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From barriers to opportunities: Enabling investments in resource efficiency for sustainable development
Florian Flachenecker* 
Jun Rentschler*
Jun Rentschler
Affiliation: The Payne Institute for Public Policy, Denver CO, USA
 0000-0003-0667-1975
Article | Year: 2019 | Pages: 345 - 373 | Volume: 43 | Issue: 4 Received: August 11, 2019 | Accepted: September 26, 2019 | Published online: December 1, 2019
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
Note: Underinvestment in resource efficiency can be due to various market or government failures. Barriers extend from the individual level, to firms and governments. Systemic risks and uncertainty do not necessarily cause inefficiency – but they may exacerbate the adverse effects of existing barriers.1 Source: Rentschler, Bleischwitz and Flachenecker (2018).
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Potential costs and benefits of
investments in resource efficiency
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Benefits
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Costs
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Environmental
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Economic
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Environmental
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Economic
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Business as usual
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No initial (and follow-up) investments costs
Lower compliance costs of environmental regulation
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Environmental pressures (negative externalities)
Reduced human health and natural capital
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Firm level costs (e.g. exposure to volatility)
Country level costs (e.g. import dependency)
Lock-ins
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Scaling up RE
investments
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Reduced environmental pressures (negative externalities)
Reduced negative impacts on human health and natural capital
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Hedging against material
price volatility
Improved firm and country
level competitiveness
Eco-innovation activity
Reduced environmental and
social liability (i.e. improved corporate image)
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Positive relationship between the intensity of exploitation and
environmental impacts
Rebound effect
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Initial investment and maintenance costs (incl. transaction costs)
Opportunity costs
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Note: The framework distinguishes between two scenarios (business-as-usual and scaling up resource efficiency investments) and two dimensions (environmental and economic). Source: Flachenecker, Bleischwitz and Rentschler (2018).
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Bank
finance
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Corporate
debt
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Traditional
corporate lending to finance circular businesses with guarantees at corporate
level.
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Lease
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Can
fit pay per use earning models. Applicable to clients that are creditworthy
and products with predictable residual values in second hand markets.
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Factoring
& supply chain finance
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Can
solve the pre-financing issue of pay per use earning models by selling
uncertain future cash flows to a financial institution.
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Structured
finance
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Can
be a financing option for large stand-alone circular projects.
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Balance
sheet reduction through off balance finance
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Can solve the issue of balance sheet extension.
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Capital
Markets
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Equity
finance: initial public offering
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Valuable
sources of finance for mostly larger and mature circular businesses that meet
the scale and requirements of the capital markets.
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Debt
finance: Green bonds
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Impacts
investors
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Most circular businesses are still at their pilot stage, are not
profitable yet, or are lacking a track record. Non-commercial finance can
bridge the gap from pilot stage to growth stage, as they have a longer-term
view, more ‘patient’ investors, and have a risk/return that is less linked.
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Venture
capital, private equity, family offices
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Finance source for the many start-up businesses in the circular
economy. However, their requirement for high growth and relatively fast
payback horizons might limit suitability for circular businesses.
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Near banks
like Google, Apple, Amazon etc.
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Offer new payment facilities and possibly working capital solutions.
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Crowd funding
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Peer2Peer
lending
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Finance
source for circular businesses that involve the (local) community or those
based upon ideas that appeal to the crowd.
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Equity
investment
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Source: (Goovaerts and Verbeek, 2018).
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Micro (i.e. firm) level
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Macro level
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Technical Assistance
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Project Lending
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Technical Assistance & Policy Reform
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Development Lending
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Addressing the
Symptoms of Market Distortions
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Efficiency audits
Identification of specific projects
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Installation of cleaner production
infrastructure
Modernisation of production processes
Retro-fitting
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Building strategies to improve material recovery from waste
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Addressing the
Structural Causes of Investment Barriers
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Building technical and managerial capacity
Establish systems for monitoring performance
& info. disclosure,
Awareness building
Disseminate information & technologyFoster
R&D and innovations
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Infrastructure for information sharing and
training
Infrastructure to link markets (e.g.
transport infrastructure linking supply & demand for recycled materials)
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Institution building
Fiscal policy reforms (e.g. energy subsidy
reforms, waste tariffs)
Legal requirements for monitoring and
disclosure of efficiency performance
Strengthening the financial
sector
Dedicated lending facilities for resource
efficiency projects
Foster competition
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Developing markets and infrastructure
Strengthen macro-economy
Institution building
Direct support to research & innovation
Green growth strategies
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Note: This typology presents a toolbox for micro and macro interventions for enhancing resource efficiency. The categorisation is indicative and not definite: For instance, micro level measures may eventually lead to more structural macro improvements. Source: Rentschler, Bleischwitz and Flachenecker (2018)
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December, 2019
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