Making sustainable finance taxonomies work for the circular economy

Think tank: Chatham House

Author(s): Dr Jack Barrie; Dr Patrick Schröder; Suzannah Sherman

June 15, 2023

This report from UK think tank Chatham House looks at lessons from the EU Taxonomy.

Circular economy initiatives face a significant gap in the availability of finance. Annual worldwide circular economy spending by the corporate sector is estimated at around $850 billion, compared with $35 trillion spent on existing ‘linear’ economic models. Awareness of the circular economy among investors and in the financial sector generally is still low, and there is a lack of tools available with which to define and measure those activities that substantially contribute to the circular economy transition, as well as the investment opportunities and risks associated with those activities. Sustainable finance taxonomies – i.e. shared classification systems for defining environmentally sustainable investments – could help unlock the additional investment needed. The EU’s Sustainable Finance Taxonomy is the most ambitious and comprehensive existing taxonomy, and includes the transition to a circular economy as one of its key objectives. This research paper presents a detailed case study of the EU Taxonomy and identifies the unique challenges associated with embedding the circular economy, with the aim of informing the development of similar taxonomies elsewhere.