Connecting the circular economy to nature targets

The global economy remains embedded in a linear “take-make-waste” model that is incompatible with planetary boundaries. Resource extraction has more than tripled since 1970, and material use is projected to double by 2060 without structural change. The extraction and processing of natural resources account for more than 90% of global biodiversity loss and water stress, and approximately half of global greenhouse gas (GHG) emissions. Land-use change, overexploitation, pollution, climate change, and invasive species rank as the five main direct drivers of biodiversity loss.

The circular economy offers a systemic response to these drivers by decoupling economic activity from resource consumption. Circular material flows could reduce global GHG emissions by 39% and material-related environmental pressures, including land use and water consumption, by up to 28%. Circular interventions across multiple sectors could enable global biodiversity to recover to its year 2000 levels by 2035.

The business case for circular economy finance

More than half of global GDP—around US$ 44 trillion—is moderately or highly dependent on nature and its services. Biodiversity loss and ecosystem collapse are ranked as the second most severe global risk over the next ten years. Despite this, current finance flows for nature-based solutions (NbS) total just US$ 200 billion a year, with the private sector contributing less than 20%. This leaves an annual funding gap of around US$ 700 billion to meet 2030 biodiversity goals.

For banks, circular business models represent a significant commercial opportunity, potentially creating more than US$ 10 trillion in business opportunities and 395 million jobs by 2030. Unlocking this potential would require up to US$ 2.7 trillion in annual investment. Companies adopting circular practices often exhibit a significantly lower probability of default and can generate higher risk-adjusted returns. Banks are encouraged to use financial instruments such as sustainability-linked loans with circular key performance indicators (KPIs) and blended finance vehicles to de-risk early-stage investments.

Ocean and marine ecosystems

Ocean ecosystems face extreme pressure, with more than 60% of fisheries fully exploited and coral reefs declining by more than 50% since 1950. At least 11 million tonnes of plastic enter the ocean annually, a figure projected to triple by 2040. The economic value of ocean assets is estimated at US$ 24 trillion, yet SDG 14 (life below water) remains the most underfunded goal.

Banks can support circularity in the ocean economy through three main areas: circular fishing and aquaculture, plastic alternatives and marine waste recovery, and regenerative ocean resource management. Recommended actions include financing selective fishing gear upgrades, recirculating aquaculture systems (RAS), and wastewater treatment for industrial facilities. The transition to regenerative aquaculture is estimated to require at least US$ 55 billion in capital expenditure.

Freshwater ecosystems

Freshwater biodiversity has declined by an average of 84% since 1970, exceeding losses in terrestrial or marine species. Approximately 4 billion people face severe water scarcity for at least one month per year. Agriculture accounts for roughly 70% of global freshwater withdrawals, and water-intensive sectors face potential financial impacts of US$ 301 billion from water-related risks.

Circular solutions include industrial water reuse, urban water reclamation, and agricultural water use efficiency. Scaling potable and industrial water reuse to 25% of municipal withdrawals will require US$ 170–340 billion in investment over 15 years. Banks are advised to integrate basin-level water stress assessments into due diligence and support infrastructure projects using design-build-operate (DBO) or hybrid annuity models (HAM) to improve bankability.

Terrestrial and land ecosystems

Land-use change, primarily driven by agriculture, is the largest direct driver of terrestrial biodiversity loss. Agriculture is responsible for 70–80% of global deforestation, with commodities like beef, soy, and palm oil accounting for the majority of tropical forest conversion. The collapse of select ecosystem services could result in a decline in global GDP of US$ 2.7 trillion annually by 2030.

Priority interventions include reducing pressure from agricultural land-use change, forest restoration, and the circular use of wood products. Global forest loss continues at approximately 10 million hectares per year. Banks can mitigate risks by financing sustainable intensification, agroforestry, and silvopasture, which increase productivity on existing land. Annual forest finance needs are projected to increase to US$ 300 billion by 2030. Banks should also support ‘cascading use’ of wood, prioritising higher-value applications like construction before recycling or bioenergy.