For a significant amount of time, the global economy has been dominated by a linear model that follows a ‘take-make-dispose’ approach – taking the resources one needs, making profits and disposing anything that is redundant. The realization that this model is highly unsustainable and degenerative has paved the path towards Circular Economy (CE), a fresh development paradigm that integrates economic activity and environmental well-being. CE is fundamentally based on three principles: design out waste and pollution; keep products and materials in use; and regenerate natural systems. It focuses on establishment of eco-friendly infrastructure and businesses that address the finite resources crisis, foster green growth and maximize ecosystem functioning. Additionally, it recognizes the importance of the economy working effectively at all scales, and creating an economy that is distributed, diverse, and inclusive.
Globally, this model has already been welcomed and governments, central banks, and financial regulators work together to complement and enable the shift towards a circular economy. The government invests directly and indirectly in circular economy activities and enhances transparency by standardizing definitions and metrics for circular activities. For example, EU Taxonomy. Furthermore, central banks and financial regulators integrate circular concepts in risk assessments and modelling, with blended finance solutions (combining public, private and philanthropic capital) serving as a key to financing. Across the world, in the past three years there has been a considerable growth in the capital market for circular economy, with steep increase in the creation of debt and equity instruments related to the circular economy. While no such fund existed in 2017, by mid-2020 ten public equity funds focusing partially or entirely on the circular economy had been launched by leading financial service providers including Goldman Sachs, BlackRock, and Credit Suisse.
In Nepal, even though circular economy has been in practice in fragments, consciously or subconsciously, its full potential can only be unlocked when it is synced with the daily aspirations and routine of the population and the legal mechanisms of the state. All the stakeholders of the Nepali economy need to buy into this model, including banks and financial institutions, ministries and the general public. Particularly, in a developing country like Nepal where banks and financial institutions have a considerable influence on the economy and the stock market, they can be the key enablers of the circular economy model. In Nepal, investors, banks, and other financial services firms have the scale, reach, and expertise to stimulate and support businesses to make the shift towards a circular economy. Furthermore, banks and financial institutions are seen as the most accessible source of finance across the country. They can also actively engage with and encourage companies across industries to adapt to more sustainable and climate-smart models. Many companies reach out to these institutions to meet their capital requirements. Banks and financial institutions (BFIs) can push these companies towards Environmental, social and governance (ESG) practices and circular economy opportunities, through consultations. Additionally, adopting circular practices would also enable Nepal to fast-track its aim to achieve Sustainable Development Goals (SDGs).
Moreover, ecosystem players like venture capital and private equity, development banks and development finance institutions (DFIs) have also shown active interest in the circular economy globally, and the case should be no different for Nepal. These players that are growing in scale and volume over the past few years can invest in companies that may be too small for larger commercial banks, tapping a different but significant market. Private equity and venture capitals (PE/VCs) and DFIs can provide innovative financing solutions, which include blended forms of financing for these companies. For example, Doko Recyclers, a company focused on turning waste into resources was one of the beneficiaries of interest, collateral free loans from Laxmi Bank through One to Watch managed COVID Fund which is supported by FMO and Swiss Agency for Development and Cooperation.
Financing circular companies is not only beneficial for the ecosystem but also beneficial for the financial institution as the circular economy offers tangible new revenue and cost saving opportunities for business. For example, in fashion, clothing resale is expected to be bigger than fast fashion by 2029. Furthermore, circular practices of reuse and recycle allow companies to overcome supply chain vulnerabilities that crises like Covid-19 expose. In addition, building circular economy expertise and know-how can help local financial institutions to engage with international corporate clients, for whom the circular economy has increasingly become a topic of discussion. It can also allow such institutions to actively generate financing and advisory business, where they assist clients in shifting towards circular practices. Proactively engaging and investing in circular companies, can also ultimately reform the “profit-driven” image that banks and financial institutions in our country seem to have. It can enable and inspire the financial services sector to develop its role as a positive force in the community.
 Ellen MacArthur Foundation, “Financing the circular economy”