CONTEXT

Global production and consumption patterns have been based on the intensive use of finite resources. The process has been simple and operated without much care for the environment: extraction of materials, transformation, sale, use and disposal, known as the linear economy. Despite its great contributions to the growth of the global economy, it is now clear that this old model and its negative externalities cannot cope with the challenges we face such as climate change, deterioration of ecosystems and ecosystem services, resource scarcity, urbanisation and global population growth. Thus, the need to change the production and consumption model to a regenerative one that preserves and enhances natural capital and optimises the yields of renewable resources.

The shift to circular economy thinking as the guiding force for business development in the next 30 years is imperative for reconciling economic growth with environmental sustainability. It serves as a way to anticipate imminent changes in climate and resource scarcity considering that we are currently extracting 1.3 times the amount of resources that nature can replenish while  only 9 percent of minerals, fuels, metals and biomass entering the global economy are reused.  While renewable energy and energy efficiency have the capacity to reduce greenhouse gas emissions by 55 percent, the adoption of circular economy practices could contribute towards mitigating the remaining 45 percent. Circular projects generate a triple bottom line in terms of profitability, contributions to pollution prevention, and the generation of positive social impacts in terms of inclusiveness and fair labour to name a few.

To accelerate  this transition productive value chains require investments to drive the gradual implementation of circular innovations. The wider the gap, the greater the financing needs. The financial sector can be an essential enabler to achieve a transition to a low-carbon (or carbon neutral) circular economy, but this requires an understanding of how to identify those projects that are part of the move towards circularity. However, while there has been some progress in terms of guidelines and methodologies that seek, in a uniform and standardised way, to define and apply the circular economy thinking model, the limited availability of these has so far hindered the development of and access to dedicated and non-dedicated financing. That hence highlights the importance of defining a circular economy categorisation which provides a common classification system to identify financing opportunities that meet circular transition objectives, but also differentiate them from other financing opportunities for meeting sustainable development and climate change objectives.

The circular economy has been gaining momentum in public policy agendas and in the financial sector as great opportunities have been detected to guide investment decisions and steer economic activities and sectors in a more sustainable direction.

PROJECT

Taking into account Colombia’s progress in the development of a circular economy policy framework, the National Strategy on Circular Economy, the Inter-American Development Bank and its private arm, IDB Invest, recognising the fundamental role of development and commercial banks in accelerating the transition to a circular economy, contracted BASE  for the preparation of a circular economy categorisation and its application to potential investment projects of Bancóldex, Banco de Bogotá, and Bancolombia.

This technical assistance aims to foster the creation of a financing market for private sector projects that contribute to the transition from a linear to a circular economy through the adoption of a circular categorisation to facilitate this type of investment, and to accompany each of these three banks in the implementation of this categorisation in a pilot. Further, it seeks to develop an understanding and tools to assess the level of circularity of the different investments thus promoting transparency of the banks’ circular economy portfolio.

The categorisation is aligned with the Colombian National Strategy on Circular Economy and its NDCs.

The development process of the categorisation includes the participation of reviewers like the Colombian Asobancaria, UNEP FI, and Ellen MacArthur Foundation to ensure that the work can be of use more broadly for the whole Colombian banking sector and that it is aligned with the vision of the Latin America and Caribbean Circular Economy Coalition.