Research: $1.3tr global circular economy investment 'far below' what is needed

Over $1.3tr is spent globally by governments, businesses, and investors on initiatives to reduce waste and repurpose old products and resources each year, but such funding still falls far below the level needed to reap the full benefits associated with building a greener and more circular economy.

That is the conclusion of a major new study today from Chatham House and research specialists Just Economics, which they claim offers the first estimate of its kind of the scale of global investment going towards circular economy initiatives such as recycling infrastructure, repair services, and more sustainable and efficient product design.

It estimates companies invest around $800bn a year in the circular economy, on top of $510bn from governments, and $46bn from financial institutions and investors. However, these figures pale in comparison to the amounts invested in the traditional 'linear' economy where products and resources are often used just a handful of times before going to waste.

In comparison, corporate investment in the linear economy amounts to around £35tr each year, while government investment amounts to around $13tr, dwarfing the level of investment in the circular economy, it said.

Even in sectors where circular economy thinking is relatively advance, investment in linear approaches still dominates. For example, of the $800bn of corporate finance going towards circular economy initiatives, the fashion and automotive sectors attracted the most investment. But the study estimates circular initiatives accounted for just five per cent of spending in the fashion industry, driven by a growing market for more environmentally-sustainable fibres now worth around $40bn. In the automotive sector, meanwhile, circular economy spending madeu p six per cent of investment, with the rapidly accelerating drive towards electric vehicles (EVs) having seen growing investment in improving battery technology and vehicle sharing and renting systems.

At the other end of the spectrum, agriculture is seeing minimal levels of circular economy investment, with circular projects accounting for just 0.1 per cent of the sector's $8tr economy.

But the report argues that, as well as being crucial to combatting environmental crises such as climate change and biodiversity loss, circular economy initiatives can offer major benefits in helping to tackle poverty, build more resilient economies, and boost the bottom line for companies.

The report also points out that the UN's Sustainable Development Goals (SDGs) related to the circular economy are the least well funded. SDG 12, which covers sustainable production and consumption, attracted just one to two per cent of official development assistance spending between 2021-2017, it found.

"Recycling, reusing materials and reducing waste makes clear business sense, which is why spending on the circular economy is rising rapidly," explained Patrick Schröder, senior research fellow at Chatham House. "However, funding remains far below where it needs to be to reap the full investment rewards. Moving from a linear ‘take-make-throw away' economy to circular, sustainable business models will create jobs, promote investment and protect the planet."

Schröder also warned that other growing areas of the green economy vital to decarbonising the economy - such as renewable energy and batteries - should not automatically be viewed as environmentally 'sustainable'.

"Many low-carbon technologies are hugely resource-intensive, such as the dwindling and precious metals used for batteries, the iron for wind power and the sand and lithium we use for solar panels," he explained. "To be truly sustainable, new technology needs to be built according to circularity principles - designed for durability, job creation, reuse and remanufacturing."