Since 2018, Amsterdam-based impact organisation Circle Economy has analysed the circularity of the global economy—singling out the share of secondary materials flowing into the economy in a single figure. Their latest Circularity Gap Report, released earlier this year, found that just 6.9% of global materials are cycled back into use—down from 9.1% in 2018. It’s a sobering figure, especially in a world increasingly grappling with the consequences of supply chain shocks, resource scarcity, and climate breakdown.
Materials have always been at the centre of this story—but it’s becoming increasingly clear that they’re only a part of it. If capital is not effective in scaling the most transformative applications of circularity—for key business models in key value chains—then it is unlikely this downward trend will reverse. However, just as we once lacked a global view on material flows prior to 2018, until now we have not had a comprehensive understanding of capital flows to the circular economy.
The recently-launched Circularity Gap Report Finance, authored by Circle Economy, in collaboration with KPMG and with support from the International Finance Corporation, provides this insight. It shows that a strikingly low share of capital is directed towards circular business models: just 2%* of tracked investment is supporting the kinds of solutions that keep products and materials in use longer, reduce dependency on finite resources, and offer a roadmap for more resilient economies. Of the businesses that do receive funding, the bulk reflect conventional applications of circularity—the second-hand sale and repair of vehicles, for example—rather than those that truly rethink our relationship with resources. This is more than just a missed environmental opportunity: it’s a wasted economic one.
A trillion-euro opportunity lying dormant
Despite slow uptake in many parts of the world, the circular economy could offer a major macroeconomic opportunity: in Europe alone, circular strategies applied across sectors like construction, food, and transport could generate €1.8 trillion in economic benefit by 2030. These strategies aren’t utopian—they already exist, but often lack capital, and struggle to compete on an uneven playing field. More accurately valuing resources and understanding where—and why—these opportunities aren’t being leveraged is essential to bridging the finance gap, ultimately driving progress towards a more circular economy.
The last six years saw a surge in investment in businesses engaging with the circular economy, according to the report’s analysis: it peaked at US$42 billion in 2021 before dropping back down to US$28 billion in 2023. While some of this fluctuation mirrors global economic uncertainty—including pandemic-related disruptions and ongoing inflationary pressures—the underlying trend is more worrying: we aren’t scaling the models that best revert our over-reliance on scarce materials. Despite some improvements, the Circularity Gap Report Finance reveals a disconnect: while the circular economy is one of the most promising routes to broad value generation and risk mitigation, financial systems are spurning the opportunity to unlock its full potential.
We’re funding the familiar, not the transformative
Between 2018 and 2023, nearly half (49%) of all circular economy investment went to recovery-based business models: recycling, composting, and waste management. While necessary, these strategies offer limited gains in resource efficiency. More transformative approaches—like designing products for durability, reuse, and modularity—received just 8% of investment in circular business models. These strategies offer potential to minimise waste and get the most out of materials from the outset, offering greater value retention than the end-of-pipe solutions currently receiving funding.
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Circular business models focused on prolonging the products' lifetime, such as repair, are more impactful than recovery models. Photo by Luba Glazunova.
Investment patterns also reveal a sectoral mismatch. Within the priority sectors identified in the report, the business models receiving the bulk of investment reflect conventional applications of circularity that have existed for decades: car rental and repair dominates the Transportation sector, refurbishment and second-hand sales dominate in the Electronics and IT sector, and Agrifood investment is heavily centred on organic waste recovery. Although a good start, none of these activities have been sufficient in driving a circular economy transition—yet together, they receive over one-third of all investment in circular business models. This is in part because these sectors deal in products that retain economic value over time—such as cars and electronics—making them more attractive for resale, repair, or reuse. Transport, for example, accounts for 5% of global resource use but receives a quarter of circular investment, driven by the dominance of high-value consumer products in secondary markets. By contrast, the construction industry—responsible for nearly half of global resource extraction—receives just 8% of funding.
Put simply, we’re not funnelling capital where circular impact can be made.
Growth in private finance signals increased recognition of the business case—but the ‘Valley of Death’ remains a particularly pronounced challenge
Breaking down the origin of tracked circular investments proves the circular economy’s business case: the lion’s share of commercial circular economy investment—around 73%—comes from private actors. Commercial banks lead (providing 39%), followed by private equity firms (12%), asset managers (9%), and investment banks (7%). This is a promising signal, as private finance typically follows expected profit—counter to public finance, which largely prioritises social goals.
Digging deeper into the numbers tells a different story, however. Most equity investment is flowing into large-scale buyouts, where investors acquire circular businesses outright—usually at a later stage of maturity. Here, the average deal size is large—around US$573 million. In contrast, growth-stage ventures and early-stage startups—which are critical for innovation and transformation—receive far less. Despite making up half of all equity deals, early-stage circular businesses only captured 9% of equity capital. This reveals a familiar pattern in startup ecosystems: the so-called ‘valley of death’, where early-stage companies can secure seed funding but struggle to raise capital to scale. This phenomenon isn’t unique to the circular economy—although it’s particularly pronounced for circular businesses.
Why might this be the case? Circular ventures often involve either material innovation—which is costly and slow to commercialise—or business model innovation, which isn’t seen as disruptive enough. Neither fits the typical venture capital model: VC investors usually seek fast, high returns—typically 100x within a few years—and so gravitate towards digital sectors like software and AI, where products are scalable, resource-light, and clearly disruptive. Circular startups, in contrast, are often seen as slower, riskier, and harder to exit profitably.
