FEATURES OF FINANCING THE DEVELOPMENT OF THE CIRCULAR ECONOMY AND INTERNATIONAL TRADE ON THE PRINCIPLES OF CIRCULARITY: NEW INVESTMENT TOOLS AND THE POTENTIAL OF (SUPER)NATIONAL REGULATORY POLICY
DOI:
https://doi.org/10.31891/mdes/2023-8-8Keywords:
circular economy, sustainable development, climate crisis, international trade, investment cycles, circular and green transition financing, financial system, financial instruments, green finance, sustainable financing, eco-innovation, circular business models, central bank digital currency (CBDS), international regulatory policy, the EU, SMEs, ESGAbstract
The purpose of the article is to highlight the specifics of financing the development of a circular economy and international trade on the principles of circularity and identify existing and potential investment instruments that ensure the implementation of circular, green and energy transitions. From the standpoint of a transdisciplinary approach, the circular economy is defined as an environment for the development of international trade, approaches to the study of the financial aspects of the development of the circular economy are considered. The attention is focused on the formation of national practices of the circular economy. The role of investors in circular economy projects in developing the potential of central bank digital currency (CBDCs) is noted. It has been established that the barriers faced by companies implementing cyclical production processes depend on the size of the business and the amount of initial investment costs that the company is able to carry out. The positions of European SMEs in the development of a circular economy and the problems of financing business models are considered. The analysis performed shows that the transition to the principles of a circular economy is already generating a demand for the development of new financial products that take into account the specifics of financing circular business models.
It is argued that the financial market and adapted financial strategies, as well as implemented investment instruments, are one of the three main actors of the circular transition and at the same time the objects of its implementation, along with enterprises that adapt circular business models. Synchronicity of change at three levels can accelerate the transition to a circular economy, which is facilitated by: (1) the transition of SMEs to circular business models by redefining value chains; (2) ensuring competitive non-discriminatory market conditions for circular business entities (tax system; public procurement); (3) introduction of circular money (financing of circular value chains). The initial cost of investment and the delayed payback of certain circular business models burden small companies more than large companies for many reasons, among which we highlight the following: 1) the investment threshold for circular innovation can be more than 10% of SME revenues, while for the largest enterprises the costs are less significant; 2) difficulties in securing the collateral required for bank financing; 3) lack of necessary competencies to process requests for state or European grants and/or other subsidies; 4) uncertainty about future cash flows and immediate tangible financial benefits, which makes the initial investment costs even more unattractive for companies due to the inability to calculate the return on investment; 5) volatility of profitability indicators, which complicates the process of attracting external financing; 6) for many managers, doubts about the profitability and overall feasibility of CE business models mean a rejection of CE initiatives; 7) different types of cyclical business models differ in terms of risk, and therefore it is not possible to find a unified way to finance different business models. Profitability of the business remains a key criterion for obtaining funding, however, in general, companies operating on the principles of circularity do not make a profit at the beginning of their activity, or they do not have enough know-how and / or resources to make themselves profitable. Companies must create an attractive business model for financiers, and financiers must change how they assess the risks and opportunities associated with these models. Certain evidence indicates that the transition to the principles of circularity is already generating a request for the development of new financial products that take into account the specifics of financing circular business models.
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