Treasury Practice

Reuse, repair, repurpose and share: the treasury benefits of the circular economy

Published: May 2022

Companies will struggle to meet their net zero targets unless they adopt a circular approach and reuse, repair and repurpose the components in their supply chains. Elsewhere, new circular models around leasing and subscription could transform sectors from health to fashion.

Symbolic portal to a green garden through a brick wall

Industries from food to fashion, electronics and transport, are experimenting with ways to replace the linear take-make-dispose economy into one based on the principles of reuse, repair, repurpose and share. Like brewing giant Anheuser-Busch InBev, turning the barley by-product or spent grain in its brewing processes into a key ingredient for pasta, baked goods and snacks. Car maker Renault now offers battery leasing arrangements for electric vehicles; machinery giant Caterpillar’s Cat Reman programme reduces owning and operating costs by providing same-as-new quality components at a fraction of the cost of a new part, while in Brazil, an initiative by HP is leading to the first circular economy initiative in the Brazilian electronics sector.

In discussions on how best to tackle climate change and ESG integration, the circular economy is often overlooked – or even wrongly viewed as a fancy term for recycling. But treasury teams are increasingly mindful of its potential to offer streamlined and predictable cash flows: companies operating a linear model face commodity price spikes and volatility but in the circular economy raw materials are obtained from reprocessing the product and waste is turned form a cost to an additional source of revenue.

Elsewhere, the circular economy offers compelling new growth opportunities and a strategy for reducing Scope 3 emissions, without which companies will never fulfil their net zero pledges. According to research from the Ellen MacArthur Foundation in “Financing the Circular Economy” if a circular approach were adopted in just five sectors (steel, aluminium, cement, plastic and food), annual GHG emissions would fall by 9.3 billion tonnes of CO2e in 2050, equivalent to the reduction that could be achieved by eliminating all transport emissions globally. As global trends around digitalisation, resource scarcity and supply chain upheaval gather pace, treasury teams are increasingly mindful of the circular economy’s impact on cash flows and the future business environment.

Green issuance

The amount of money raised in the linear economy dwarfs that raised to fund corporate circular endeavour, but investors and banks are dipping a toe. The annual issuance of corporate bonds linked to the circular economy increased five-fold between December 2019 and December 2021, with at least 40 bonds issued in the last three years by companies including Alphabet, BASF, Daiken Corporation, Henkel and PepsiCo. PepsiCo’s US$1bn green bond will fund key initiatives including reducing its use of virgin plastics and Henkel’s US$70m plastic waste reduction bond has gone to finance projects which contribute to its 100% reusable or recyclable target by 2025. “Plastic is not the enemy,” says Thorsten Leopold, Director Global Packaging Innovation, Laundry & Home Care at Henkel.

Analysis by Bocconi University in Milan links investor appetite for circular economy assets to the circular economy’s direct benefit on corporate health. The University’s analysis of over 200 listed European companies across 14 industries found that circular economy benefits like business model diversification, decoupling economic growth from resource use, better anticipation of stricter regulation and changing customer preferences make for compelling investor stories. The more circular a company is, the lower its risk of defaulting on debt, and the higher the risk-adjusted returns of its stock, says Carlo Messina, CEO, Intesa Sanpaolo, one of Europe’s largest banking groups which has pursued circular economy strategies as a value creation opportunity for several years, including through its partnership with Bocconi University, and also partnered with the Ellen MacArthur Foundation in its report. “The bank has an interest in evaluating and selecting the most circular companies because there is an awareness of the fact that they are more resilient in the long term.”

Intesa Sanpaolo (where a €5bn credit facility supports companies adopting circular business models) is one of a growing cohort including ABN Amro, ING and Rabobank, all overseeing dedicated circular lending programmes. The China Development Bank has helped finance the Qaidam Circular Economy Pilot Zone, which includes CNY400bn (US$56bn) for the construction of six industrial bases. Circular economy investment also ties with investors integrating the SDGs, particularly SDG 12 – sustainable consumption and production.

Scope 3

The need to meet net zero targets is also pushing companies towards circular economy principles. Reducing Scope 3 emissions, the carbon footprint of the components in a company’s product and of those products once in use, is typically the biggest part of a corporate’s carbon footprint and the hardest to unravel and measure. It is also integral to achieving net zero. For example, consultants McKinsey estimate that unless there is further action to improve sustainability in manufacturing, 60% of auto industry emissions will come from the materials used in production by 2040. Roughly half the cost of a vehicle is spent on materials that will not be recycled, according to calculations by the Circular Cars Initiative, a grouping of businesses set up by the World Economic Forum to increase the use of renewable materials.