Policy drives investment, but don’t have time to rely on it as the sole engine
Of total tracked investment, Europe stands out as the frontrunner, attracting 57% of total circular investment—an average of US$15.5 billion annually. North America and Asia lag behind, receiving US$5.8 billion and US$3.6 billion, respectively. Notably, European investment surged following the 2020 launch of the EU Circular Economy Action Plan (CEAP). In the three years after the CEAP was introduced, circular investment in Europe was 70% higher than that in North America—compared to a 47% difference in the three years prior to the Plan’s implementation. In the EU alone, investment volumes were 62% higher in the three years following the CEAP’s introduction than in the three years prior.
This graph shows private sector investment in businesses operating a circular economy business model before and after the 1st of January, 2021, when the CEAP was first introduced in the EU.
While causality can’t be definitively proven, the trend is hard to ignore. Targeted policies—like the upcoming Digital Product Passport regulation, extended producer responsibility schemes, mandatory recycled content requirements, and right-to-repair legislation—are helping to de-risk investment and create market certainty. The Netherlands’ Green Deal for Circular Procurement, for example, has mobilised public and private buyers to invest over €100 million in circular goods and services—shifting demand at scale and giving investors confidence in the long-term viability of circular business models.
A wave of anti-ESG legislation in Republican-led US states is having the opposite effect, triggering capital outflows and cautious repositioning by major asset managers. ESG equity funds suffered a net outflow of US$40 billion in 2024—the vast majority stemming from US investors. At the same time, the 2024 revival of the Trump administration heralded a new wave of deregulatory policies, rolling back on environmental protections. Ultimately, this points to investors’ reactivity to market volatility and need for policy predictability—and reminds us of the inherent instability of relying solely on policy for progress. The message is clear: when governments set the direction, capital follows.
Yet globally, policy still fails to reflect the true cost of resource depletion. Without pricing these externalities, linear models remain artificially cheap—and circular alternatives struggle to compete. At the same time, most financial models continue to undervalue materials, treating them as waste once used rather than appreciating their retained or recoverable value. This is especially true in sectors like construction, where materials like steel and concrete can be recovered at high quality—but, for example, depreciation models fail to capture this, making circular strategies less appealing to investors on paper, despite their practical benefits. What’s more, circular service-based business models can experience slower and unusual revenue streams, deterring investors seeking immediate returns. The problem: often-outdated perceptions of the business case, bogged down by prevailing market conditions such as the artificially cheap pricing of virgin resources.
Resource risk is proving a blind spot
Mainstream financial assessments largely fail to factor in ‘resource risk’—the growing threat of supply disruptions, price volatility, and geopolitical instability affecting critical materials—the report says. Russia’s invasion of Ukraine exposed Europe’s dependence on fossil fuels, with the rest of the continent spending an estimated €643 billion in excess market costs between 2021 and 2022. Tensions over rare earth minerals between China and the West are rattling tech and defence industries, with China’s recent export controls laying bare the United States’ dependence. What’s more, escalating tariff regimes are adding another layer of volatility, as abrupt trade barriers disrupt global supply chains and inflate costs for critical materials. And still, financial institutions largely ignore resource scarcity in their risk modelling.
According to the report, this blind spot helps explain why circular economy investment currently aligns more with climate-related risks than with actual resource use. In sectors like Agrifood, where climate and resource concerns overlap—such as methane emissions from organic waste or fossil fuel substitution through alternative proteins—circular investments are more easily justified. But in other resource-intensive sectors, such as Construction, the lack of standalone resource risk modelling leads to underinvestment, despite major circular opportunities.
What’s more, this blind spot makes resource-intensive, linear business models appear more attractive than they are—leaving investors exposed to future shocks. Recognising the circular economy as a de-risking strategy is critical for the financial sector, the report urges: if financial institutions continue to neglect resource risk and fail to recognise the potential of circular value chains, they’ll continue funnelling capital into vulnerable industries instead of redirecting it to the very businesses that can proactively address these risks. Circular investments provide a clear opportunity for decreasing resource risks and generating returns: by reducing dependency on volatile raw material supply chains, they not only mitigate long-term risk but also unlock cost savings and new revenue streams through more efficient, resilient business models.
The circular economy isn’t just an environmental imperative—it could be good business
We know and have long since written about the environmental benefits the circular economy brings: it’s an effective means to stave off climate breakdown, bolster biodiversity, and (if well-designed) support social well-being. But it’s also an economic transformation that helps businesses do more with less, buffer themselves against volatility, and unlock long-term value. From remanufacturing and rental models to material recovery and circular design, these solutions are proven, profitable, and poised for scale—but this won’t happen by itself.
What’s needed now is a shift in perception and policy. Policy makers must price in resource risk, and disincentivise wasteful practices to support circular business models through regulation, public investment, and targeted incentives. This will help appreciate the true value of resources. Financial sector regulators must support the standardisation of definitions around materials, resources and the circular economy to create more insights into resource risk through reporting. Investors must look beyond outdated financial assumptions and start seeing the long-term value of circular businesses in achieving their climate, biodiversity and social targets. Importantly, they shouldn’t rely on policy to act—when regulation lags or changes course, investors have the agency to set a new course. Market leaders that act early can reshape the playing field, set new norms and future-proof their portfolios in an increasingly resource-constrained world.
As global leaders prepare for the next round of climate and biodiversity summits, one thing is certain: we cannot afford to ignore the money trail. If we want a circular economy, we need the economics to work and the financial sector’s ambitions to grow so that finance flows to where impact can be made.
* Based on the in-scope finance sources of this report and the associated timeframe of 2018–2023 in tracked investment in businesses engaging with the circular economy
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Learn more
The Circularity Gap Report Finance, launched by Circle Economy with support from IFC and in collaboration with KPMG, offers a wellspring of analysis on the state of circular finance globally with valuable insights for financial market participants, financial sector regulators, and policymakers. Read the full report here.
