Practical implications

The purpose of this study was to elaborate on the financial catalysts to the CE transition, a phenomenon that naturally requires concrete and effective actions amongst practition-ers in order to become reality. By studying a divpractition-erse set of data originated mainly from the practitioners of the field and by deductively formulating discussion and conclusions based on that data, this study offers a wide catalogue of propositions on which the prac-titioners’ actions can be based and reflected on. The practical implications of the said propositions concern mainly three groups of practitioners: regulators and legislature rep-resentatives, company executives and financiers.

Firstly, by reviewing the findings of this study, regulators and legislature representatives with objectives to contribute to the transition to a more Circular Economy have the pos-sibility to increase their knowledge about CE companies’ operating environment and how important their role is overall in enabling the transition. The overall importance of public financial incentives, public funding organizations and the role of the public sector in cre-ating a level playing field for CE companies was highlighted throughout the data set and by all kinds of data sources utilized in this study (e.g. European Commission 2014a, 2014b, 2015; Finnish Government Strategic CE Initiative Theme Group 2020d; Harlin 2019; Heikkilä 2019; Japan/EU Joint Workshop G20 Resource Efficiency Dialogue 2019;

Ojala 2019; Pietikäinen 2018).

Another implication for regulators would be to refine the current public procurement pol-icies. In the study it was pointed out that at least in Finland, public sector procurement processes are locked in favoring conventional linear business and that they are entirely fit for assessing circular solutions (European Commission 2014b; Finnish Government Strategic CE Initiative Theme Group 2020d). By updating the public procurement policies to valuing Circularity, the playing field would be significantly more level for the CE com-panies.

Lastly, another key takeaway of this study for regulators would be issues related to tax-ation: by balancing the scale of taxation burden between labor and resources (Cura 2019; Ellen MacArthur Foundation 2013; Japan/EU Joint Workshop G20 Resource Efficiency Dialogue 2019; Tikkanen et al. 2018) and by differentiating renewable and non-renewable materials in taxation (Japan/EU Joint Workshop G20 Resource Efficiency

Dialogue 2019; Tikkanen et al. 2018), CE would be financially much more viable as an operating principle.

For company executives either already operating by CE principles or considering transi-tioning to operating by them, this study offers the possibility to get familiar with what kinds of financial issues they might encounter in their duties and how to prepare for them and how do the financiers see CE companies as investments and/or debt applicants. Firstly, by reviewing the findings of this study it can be concluded that the profitability of the CE business and CE Business Models is the key criteria when applying for funding and that making the business model financially viable is worth investing for. It was pointed out that in many cases the companies themselves are not profitable to begin with (e.g.

Govindan and Hasanagic 2018; Jesus and Mendonca 2018; Russell et al. 2020) and lacked the know-how and/or resources for making their business financeable (CICAT2025 2020; CICAT2025 Ecosystems and Agency Work Package 2020; Finnish Government Strategic CE Initiative Theme Group 2020a; Luoma 2020; Pietikäinen 2018;

Roiha 2018), making it difficult for them to obtain financing.

Secondly, with the help of this study company executives can review what kinds of risks financiers usually consider and emphasize in their decision-making regarding CE busi-nesses and possibly mitigate them. CE busibusi-nesses and Business Models are seen to contain significant amounts of market, technology, cash flow, supply chain, regulatory and end-client credit risk (CICAT2025 Ecosystems and Agency Work Package 2020;

Circle Economy and Sustainable Finance Lab 2016b; FinanCE Working Group 2016;

Finnish Government Strategic CE Initiative Theme Group 2020a; ING Bank 2015;

Preston 2012), in addition to the less significant risks. And, it was pointed out that the risks associated with CE are not well understood in the financial industry and in the as-sessment frameworks used (e.g. European Commission 2019; FinanCE Working Group 2016; Finnish Government Strategic CE Initiative Theme Group 2020d; ING Bank 2015;

Japan/EU Joint Workshop G20 Resource Efficiency Dialogue 2019; Sustainable Finance Lab 2018). The implication for the company executives would be to firstly mitigate these risks to the highest possible extent and secondly to be as informative as possible in explaining them and the actions done to mitigate them when applying for financing.

Thirdly, this study offers company executives insights about what kinds of implications different Business Model typologies involve regarding financing, assisting them in recog-nizing what kinds of risks and issues their own Business Model might incorporate. Each typology naturally contains some amount of risk, but according to the study Circular Use Models (e.g. PSS model) incorporates most implications and issues regarding finance.

It was pointed out that Circular Use Models are affected significantly by balance sheet

implications, working capital requirements, cash flow implications, legal considerations, the value of assets calculations, end-client credit risk and market risk (FinanCE Working Group 2016; ING Bank 2015), implicating that in designing this kind of Business Model these issues have to be considered very carefully in order to make the Business Model viable.

Lastly, this study points out an opportunity for CE company executives in finding a finan-cier that values sustainability and CE as an operating paradigm. CE was presented in the data as a beneficiary of the sustainable investment trend that has prevailed in the financial market for some time now (e.g. Finnish Government Strategic CE Initiative Theme Group 2020a, 2020b; ING Bank 2015; Japan/EU Joint Workshop G20 Resource Efficiency Dialogue 2019). However, in the company level data of this study the utilization of sustainable investors by companies was absent. It was also mentioned that there are few CE-concentrated commercial funds in operation (Luoma 2020). However, even though there would not be many strictly CE-concentrated financiers available for co-op-eration, CE companies should nevertheless exploit their sustainable nature as an asset in acquiring financing and target sustainable investors in those efforts.

For financiers, this study firstly points out that the assessment tools and frameworks currently used in risk assessment and valuation are not deemed to be realistic in the cases of reviewing CE business. It was presented that circular risks and linear risks are generally not taken into account correctly when assessing CE businesses (Aboulamer et al. 2020; European Commission 2019; FinanCE Working Group 2016; Finnish Government Strategic CE Initiative Theme Group 2020d; Fischer and Pascucci 2017;

ING Bank 2015; Japan/EU Joint Workshop G20 Resource Efficiency Dialogue 2019;

Rizos et al. 2016; Sustainable Finance Lab 2018), implicating that in order to contribute to large-scale CE transition the financiers should update their assessment methodology greatly.

Lastly, in this study a major business opportunity is pointed out for the financiers. CE transition is seen as a phenomenon increasing the demand for both traditional and new kinds of financial products, suitable for financing CE businesses and CE Business Mod-els. (Ellen MacArthur Foundation 2013; ING Bank 2015; Japan/EU Joint Workshop G20 Resource Efficiency Dialogue 2019). Especially PSS model requires extensive financing, meaning great profit opportunities for financiers. Therefore, by adapting to CE transition by e.g. modifying the assessment models to fit assessing CE businesses, financiers could be able to bring in a lot of new business.