Businesses and investment opportunities now need more than just capital and workforce. More has to be considered and this is where sustainable finance comes in. Sustainable finance is the process of including social, environmental i.e., carbon emission, and governance considerations while making financial decisions in a business environment. Such decisions offer long-term economic sustainability in terms of investments and projects.
Circular economy, on the other hand, refers to keeping the value of materials in businesses to allow reuse along with customer retention. Currently, a linear economy is implemented by most businesses. This economic system has a clear line where goods are produced, used, and discarded. A circular economy discourages this by allowing an economy to be designed in a way that allows reuse.
Why is Sustainable Circular Economy Important?
The world's population is growing and this calls for more raw materials that are limited. Some countries also depend on others for sustainability and raw materials. Furthermore, these raw materials have a huge impact on the environment due to an increase in CO2 emissions. A sustainable circular environment seeks to solve all these by implementing smarter ways to produce and use products.
Measures that include waste prevention by using eco-design and reuse could save money and also reduce the greenhouse effect. The current economy accounts for 45% of CO2 emissions. Moving to a circular economy would create benefits such as reduced pressure for raw materials, improved security, economic growth, and the creation of jobs. Consumers will also receive more creative and durable products.
Criteria by ESG to encourage Sustainable Circular Economy
Environment, Social, and Governance(ESG) refers to the systematic and strict consideration of these factors, especially when choosing to make investment decisions. In terms of environment, greenhouse effect, pollution, and other hazards and energy efficiency are considered. Social factors include health protection, social commitment and diversity, and occupation safety. Governance is simply understood by the management of the organization and the controlling processes.
These factors can be used together to perform analysis in a certain company to identify different risks that would have been otherwise overlooked. Covid-19, for instance, has brought about different risks to organizations regarding both customer and employee health. It is no surprise that most companies have paid close attention to the ESG factors in order to be safe following the pandemic.
Circular Economy Challenges
Meeting the full requirements for a truly circular economy can't be described as easy. Even the best-intentioned companies have faced different challenges trying to adopt a circular economy. For instance, it is difficult for an organization to access depleted products from consumers. Furthermore, the ownership of these products has changed, and getting them back might need high-tech solutions and complex mechanisms.
Product complexity is another problem among different suppliers, especially electronic vendors. Some experts encourage recycling these products to create primary materials previously used. However, doing so leads to a decrease in value for the already manufactured product. Additionally, the quantity of materials collected from the reverse process is usually low. Considering decision-making is done on cost, companies might not consider circular economy.
Adopting the Principles of Sustainable Circular Economy (Carbon Emission)
There are different ways to implement a circular economy in a business. Some organizations prefer to use other waste products from different companies to create new products. Others use their own products, either to make the same or different products. An example of these implementations is a carpet company that uses the remains of fishing nets to create new carpet commodities.
Different Dimensions for Advancing Sustainable Finance
A sustainable circular economy can be sustained by different parties in a business transaction, including investors and customers. The five core drivers of circular include ESG diligence, culture, regulations, digitization, and the next generation. All of these values ensure that a business will be viable now and in future. Below is a description of the emerging driver of the circular economy, digitization.
Digitization
Implementation of digital technology in different levels of a business opens up new potential that helps improve sustainability. Digitization helps to close loops by delivering accurate data relating to the condition of products, location and availability. Furthermore, digitization enables a more efficient way for companies to help minimize transaction costs, decrease wastage and promote longer life for products available for the market.
Technology serves well in terms of creating new and diverse connections between investors and businesses. This is accomplished using different digital finance tools including blockchain, AI, IoT, machine learning, and big data processing to name a few. Digitization, therefore, plays a major role in implementing a non-linear business progression, hence improving the sustainability of an institution using the circular economy concept.
Final Thoughts on Sustainable Circular Economy (Carbon Emission)
Doing nothing shouldn't be an option for any business or financial institution. As the years pass, demand from different stakeholders in the economy intensifies. A sustainable circular economy gives insights into the target economy aimed at the different players of the economic system. Besides providing a successful sustainable environment, it also ensures that a business is deeply rooted in protecting the future.
