Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Analysis & opinionMarch 1 2019

Why more banks must support the circular economy

The circular economy redefines the approach to value creation and targets wiping out unnecessary waste. It is a disruption to the business model that Intesa Sanpaolo is supporting, its CEO Carlo Messina writes, and more banks should be doing the same.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

The circular economy is a positive disruption to business models across industries. By redefining the approach to value creation and designing out waste from the production system, it prolongs products’ lives and encourages repair and recycling over disposal. It aims to transform economic activity by reducing the unnecessary use of finite natural resources.

Banks have a social responsibility in promoting a broader understanding of the modern economy – and should therefore look into how the circular economy changes business as well as finance.

Companies that shift towards a circular model have the potential to increase their competitiveness in the medium to long term, becoming more appealing to financial institutions in terms of funding and financial support, while creating a positive impact within local communities.

Losing the linear approach 

I believe that the financial sector, especially from a de-risking perspective, should play a crucial role in unlocking opportunities while supporting clients in reorienting their business strategies.

As a bank, we assess and manage risks while creating returns. The current linear model of ‘take, make, dispose’ embeds critical risks for businesses, such as high exposure to price volatility for natural resources and regulation to reduce pollution and carbon dioxide emissions. These risks then scale to a systemic level through today’s industrial processes.

On the contrary, the circular economy can mitigate linear risks and create opportunities in terms of resource efficiency and profitability gains.

We are now exploring ways to integrate linear risk analysis into our own assessment processes. Increasing knowledge and management of linear risks are key issues for us, as we see the circular economy as a potential driving force to build a more resilient credit portfolio and to progressively lower the overall credit risks of our clients.

What is circular? 

A preliminary challenge is distinguishing between a sustainability project and a circular one. We are making sure that our clients appreciate the difference in terms of innovation that the circular economy requires.

Working closely with the Ellen MacArthur Foundation, a driving force for the propagation of the circular economy, we defined a set of eligibility criteria that regulates access to our new, dedicated €5bn circular credit line. It is a standard banking product from the debt side that has been designed to provide financing to small and medium-sized companies as well as larger corporates.

The circular economy is based on the principle that natural capital can be regenerated by design. Thanks to Italian leadership in the design space, we are seeing exciting initiatives in fashion, food and many other sectors. Often this involves collaboration between established companies and emerging innovators and start-ups. This is why banks should also consider the equity side of the financial offer. We want to nurture a new generation of entrepreneurs who can thrive and become the backbone of the Italian, European and global economy for years to come. With them, we may also develop new banking solutions tailored to their needs.

With the Ellen MacArthur Foundation, Intesa Sanpaolo recently created the Circular Economy Lab in Milan, a joint initiative with shareholder Fondazione Cariplo, aimed at becoming the Italian hotspot for innovative circular projects. Here, start-ups and established Italian companies – such as Novamont, the leader in the bio-economy sector – can co-create scalable solutions and we can provide financing linked to the required investments. Intesa Sanpaolo’s 2018 to 2021 business plan identifies the circular economy as one of the strategic pillars for our group.

Only a few others in the banking sector are looking at the circular economy – more should follow.

Carlo Messina is the CEO of Intesa Sanpaolo.

Was this article helpful?

Thank you for your feedback!