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Study with EMF and Bocconi: the circular economy reduces risks and creates value

Study with EMF and Bocconi: the circular economy reduces risks and creates value. In the paper, Intesa Sanpaolo presents a case study on how financial institutions can seize the opportunities offered by the circular economy

Strategies linked to the circular economy can reduce investment risks and generate superior risk-adjusted returns, according to the white paper The circular economy as a de-risking strategy and driver of superior risk-adjusted returns produced by Bocconi University, the Ellen MacArthur Foundation and Intesa Sanpaolo.

The study “The circular economy as a de-risking strategy and driver of superior risk-adjusted returns” is divided into three sections:

  • the first is dedicated to the fact that the circular economy is key to combating climate change and achieving goals related to other global challenges, while offering new and better opportunities for growth
  • the second supports the idea that companies that adopt circular business models can reduce their risk profile
  • the third analyses Intesa Sanpaolo’s strategy to seize the opportunities offered by the circular economy.

The paper tells how Intesa Sanpaolo concretely uses the results of academic research to guide its activities in the field of sustainability and circularity.

Over the years, Intesa Sanpaolo has enhanced the development of internal skills and distinctive capabilities in the market including the adoption of credit policies favouring companies that invest in the circular economy, such as the Circular Economy credit facility with which the Bank won the 2020 edition of the “Premio dei Premi”.

Intesa Sanpaolo and its reputation in the field of sustainability have recently been studied by the Oxford University Centre for Corporate Reputation in the work entitled “How Intesa Sanpaolo bank embraced the circular economy”.

The research, carried out by Mark Hughes-Morgan and Dennis West, Oxford University Centre for Corporate Reputation - Saïd Business School, reconstructs the Bank’s progressive involvement in the circular economy, taking an in-depth look at the motivations behind it, the progress achieved and the reputational challenges faced along the way.

Highlight from the white paper “The circular economy as a de-risking strategy and driver of superior risk-adjusted returns”

In the last two years, debt and equity instruments related to the circular economy have spread significantly globally, both in terms of volumes issued and traded: they range from public support programmes to corporate and sovereign bonds, from securities listed on regulated markets to private equity, from bank credit to insurance products and from investment services to structured finance projects. For example, assets under management (AUM) through circular economy-focused equity funds grew from $0.3 billion in December 2019 to over $7.3 in May 2021.

The study offers new evidence on the relationship, for a company, between “circularity” and the fundamentals of risk and return, suggesting that the current transition offers significant potential to address the risks inherent in the current linear model, strengthening the motivation for companies actually engaged in the transition.

Specifically, the document notes that:

  • The circular economy can be used as a strategy to reduce risk. The analysis of 222 European companies belonging to 14 different segments revealed that the higher the level of circularity of a company, the lower the risk of debt default over a short (1 year) or medium-long (5 years) time-frame
  • Investing in the circular economy can generate superior performance. As shown in the sample above, higher levels of circularity are associated with better risk-adjusted returns.
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