Increasingly, financial institutions are looking to align business decisions with environmental principles.

By Paul A. Davies and Michael D. Green

ABN AMRO, ING, and Rabobank have teamed up to publish guidelines for investing in the circular economy. The banks have designed the guidelines to help financial services companies around the globe transition towards a circular economy by increasing capital allocated to projects with circular business models (CBMs). These are business models that “strive for 1) employing fewer materials and resources for producing products and/or services; 2) extending the life of current products and/or services through refurbishment and remanufacturing; and 3) closing the loop of products’ life by recycling. In short, CBM seeks to reduce, retain, and recycle.” [1]

The banks are closely linked to the UK-based environmental charity Ellen MacArthur Foundation which was one of the first to “define and conceptualize the circular economy” and stresses the “crucial role” the financial industry plays in accelerating the transition to a circular economy.

The guidelines help financial services companies to identify whether initiatives are consistent with CBMs and encourage the financial industry to assess the environmental consequences of an investment, in particular, the pollution that results from the investment and the material, energy, and water used.

Annemein Kolk, head of commercial banking at ING Nederland, noted the dearth of generally accepted guidance in the industry and said the guidelines should “offer a starting point for what we can see as circular initiatives in our industry”.

Major mainstream businesses are increasingly expressing the idea of supporting the environment, or limiting environmental damage through business decisions.

Latham will continue to monitor the effect of these guidelines.

This post was prepared with the assistance of Olivia Featherstone in the London office of Latham & Watkins.