Plenty of money, but not for circular businesses

Background

Circular businesses bring the circular economy into practice. Because these businesses depend on external financing, the financial sector in the Netherlands has an important role to play in the transition to a circular economy. However, various studies show that circular companies struggle to secure the financing they need.

That is why, together with the Circular Finance Lab, we investigated how much Dutch banks currently finance circular businesses, which risks (and opportunities) banks consider when assessing these companies, and which barriers within the financial sector hinder lending.

Research highlights

Our analysis shows that the mismatch between what banks offer and what entrepreneurs need is a visible symptom of deeper, underlying barriers. It is precisely these underlying barriers that must be addressed to create structural change.

Two key levers are essential to improving the bankability of circular SMEs:

• The business case of circular companies compared with linear companies, which results in circular businesses structurally scoring lower in banks’ assessments.
• The risk assessment conducted by banks, in which the value of circular practices is underestimated. Circular companies are consistently perceived as riskier. For example, a circular business model often requires higher upfront investment, and financial returns are typically spread out over a longer time horizon (a longer balance). According to traditional views, this makes linear business models appear less risky. What is overlooked, however, are the financial risks of the linear economy. Consider, for instance, rising raw material prices, which have already caused stalled construction projects. Circular businesses are better equipped to handle such risks, but this does not become visible in a traditional risk assessment.

In our report, we provide 13 recommendations to improve the financing conditions for circular SMEs, directly or indirectly based on these two levers. These recommendations are aimed at both the financial sector and policymakers.

Improving the business case

Policymakers hold the main responsibility here. Structural improvement of the circular business case can be achieved through measures such as pricing environmental costs (externalities) of companies. At present, circular companies start “2–0 behind” when applying for financing, because their sustainable choices mean they bear environmental costs that linear companies are not required to pay. Experience shows that one-off subsidies (incentives) are not enough to achieve a mature circular economy. Normative and pricing measures are needed as well.

Improving risk assessment

Banks themselves play a central role in this area. They can develop financing products that better match the needs of circular companies, taking into account, for instance, their relatively long financial balance horizons. To do so, it is crucial that all departments within banks recognize the necessity and value of the circular economy. Policymakers can support this by setting standards, for example around using a circular valuation model.

Next steps

This report was commissioned by the Netherlands Environmental Assessment Agency (PBL) as input for the Integrated Economy Report (ICER) 2025, which tracks progress in the transition to the circular economy.

We will present our findings to PBL, various ministries, and several banks, urging all parties to take action.

Interested in learning more?
Please contact Marijn (marijn@copper8.com)!

*Please note that this publication is only available in Dutch.