Bridging the gap between financial institutions and Product Service Systems to foster the Circular Economy transition in the Netherlands

Abstract

The historically high material consumption and natural resource extraction demands action is taken to reverse the trend of an economy that creates value based on the linear model of take-make-waste at high and irreversible environmental costs. The urgency to change this trend is clear from the fact that materials being reused has dropped from 9.1% to 8.6. in the last couple of years. A smart alternative to the linear model of production and consumption is the circular economy to close material loops and release the stress on producing more with increasingly more scarce natural capital. To reach the goal of becoming fully circular by 2050, research emphasizes the need to support the growth of Circular Business Models that follow strategies of reusing, refurbishing, repairing, and recycling products to extend the use of life of products. Product-as-a-Service is analyzed in this thesis as it is one of the circular businesses with the most potential to mitigate harmful environmental impact. This is so because it connects profitability to the incentive of producing more circular designs since manufacturing, a more efficient use, and a recovery of the value after use.

Despite its benefits, PaaS faces barriers to obtain financing that is essential for its growth. This thesis searched for the barriers to PaaS financing and analyzes potential solutions to overcome these bottlenecks from the perspective of financiers in banks and investment funds. Interviews with financiers on their experience financing PaaS and literature on the relevant financial concepts are the main methods to achieve this goal.

The barriers identified are financial risk triggers, regulatory and circularity-related bottlenecks The pathways to overcome them are equally threefold and require intervention not only from banks but also from the Dutch government and European institutions to materialize.