ESG and Circular Economy (CE): Do they know each other?

by Adrian Braun

June 2019

ESG (Environmental, Social and Governance) and Circular Economy are both strongly emerging concepts in these days! These terms are used frequently in the discourses of sustainable development and corporate social responsibility, by numerous actors, including policy-makers, enterprises, NGO´s, scientists, journalists, activists and many more.

Both concepts are fundamental for various actors, but the question is where are the intertwinements and resulting possibilities of cooperation and synergies?

ESG concerns to the largest extent the investment community, predominantly institutional investors, who intend to assess potential investments, not only on financial aspects, but non-financial factors as well, in order to achieve valid results of risks and opportunities and to diversify their portfolios to attract green investors.

Moving on the path from linear to circular economy involves many actors. I would like to put emphasis particularly on the start-ups and small- and medium sized enterprises that develop brilliant technological solutions that serve the large industries to decrease consumption levels of natural resources, lowering carbon footprints and coming-up with efficient tools to improve waste management.

At this point, I perceive a clear match! The one group needs access to green capital, the other group has the willingness to allocate its capital to serve ecological and social purposes in the framework of business solutions.

Do the institutional investors know about all the novel ideas and innovations that are possible to move faster towards circular economy? Probably not and it is not easy to know about them, because there are so many innovations in very specific niches and from everywhere on the globe. In fact institutional investors have to focus in their limited time on material data, such as, ESG scorecards, ESG risk assessments and the sustainability indices. While these are useful tools that get continually more input from external consultants, NGO´s and other stakeholder organizations, these rankings and indices first and foremost depict large-scale enterprises to this day.

The innovators from the research centres, start-ups and other comparatively small entities are in many cases not aware what is available on the international capital markets that may realize their circular economy solutions. In this context, there is too often the outlook to state-funding, supranational bodies, such as Horizon 2020 and similar institutions. Profitable solutions that are market-ready do not necessarily need supplementary funding. Investments in form of green bonds or loans with good financial planning could do the trick.

Just like so often in these days improvements in communication and advanced networking can be a solution to bring the relevant actors to the same tables to identify the mutual benefits. By doing so, we can avoid that great innovations will disappear unrealized in the desk shelves, while they had the potential to be an essential element in the movement towards circularity.

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