The United Nations Environment Programme (UNEP) says banks, insurers and investors should “re-orient investments towards more sustainable technologies and businesses that enhance the circularity of economies.”

Its report, “Financing Circularity: Demystifying Finance for Circular Economies”, calls on those with the money to take a more active role in monitoring the operations of clients and to back measures and companies that promote the reuse of materials. More extensive research into potential clients would play into the hands of investors, the report explained. “Financial institutions can mitigate their financial risks by ensuring they ask robust questions about circularity ahead of time, helping them to back companies most likely to gain an edge.”

The UNEP said financial institutions need to be aware of the increasing number of bans on single-use plastic products, especially how they could affect interests in the sector. The report had an additional warning about the possible impact of changes in legislation on banks and other investors: “The increase in producer liability risk should also be further documented and explored.”

The report suggests investors expand their demands for information from plastics producers about hedging for fluctuations in raw materials prices, the balance between virgin and recycled materials, and how suppliers avoid the contamination of recycled content by harmful materials. “Clients can be asked to do measurement, target setting and reporting on their production and use of recycled and virgin plastic volumes.”

“Financial institutions can contribute to the transition to circularity, particularly by engaging with their clients in the packaging industry,” the report said. “Some questions for financial institutions to ask are: What type of single-use plastic packaging does the client produce? How does the company tackle the incompatibility of plastics? What are the annual volumes of the common types of plastics that are produced?”

The UNEP said those supplying the money can also catalyse the shift to greener production further upstream. “Based on sector knowledge and dialogue with industry peers, the finance industry is in a unique position to offer financial solutions for early decommissioning of obsolete or harmful chemical production technologies, even before problems become known on a broader scale.”

The report noted that the Covid-19 crisis has created “mixed signals regarding the shift to sustainable consumption and production and circularity” by temporarily disturbing waste collection based on fears of collecting contaminated materials. Conversely, the need for personal protection equipment has created unexpected volumes of single-use waste and SUP products.

“Economic disruptions during the pandemic in 2020 have brought to light the urgency of the transition to more sustainable consumption and production,” writes Steven Stone, chief of the resources and markets branch of the UNEP’s economy division, in the forward of the report. “Financial institutions have a critical role in stimulating economic growth by investing in sustainable consumption and production.”