CIRCULARECONOMYFINANCEGUIDELINES

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Amsterdam, July 2018

ABN AMRO|ING|

RABOBANKIntroduction
The transition towards a circular economy is expected to generate multiple economic,
social and environmental benefits. Financiers play an important role in accelerating thistransition by facilitating finance for businesses and projects applying circular economy
business models.
In December 2014 the FinanCE working group was founded by PGGM and brought
together a group of organizations1 related to the world of finance that were interested
in the transition to a more circular economy. The group was supported by the Ellen
MacArthur Foundation.
For this publication the FinanCE members ABN AMRO, ING and Rabobank sought active
support and feedback from all FinanCE Working Group Members. The overarching goal isto create and stimulate a common understanding of circular economy finance.
This common understanding will accelerate financing and investing in circular businessmodels. Especially since the market lacks guidance on how to uniformly define and apply
circular economy thinking.
These Circle Economy Finance Guidelines aim to enable, stimulate and develop the keyrole finance can play in the transition towards a circular economy.

Circular Economy Definition
In a circular economy, the value of products and materials is maintained for as long aspossible. Waste and resource use are minimized, and when a product reaches the end ofits life, it is used again to create further value. This can bring major economic benefits,
contributing to innovation, growth and job creation2.
A circular economy aims at decoupling economic growth from the consumption of finite
raw materials and resources and in this way increasing societal welfare. This can beachieved by gradually designing out waste from economic activities, keeping products andmaterials in economic use and regenerating natural systems3.
Circular Economy Finance Definition
Circular Economy Finance is any type of instrument where the investments will be
exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible
companies or projects in the circular economy (see section 1 Use of Investments).
Circular Economy Finance Guidelines
The Circular Economy Finance Guidelines are voluntary process guidelines thatrecommend transparency and disclosure and promote integrity in the debt and equity
market for the circular economy. It does so by clarifying the approach for debt and equity
issuance towards companies in the circular economy (‘circular companies’) and projects
that support the transition to a circular economy (‘circular projects’).	FinanCE working group members in Alphabetical1

order: ABN Amro, Banco Intesa San Paolo,
BNP Paribas, CDC, Circle Economy, Circularity
Capital, Danish Business Authority, EBRD, EIB,The Circular Economy Finance Guidelines apply to all equity and debt products. In casethe financial instrument is ring-fenced to a specific circular economy project or projectcomponent (e.g. structured finance to a circular project or a project component), it can
be classified as circular economy finance. In case the instrument is not ring-fenced(e.g. general lending or an equity stake at company level) it can be classified as circular
economy finance if:
1.	The company in total can be classified as a circular company; or
2.	The investment amount is fully dedicated to support projects or project componentsthat support the transition to a circular economy.

Ellen Macarthur Foundation, ING, KPMG, PGGM,Rabobank, Sitra, Suez
https://ec.europa.eu/growth/industry/2	sustainability/circular-economy_nl
https://www.ellenmacarthurfoundation.org/

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circular-economy/overview/concept

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The Circular Economy Finance Guidelines have four core components:
1. Use of Investments;
2. Process for Project Evaluation and Selection;
3. Management of Investments;
4. Reporting.

1. Use of Investments
The cornerstone of debt and equity finance for the circular economy is the utilisationof the investments for the circular economy. To assess whether a company or projectcontributes to the Circular Economy or not, the Circular Economy Finance Guidelines
propose to assess three elements for the use of investments:
1. Business model assessment (future and current);
2. Impact assessment;
3. Exclusions and conditions.
The Guidelines propose to consider both the business model and the socio-economicimpacts (includes environmental impact) in the circular assessment of the company orproject. Only propositions based on a circular business model that generate long-term
positive impact should be considered circular propositions. The following are
typical business models of the circular economy, circular economy business models:
1.	Circular Inputs: Companies/projects that substitute virgin raw materials with secondary(recycled) materials originating from materials and resources recovery.
2.	Circular design: Companies/projects that eliminate/reduce input of hazardous/toxic
materials and design for modularity, easy disassembly and repair to facilitate recycling,reuse, life time extension.
3. Sharing business models: Companies/projects that increase the capacity utilisationof a product or asset during its useful life (e.g. through sharing and/or predictivemaintenance). Sharing is circular when it optimizes the utilisation of the product or asset.
4.	Life Time Extension: Companies/projects that increase Reuse/Refurbishment/
Remanufacturing to extend the useful life of products and assets.
5.	Product-as-a-service: Improve the circularity of the whole supply chain throughproduct-as-a-service offerings based on•	a changed ownership structure, where the ownership of an asset remains with thesupplier;•	improved collaboration and alignment of interests between partners in the value
chain (e.g. sharing of costs and benefits);•	improved traceability of products and materials.
6.	Material/resources recovery: Companies/projects dealing value recovery from wastes,
be it materials, heat, bio-wastes or waste waters. These Guidelines consider recycling
as a circular economy business model that recovers value from end-of-life materials
and products.
7.	Circular facilitators and enablers: Establish networks and collaborate with facilitatorsin the circular economy such as consultancy, engineering, knowledge and data
providers or accounting firms, facilitating the shift to a circular economy. Thesefacilitators include their role in the circular economy in their business purpose orstrategy. Some examples are:•	Development of key enabling technology with circular economy applications(e.g. 3D printing);•	Facilitation of reverse logistics;•	Knowledge gathering and sharing on organizing the circular economy;•	Designing (measurement) tools for the circular economy;•	Setting up and/or operating marketplaces for used materials;•	Setting up and/or managing data repositories for material passports.
Impact Assessment1.	The Guidelines recommend to qualitatively and quantitatively assess the (expected)
environmental impact of the company or project (e.g. by use of the LCA method orequivalent accepted by investors) focusing on material, energy and water use, waste
generation, pollutant emissions, CO2 and other climate relevant emissions.
2.	The Circular Economy Finance Guidelines recognise the overarching importance ofworking conditions, human rights, gender equality, health and other determinants ofwellbeing. These social aspects apply to all types of economy, both the circular and thelinear economy. The Guidelines therefore propose:•	to cover these social aspects in the overall ESG4 policies and human rights
statements of debt and equity providers;•	to monitor the company’s ESG performance over time.	Environmental, Social and Governance policies and4criteria.

