Exploring the role of finance within a circular economy: Part 2

3 March 2021


As well as building start-up ecosystems which we discussed in Part 1 of this blog, another area which Bankers without Boundaries focusses on to accelerate the circular economy is creating cases of specific circular economy principles, technologies or business models within projects.

Pilot projects: The link between construction and finance in creating a circular economy

Written by Ryan Stodart, Bankers without Boundaries

We are currently working on two construction projects utilising bio-based materials through circular design in two major European cities. Without sustained, concerted efforts to accelerate the adoption of these strategies, it is expected that new construction will cause the embodied emissions of over 100 gigatons of carbon by 2060 – over three times the world’s total CO2e emissions from fuel combustion[i]. We are working in consortium with the city administrations, local industry partners and citizens in a co-ordinated way to create the right conditions to enable mainstreaming embodied carbon neutrality in construction through circular strategies.

There has been an initial shift in mainstream focus towards the circular use of resources, through modular design, as well as reuse, remanufacture and recycle techniques. There are, however, still few scaled practical applications. Less widespread still, is the use of bio-based materials in circular design, which are often more suited to circular use than traditional building materials (such as reinforced concrete and composites) and further reduce the impact of sourcing construction materials.

The construction sector largely sees a number of barriers that need to be overcome to drive demand for circular, bio-based, embodied carbon neutral buildings including:

  • Building projects that target embodied carbon neutrality can be more expensivefor the client/developer, both upfront (initial investment) as well as in terms of Total Cost of Ownership – under current market conditions.
  • Construction stakeholders tend to ‘stick with what has worked in the past’. There are, in general, fewer architects and contractors who have the skills or capabilitiesrequired to deliver bio-based and circular buildings, compared to concrete or steel buildings, which have been more popular in modern times.

To address these barriers, our consortium is co-ordinating to activate each stakeholder’s lever – citizens will create demand, policymakers will develop necessary regulation and supply chains will restructure around new business models. These developments will interact in tandem to create the right conditions to enable mainstreaming embodied carbon neutrality in construction through circular strategies and bio-based materials. The financial element of this revolves around financial innovation to restructure value chains for circular and bio-based construction in the local context. The financial innovation comes in the form of pioneering project preparation to drive investability using our City Finance Framework and BwB Deal Engine; developing cutting edge financial models to finance the underlying project through a blended finance (a mix of capital sources e.g., public and private) structure; and crucially, identifying and accounting for resulting indirect “value streams” (e.g., jobs, life-cycle carbon, emission credits, increased real estate value, increased end of life value of materials).

Additionally, to ensure that the impact of this project goes beyond the project itself our focus is to create a model that is financially viable and customisable to varied contexts and foreseeable altered conditions (e.g., regulatory innovation), creating a roadmap for future projects. This will result in a flexible, replicable model to upscale the results of this initiative into projects in any other European city.

Innovation does not have to come in the form of high-risk, unproven concepts. As shown through our experience, innovation can come in the form of applying proven models to specific areas in order to galvanise action or tweaking the conditions within current sectors to promote desired action. It is crucial that finance is seen as a fundamental component from the outset, ensuring the investment profile of a solution or project is considered so that progress drives towards a bankable opportunity that can pull in private investment to reach scale and provide replicability. It is clear that public finance has a role in de-risking aspects of such projects and must work alongside private investment to ensure that the correct solutions for the planet and societies reach maturity.

[i] Bionova, 2018 https://www.oneclicklca.com/embodied-carbon-review/.