4.5 Circular economy financing and strategies

Moving to a circular economy requires adequate investments as well as strong governance to support fundamental changes from linear to circular business models, practices and behaviours. This briefing aims to assess if adequate funding via both public and private investments is in place to make the transition happen, and if it is supported by national strategies and action plans. Broader governance aspects currently cannot be assessed. All cost information refers to constant prices fixed to 2024 (EUR₂₀₂₄).

Key policies

Finance: although there are no quantitative targets on financing the transition to a circular economy, the circular economy action plan 2020 (CEAP) calls for measures that steer financing towards more sustainable production and consumption patterns. The sustainable finance agenda includes several measures that aim to redirect investments towards circularity (see briefing 4.12 Financing the transition towards sustainable activities).

National Strategies: the CEAP requires the European Commission (EC) to ‘reinforce the monitoring of national plans and measures to accelerate the transition to a circular economy’.

Past trends (10-15 years)

Improving trends/developments dominate

Private investments and gross value added in circular economy-related sectors (recycling, repair and reuse, rental and leasing) have increased by 36% and 15% in real terms, respectively, in the period 2010-2023 (Figure 1). Lending from the European Investment Bank (EIB) into the circular economy has increased as well; this can be used as a proxy for circular economy funding in general, although many EIB-funded projects are still waste-related.

Funding for the circular economy in the EU’s 2014-2020 programming period was mainly used for waste management, with much less spent on the circular design of products and production processes. For the 2021-2027 programming period, the emphasis is shifting towards the circular economy at large, but Member States may still use a substantial amount of the available funding for waste management.

The number of EU Member States that have adopted circular economy roadmaps, strategies and action plans has increased from 0 to 24 since 2015 (Figure 2).

Outlook (10-15 years)

Trends/developments expected to show a mixed picture

The investment needs for implementing all adopted circular economy policies and measures, as well as reaping wider circular economy investment opportunities in food, housing and mobility, are estimated at EUR₂₀₂₄ 170 billion per year, with a financing baseline of EUR₂₀₂₄ 141 billion per year, leaving an investment gap of around EUR₂₀₂₄ 29 billion per year until 2027 (an overall increase of 21% above the baseline). A more recent and more comprehensive assessment which extends to 2040 indicates a considerably higher investment need and considerably higher financing gap for the implementation of the circular economy in the EU, based on the sectors and actions included in the CEAP of 2020.

Policies outside the realm of the circular economy are likely to drive investments within it as well. For example, the circular economy is increasingly seen as a contributor to Europe’s strategic autonomy, as exemplified in the Critical Raw Materials Act and the EU’s industrial policy. Future increases in the costs for emitting greenhouse gases could increasingly turn industry’s attention towards secondary raw materials and material efficiency. The implementation of the new Ecodesign for Sustainable Products Regulation should mobilise private capital for increasing product circularity in the EU market. Sustainable finance measures can redirect investment from linear to circular activities (see briefing 4.12 Financing the transition towards sustainable activities). The increasing number of national circular economy strategies is likely to mobilise additional funding for circular economy measures.

It is expected that European countries will increasingly develop, implement and revise circular economy strategies. The European Council recommends increased action by both the EC and EU Member States.

Prospects of meeting policy targets 2030/2050

2030: No specific policy targets

2050: No specific policy targets

Robustness

Data on private investment trends in circular economy sectors are robust and included in regular EU statistics. However, data on public sector investments in circular economy beyond waste management are lacking. Data on circular economy strategies have been collected by the EEA through collaboration with its country network, Eionet, and can be considered robust. However, the circular economy concept is still relatively new and similar strategies have been available before under different headings. The assessment of outlooks is based on expert judgement. Estimates on investment gaps beyond waste management are rather uncertain, given that details about circular economy policies such as the implementation of the Ecodesign of Sustainable Products Regulation still need to be further defined. To ensure inter-comparability, all cost values have been inflated to EUR₂₀₂₄ constant prices.

Charts/maps

Figure 1. Private investment and gross value added in circular economy sectors (recycling, repair and reuse, rental and leasing), at 2024 prices, 2010-2023

Figure 2. Countries with nationally-adopted circular economy strategies, roadmaps and action plans