Recent research from the University of Exeter, in partnership with Dutch medical equipment group Philips, found that the NHS will not meet its net zero target unless it incorporates circular economy principles which involve maintaining and extending the life of medical equipment rather than the current approach of using large volumes of single use products and disposing of machines and devices prematurely. “NHS leaders have outlined their commitments to making health services more sustainable, but the pace of change must swiftly accelerate. Our research has outlined that meeting the NHS’s ambitious net zero targets is only possible with the adoption of circular economy practices,” said co-author Markus Zils, Professor for Circular Economy and Management Science at the University of Exeter.

Leasing and subscription

Emerging demand for leasing and subscription has put companies like Philips at the vanguard of new circular economy models: rather than making and supplying valuable new medical products, Philips is refurbishing and leasing, aiming to generate 25% of its revenue from circular products, services and solutions by 2025 and where circular solutions accounted for 13% of 2019 revenues. Describing the recent leasing of an MRI scanner to a hospital, Robert Metzke, Global Head of Sustainability at Philips Digital explains: “The product has been refurbished, it is a pre-owned system that has been thoroughly upgraded and quality-tested and we have now leased it to the healthcare provider, who can access the solution’s potentially life-saving functionality without having to make the capital expenditure needed to own the product.” Moreover, modern software means Philips can service the scanner remotely; the company will take it back when needed, refurbish it and lease it again. Similar things are happening in fashion where the clothing resale sector is expected to be bigger than fast fashion by 2029 and data provider Statista estimates the global fashion rental market will reach revenues of US$7bn by 2025. Ralph Lauren is leading the way offering fashionistas the ability to rent the ‘Lauren Look’ if they sign up to a subscription service starting at US$125 a month.


Circular models won’t work for every company. The financial viability of new business models based on leasing and subscription compared to traditional manufacturing varies and requires key logistic support. “Treasury will need to support setting up take-back schemes that require logistics to bring products back into the system for repair and repurpose,” explains Patrick Schröder, Senior Research Fellow, Environment and Society Programme at Chatham House. “The sharing economy has different revenue schemes and treasury will have to think this through.”

And companies like brewer Anheuser-Busch InBev making new products from by-products and upcycling low value ingredients can only do so if they are commercially viable. It’s also essential that circular products are made available to everyone – rather than a sustainable choice for the well off. One area this could work includes repurposing white goods, suggests Susan Evans, Interim Head of Resource Policy at the Green Alliance. “Many white goods get thrown out although they are perfectly functioning. They could go to support people in furniture poverty.”

The circular economy will only take off with enabling conditions like legislative or tax incentives that encourage the use of re-used, refurbished or recycled products and materials. “Customers need to be incentivised and facilitated to return products through deposit and buy-back schemes, and success requires adequate collection and processing networks,” says Philips’ Metzke.

It is possible, witnessed in producer responsibility regulation in the auto sector that makes manufacturers and importers responsible for taking back cars at the end of their life, leading to a high level of recycling and recovery. “Cars are expensive, so it has been easier to introduce this circular model,” notes Evans. “In the past, the economic incentives were right to encourage repair. We need to shift economic incentives to scale up circular solutions.”

Regulation is also growing. Examples include national roadmaps and circular economy legislation in Chile, China, Finland, France and the Netherlands. In 2019, the European Commission presented the European Green Deal, of which the circular economy is a key pillar, and in early 2020 it published the Circular Economy Action Plan, which includes a detailed set of measures to be implemented over the next five years. In 2018, China and the European Commission signed a memorandum of understanding on circular economy collaboration.

The circular economy also requires more transparent and consistent data on circularity performance including dedicated circularity measurement tools that integrate circularity metrics into reporting and disclosure frameworks. A recent study of 7,000 business leaders by software firm SAP found that 26% of companies measure sustainability using in-house metrics, while only 12% adhered to globally proposed measures.

Perhaps the hardest part will be convincing customers to change their purchasing habits – it’s more convenient to buy a new model and the linear economy has been around for many decades. Appealing to altruism only goes so far: companies need to create great products at a lower price than ownership. In its report, the Ellen MacArthur Foundation concludes progress now depends on banks scaling circular economy financial products and services and building on existing proofs of concept.

Treasury can begin by collecting all non-financial data around resource efficiency and waste, beyond what they are currently doing around net zero and carbon, digging down into their supply chain. Treasury can also play a role allocating funds to the long-term investment the circular economy requires, balancing short-term cash needs against the strategic investment needed to create resilience. “Investment now is best way to prevent losses in the future,” concludes Chatham House’s Schröder.

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