The region is championing the circular economy agenda and the development of national strategies, roadmaps or other policies. This agenda presents an opportunity to enhance the integration of Latin America and the Caribbean (LAC) economies and facilitate their transition toward sustainable development.
Micro, Small, and Medium Enterprises (MSMEs) are vital for economic growth and job creation in LAC countries. However, MSMEs often face challenges in accessing financing to start or expand their businesses. Banks and other financial institutions play a critical role in supporting the transition towards a circular economy. By providing financing to businesses that are committed to operating in a sustainable and environmentally friendly manner, these products can help to accelerate the transition towards a circular economy. Nevertheless, a significant hurdle to expanding this transition lies in the limited comprehension of circular practices and the difficulty in identifying financing opportunities. This results in a lack of specialised financial instruments and products tailored for the circular economy.
An initial effort to engage the financial sector in the development of circular economy financial instruments in the LAC region has been undertaken by the IDB and IDB Invest with BASE’s support. Under their initiative, a Categorisation System for the Circular Economy was developed for the financial system in Colombia and the same adapted to Peru with the support and engagement of Colombia’s bank association (Asobancaria) and Peru’s association of Cajas Municipales (Federación peruana de Cajas Municipales y de Ahorro, FEPCMAC), respectively.
Notably, Chile, Uruguay, Costa Rica, and the Dominican Republic are working to reshape their economic and financial frameworks to align with sustainable and resilient practices, and are keen on promoting the transition to a circular economy in alignment with their climate change agendas. Chile has a CE national roadmap, Costa Rica has published its CE strategy, Uruguay is developing its CE strategy, while the Dominican Republic is taking its first steps towards planning its circular economy strategy.
To achieve the potential of the facilitating role of the financial sector, it is necessary to unify languages that allow financial institutions, especially those specialised in MSMEs, to understand what circular economy is within the context of sustainability, to identify initiatives translated into financing opportunities that contribute to the transition to circular economy, the dimension of this opportunity, how to measure and monitor it over time, the existing barriers and learn from the experiences of third parties. This will lay the foundations needed for the later development of financial products dedicated to supporting the development of circular MSMEs, considering a systemic view and value chain approach.
The objective of this multi-country assistance is to support public and private banks to integrate Circular Economy in their sustainability financing strategies, enabling them to develop tailor-made financial products to expand their investment and portfolio of circular projects, with a focus on MSMEs.
In the case of Chile, Costa Rica and Uruguay, this will be achieved through (1) the development of a categorization system tailored to each country, aligned to their climate change agendas, which aims to help stakeholders identify activities that contribute to the transition to a circular economy and how these translate into financing opportunities; (2) the development of a capacity building program for FIs; and (3) the development of a diagnostic report of the circular ecosystem in the country (i.e., initiatives enablers and barriers), which will feed into the Categorisation System and the Capacity Building program.
In the Dominican Republic, the focus will be on laying down the preparatory work to contribute in the development of a national policy of circular economy in the near future. This will be achieved by developing a diagnostic of the circular ecosystem in the country, and supporting UNEP FI in engaging the financial sector in its validation process.
Enhanced ability of public and private banks in Chile, Costa Rica and Uruguay through capacity building, leading to the development of methodologies and technical knowledge that laid the groundwork for the development of future financial products on CE, which are aligned with the climate change agendas of each country. While in the Dominican Republic, it is expected to achieve a comprehensive understanding of the circular ecosystem for fostering collaboration and developing strategies to move forward the discussion and agenda of CE financing in the country.
