growth potential.

Circular solutions accounted for 13% of Philips’ revenues in 2019, while Caterpillar offers more than 7,600 re-manufactured products. In fashion, clothing resale is expected to be bigger than fast fashion by 2029. Elsewhere, Nestlé has committed up to CHF 2bn by 2025 to shift from using virgin plastic to sourcing recycled plastic, while Renault is offering battery leasing arrangements for electric vehicles and has launched ZITY, an all-electric car-sharing service.

“Bonds to finance circular economy activities can help deliver on ESG goals and address climate change, but the concept also goes beyond this,” said De Smet. “It allows investors to tap into new forms of better growth.”


Treasury departments say one of the challenges of issuing green debt linked to the circular economy is the absence of a common framework or a granular standardisation of what classifies as circular economy activities. They say the circular economy is not a particular service or product within a company. Nor does everyone agree on its definition.

It is one of the challenges De Smet acknowledges could lead to greenwashing, or the bond proceeds not going to the green initiatives listed in the sales document. The worry is it could threaten investor enthusiasm, liquidity and scale going forward. However, he also notes that standardisation, a common framework and all-important transparency, is growing. For example, the circular economy is one of the six key environmental objectives listed in the EU Taxonomy on sustainable finance, the first widely accepted ‘green list’ for investors of sustainable economic activities.

“The circular economy is currently part of the Green Bond Framework although these criteria are still quite high-level. Public and private sector involvement will be crucial to formalise the circular economy through financial tools and frameworks such as the EU Taxonomy,” he said.

Moreover, the Foundation’s experience of partnering with issuers at a granular level has been encouraging. It worked with Intesa Sanpaolo on the criteria the Italian banking group uses to vet corporates applying for its €5bn credit facility targeting circular economy activities.

“We worked with Intesa Sanpaolo to define the criteria companies must meet to access their €5bn credit facility. As a foundation, we support their criteria framework as a contribution towards formalising the circular economy,” he said. The bank recently sold €750mn five year bonds to finance the credit facility to strong investor demand with the issue three to four times oversubscribed, gathering a book of more than €3.5bn.

Elsewhere wider awareness of the circular economy is getting a boost from more investors tapping other assets via an increasingly wider investable universe. The number of public equity funds investing in the circular economy grew from one in 2018 to ten by the middle of 2020. Online luxury fashion resale platform The ReaReal raised US$300m in an initial public offering in 2019. “It is not about reinventing the concept of a bond, but formalising requirements to ensure awareness, scale and liquidity, and thus mature the market,” concluded De Smet.

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