A look at the bottlenecks - Circularity activates the economy for people and nature

In the National Circular Economy Programme 'Nederland Circulair in 2050', a number of priorities are identified, such as biomass as a raw material, reducing the use of plastics, and sustainability opportunities in the manufacturing industry and construction, as well as around consumer goods. 

"It is important to keep in mind that circularity is a means, not an end in itself", says Lucas Lemmens, business development manager at Invest-NL. "The goal is to live in a world that is ecologically and socially balanced. Essentially, it's about a fair distribution of prosperity, clean air and water, and functioning, healthy biodiversity. So that future generations and other life on Earth can also have a home here."

"A mismatch has arisen between what the financial system considers valuable and what society regards as valuable," says Maud Hartstra, also business development manager at Invest-NL. 

"What people care about is contact with others, being healthy, feeling good; well-being! But in the economic and financial system, it’s almost solely about returns, profit, and efficiency. Economic growth and financial interests often come at the expense of social and ecological values. Therefore, a reassessment of what is truly important is needed in the economy. So that the economy becomes a means to promote those values and a habitable planet, rather than threatening it. Circularity helps with this."

Funding Gap

Additionally, companies operating circularly encounter the issue that funding instruments do not align well with each other. ‘In the idea phase or the research and development phase, there are often small grants available because the government wants to stimulate this type of business,’ says Lucas. ‘But when you need to start operating as a “real” company, you fall into the first funding gap. Then you are often reliant on venture capitalists or so-called business angels, who are willing to invest at most a few hundred thousand. If you want to scale up afterwards, you are quickly talking about millions, falling into the next funding gap, which is also called the valley of death.' 

There are also non-financial bottlenecks, such as finding suitable testing locations, or issues like grid connections and permits.

Lucas: "If you want to produce a product from a residual flow that is classified as waste under regulations, you face a huge licensing process." There are also many questions within accounting regarding circularity, such as determining the residual value of products. Whereas in a linear economy, products are depreciated to ‘economically worthless’, in a circular economy, products retain their value, and sometimes even additional value can be added. 

Overall, it is often still complex for involved parties to work from a chain perspective. Maud: "It’s about not only focusing on your own company, but also on what happens before and after your company with raw materials and products. How do you keep products in use for as long as possible, and how do you get the materials back afterwards? That’s why transparency in the chain, collaboration, and long-term thinking are very important in a circular economy." Ultimately, it’s about ensuring that every circular entrepreneur understands precisely what their position is in the chain, in the ‘ecosystem’. "And not only the circular entrepreneur, but also financiers & policymakers have a responsibility to work from a chain perspective. Only then can circularity become the norm."

Invest-NL is also Chair and Program Manager of Kopgroep Circulair Financieren. This is a unique network, established at the request of the Ministry of Infrastructure and Water Management, within which parties from the financial sector collaborate to make circular financing the norm by 2030. An important goal is, for example, to broaden the range of financing instruments for circular entrepreneurs. 

Among other outcomes, this Kopgroep has resulted in the Circular Risk Scorecard. ‘Banks always look back at the past figures when assessing a credit application,’ says Lucas. "But circular startups often do not have those. For such companies, you need to look to the future. The Circular Risk Scorecard is an alternative risk model for banks that also considers the added value of circular enterprises." Future conditions are also taken into account, such as upcoming changes in legislation and regulations that are advantageous for circular entrepreneurs. Another project from the Kopgroep is the circular facade of the company Ciskin, which is supplied to TU Delft. The facades are not purchased but delivered under the ‘product as a service’ model. Ciskin remains responsible for maintenance after delivery, and the facades can be dismantled and reused over time. Normally, a facade lasts about thirty years, but with this model, that extends to fifty or sixty years. Ciskin thus remains involved with and responsible for the product. "This requires a different way of financing: not in a single company for one facade, but across the entire chain," says Lucas. "It only works if there is trust and transparency within that chain."

Connecting Parties 

Another example of this ‘chain thinking’ can be found in a research report by Invest-NL on the textile industry. ‘We have mapped textile flows and identify the barriers and opportunities for circular business models such as repair and re-use,’ says Maud. "A barrier is, for example, that second-hand clothing items fall under the same VAT rate as new clothing and that major brands are not yet willing to purchase many recycled materials. We are now exploring the possibilities to develop financing products and to encourage more collaboration."

Collaboration is essential, because change is needed in many different areas to realise the circular economy. That’s why recurring elements in the work of Business Development at Invest-NL include connecting parties, gathering information, mapping chains, and sharing knowledge. 

"When regulations act as obstacles, particularly around waste and what you can do with residual streams, we facilitate consultations, for example, in a triangular collaboration between companies, authorities, and investors," says Lucas.  

Furthermore, in 2024, Invest-NL will join the Joint Initiative Circular Economy (JICE), a unique partnership of European promotional banks funding projects that accelerate the transition to a circular economy. Last year, Invest-NL invited all JICE members to share best practices and to set the direction of JICE. "Many chains cross national borders, so you really need the European scale of cooperation and financing here," says Maud.