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Circular Economy, Banks, and Other Financial Institutions: What’s in It for Them?

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  • Peterson K. Ozili

    (Central Bank of Nigeria)

Abstract

The circular economy agenda is widely seen as a response to climate change and is forcing societies to re-evaluate how resources are used towards creating a sustainable economy that is free of waste. Financial institutions are being pressured to finance circular projects and investment. But for financial institutions to participate in the circular economy, there must be a clear benefit to financial institutions. In this paper, I highlight the benefit of the circular economy to banks and other financial institutions. The paper uses discourse analysis methodology to present an overview of the circular economy concept and the benefit of the circular economy to banks and other financial institutions. The findings show that some benefits of the circular economy to banks include the following: (i) greater loan diversification opportunities, (ii) promotes responsible and sustainable banking, (iii) increased lending to circular clients and the recycling sector which means more profit for banks, and (iv) correcting the bad perception about banks in society. Some benefits of the circular economy to other financial institutions include the following: (i) issuance of special insurance policies for reused products; (ii) greater sustainability-adjusted return on investment; (iii) greater funding to microfinance institutions; and (iv) more opportunities for collaborative funding to circular businesses. This study contributes to the scant literature that examines the role of the finance industry in the circular economy.

Suggested Citation

  • Peterson K. Ozili, 2021. "Circular Economy, Banks, and Other Financial Institutions: What’s in It for Them?," Circular Economy and Sustainability, Springer, vol. 1(3), pages 787-798, November.
    • Handle: RePEc:spr:circec:v:1:y:2021:i:3:d:10.1007_s43615-021-00043-y
    DOI: 10.1007/s43615-021-00043-y
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    Cited by:

    1. Biljana Petković & Yousef Zandi & Alireza Sadighi Agdas & Ivica Nikolić & Nebojša Denić & Nenad Kojić & Abdellatif Selmi & Alibek Issakhov & Slaviša Milošević & Afrasyab Khan, 2022. "Adaptive neuro fuzzy evaluation of energy and non‐energy material productivity impact on sustainable development based on circular economy and gross domestic product," Business Strategy and the Environment, Wiley Blackwell, vol. 31(1), pages 129-144, January.
    2. Peterson K. Ozili, 2022. "Circular Economy and Central Bank Digital Currency," Circular Economy and Sustainability, Springer, vol. 2(4), pages 1501-1516, December.
    3. Van Hoof, Bart & De Miguel, Carlos J. & Núñez Reyes, Georgina, 2023. "Scaling up circular economy initiatives in Latin America and the Caribbean," Documentos de Proyectos 48835, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Sarah Muhanna Naimi, 2022. "Economic Diversification Trends in the Gulf: the Case of Saudi Arabia," Circular Economy and Sustainability, Springer, vol. 2(1), pages 221-230, March.
    5. Mohd Rizaimy Shaharudin & Dahlan Abdullah & Amir Imran Zainoddin & Rafeah Legino & Preecha Wararatchai, 2024. "The Evolution of Circular Economy: A Literature Review on Sustainability Transitions and Challenges," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(10), pages 102-115, October.

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    More about this item

    Keywords

    Circular economy; Linear economy; Banks; Financial Institutions; Criticism; Sustainability; Climate change; Waste; Insurance; Sustainable finance; Sustainable banking; Hedge funds; Microfinance institutions;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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