Finance and the circular economy: a partnership for our present and future
New research shows that the interaction between finance and circular economy practices is pivotal to reaching sustainability goals while creating economic and financial value
PODCAST: Finance and the circular economy: an innovative interaction for our future
Intesa Sanpaolo has long been committed to the circular economy (CE) transition, as manifested by its distinctive partnership with the Ellen MacArthur foundation over the past six years and for the next three.
The bank aims to achieve carbon neutrality within its operations by 2030 and net zero emissions within its own business by 2050, and it is committed to contribute €90m towards a green transition between now and 2025.
But while commitment to change is crucial, the bank is also concerned with measuring the impact being made. How does it quantify the effects of transitioning to a circular economy on its goal to make progress from an economic, social and environmental perspective?
A study in close collaboration with Bocconi University aims to investigate the kind of impact the transition can have on the financial industry’s value-creation drivers. The research project aims to define the relationship between the circular economy and the financial industry, and to map out how finance is transforming along the lines of circular principles while providing a bridge for the transformation of other industries.
"The higher the degree of real circularity, the lower the risk for investors"
Claudio Zara, Researcher, GREEN, Bocconi University
A team at Bocconi – led by Claudio Zara with the backing of Intesa Sanpaolo – has produced a report on the relationship with a dedicated focus on its de-risking effect. “The partnership with Intesa Sanpaolo Group and the Intesa Sanpaolo Innovation Center offers a lot of stimuli and an opportunity to share ideas and stay at the edge of this topic,” says Zara.
“At the same time, the partnership with the Ellen MacArthur Foundation offers us an international perspective, keeping in touch with an international network.”
The key findings deriving from the collaboration between Bocconi University, Intesa Sanpaolo Group and the EMF have been substantiated in a white paper, published jointly in the summer of 2021. One of the main findings is that implementing the circular economic paradigm can help reduce a company’s financial risk. “The higher the degree of real circularity, the lower the risk for investors,” says Zara.
Moreover, the research found that there is a positive relationship between circular economy business practices and higher risk-adjusted returns in shares. The team also found evidence that adopting CE business models can make the economy overall more resilient to external shocks.
“During the Covid-19 pandemic, companies that are more circular suffered lower negative aspects during the main window of the pandemic – and regained their original conditions more quickly in the post-pandemic window,” says Zara.
Once, the idea was to see what finance could do to help the circular economy. Now, research is telling us that the relationship between the two is emerging as mutually beneficial: the circular economy is showing finance how it is a key lever for the industry to invest in and move forward into a more resilient future.
Zara led a study by Bocconi University, in close collaboration with Intesa Sanpaolo, which aims to define the relationship between the circular economy and the financial sector.
One of the key findings is that the circular economy can help reduce a company’s financial risk and improve risk-adjusted performance. The research also found evidence that adopting circular business models can make the economy more resilient to external shocks.
“Companies that are more circular suffered lower negative performance and volatility during the Covid-19 pandemic and regained their original conditions more quickly post-pandemic,” says Zara.
Shifting to circular systems is a strategic priority for post-pandemic recovery. Intesa Sanpaolo is a lead player in the financial sector, with around €115 billion committed to the green transition in its 2022-2025 Business Plan.
The integration of ESG factors into its investment process plays a key role in this transition, as the framework ensures transparent, sustainable business practices that can be measured and reported.
Both the circular economy and ESG are crucial to financial services in terms of de-risking investments, delivering on climate commitments and capitalising on new forms of better growth.