Financing-Related Drivers and Barriers for Circular Economy Business: Developing a Conceptual Model from a Field Study

Abstract

AbstractThe transition toward sustainability and the circular economy is shaping technology investment and business, leading to there being growing interest in financial aspects of circular economy businesses. As research on circular economy drivers and barriers, in addition to the literature on circular economy business and finance, has not yet provided a comprehensive view on drivers of and barriers to circular economy business financing, this study takes a theory-developing qualitative approach. It integrates extant theoretical knowledge and empirical new insights from an extensive field study in Finland, Europe, based on over 270 data sources, including interviews, workshops, reports, and media documents. From these data sources, this paper analyzes and conceptualizes the driving and inhibiting factors that have shaped the sources, criteria, and subjects of circular economy business financing. The study results that the sources of financing—being public and private sources—apply diverse criteria for financing, such as valuation and profitability of circular business models, their type, investment costs, and their business potential for financing industry itself, when they assess different subjects of financing, such as individual companies’ circular businesses, supply chains, and joint projects. Findings show that many factors that could serve as drivers have considered inhibitors. As a theoretical contribution, our study develops a conceptual model on the key factors shaping the financing of CE businesses and set of propositions on these factors inhibit and drive CE financing. Our findings provide guidance for practitioners such as managers and policy makers who aim to advance circular economy business.