3Exclusions and conditions
1.	Waste projects that use landfill techniques, without going to the fullest effort todivert recyclable materials are excluded i.e. all recycling that is both economicallyand technically feasible. Projects that monetise by-products of fossil fuels and create
further lock-in for fossil fuel usage are also excluded from the Guidelines, since they
are part of the more traditional linear take-make-waste value chains.
2.	Responsibly managed projects with a positive socio-economic impact that are part oflarger circular value chains aiming at closing resource loops for fossil based wastes,
i.e. recovery and recycling of fossil fuel wastes or plastics-to-fuel conversion, may beconsidered as circular.
3.	The Circular Economy Finance Guidelines recommend not to classify renewable energy
projects – for example solar, wind and hydro energy - as circular economy projects.
However, the production/use of renewable energy is a vital ingredient of a circulareconomy.
4.	Biomass and bio-waste to energy projects can be classified as circular economy
projects under certain conditions:•	if they are part of larger circular value chains that aim to close material loops i.e.
feedstock is separately collected at source and byproducts are used as fertilizers;•	where the biomass originates from sustainable sources and/or is a non-recyclable
and non-hazardous waste.
5.	Resource efficiency measures are only considered circular where these incorporate theclosure of material and resource loops. Resource efficiency measures that are linear innature are excluded.

2. Process for Project Evaluation and Selection

Main contributors
ABN AMRO: Jan Raes, Hein Brekelmans
ING: Gerben Hieminga, Joost van Dun,
Mirjam Bani
Rabobank: Alain Cracau, Debbie Rooms,
Richard Piechocki
Ellen MacArthur Foundation: Gerald NaberThanks to all other contributors / reviewers ofthe FinanCE working Group Members at ABN
AMRO, Banco Intesa San Paolo, BNP Paribas,CDC, Circle Economy, Circularity Capital, Danish
Business Authority, EBRD, EIB, Ellen Macarthur
Foundation, ING, KPMG, PGGM and Rabobank
Publication Date: July 2018

Disclaimer
The Circular Economy Finance Guidelines’ purpose
is not to take a position on which companies,projects, standards, claims and declarations areoptimal to assess the circularity of a company orproject. There are many institutions that provide
independent analysis, advice and Guidelines on
the quality of different measurement tools andenvironmental practices.
These Guidelines are inspired by the Green Bond
Principles of the International Capital MarketAssociation (ICMA). The purpose of this Guidelines
document is to facilitate and speed up thethinking process on Circular Economy Finance.
4Financiers should clearly communicate to stakeholders either per project/deal or for theentire finance portfolio:• The process by which the issuer determines how financial products fit within the eligible
circular economy business model or impact categories identified above;• The related eligibility criteria, including exclusion criteria or any other process applied
to identify and manage material risks;• The environmental and social sustainability objectives and performance of the project/deal or portfolio.

3. Management of Investments
The Guidelines recommend that the investments (or an amount equal to the investments)from the Circular Economy Financing should be transparently tracked in the accounts of
the receiver of these funds, in order to verify that investments keep contributing to theshift towards a circular economy during the lending/investment period.

4. Reporting
Financiers that want to prepare their finance administration for traceability andauditability should make, and keep, readily available up to date information on their debt
and equity activities to support the transition towards a circular economy. Transparency
is of particular value in communicating the expected impact of projects or portfolios.
The Circular Economy Finance Guidelines propose the use of performance indicators– qualitative and, where feasible, quantitative and disclosure of the key underlying
methodology and/or assumptions used in the quantitative determination. TheseGuidelines encourage further initiatives, to help establish additional references for impact
reporting in the circular economy that others can adopt and/or adapt to their needs.
External Review
It is recommended that financiers use an external review to confirm the alignment of
their circular economy portfolio with the key features of the Circular Economy Finance
Guidelines as defined above, for example by ‘second party opinions’ or throughverification by qualified parties, such as auditors. Review can be optional.
Note that, as of to date, no globally recognized circular certifications exist for circularcompanies, projects or products. The cradle to cradle certification might come closest but
this is only on product level, not on a project or company level which is more relevant
for finance. As a result, financiers cannot have their procedures or products certified by acircular economy standard which is tested by qualified third parties. The Circular Economy
Finance Guidelines encourage the exploration of certification initiatives.