The Circular Economy as the New Normal
Patient Capital
Our current financial system assumes that products amortize in a fixed cycle. This dilemma can be solved once the 'exits', based on product life cycles, are acceptable for capital providers. A circular economy implies that physical products are never fully written off to zero, because materials - or even better - components or products are still in the loop and therefore valuable. They consist of raw materials and added value (e.g. labor, energy).
A circular economy encourages value retention instead of value destruction, but in our current linear system this demands perseverance. The circular economy requires a mind shift and new ways of assessing the value of products after amortization. Third parties filling the gap between the current financial system, the market, and circular products have an important role to play. The government might play this role with a revolving fund, but financial institutions could also formalize such a fund. The residual value of real estate has potential to lead to alternative investment opportunities for major retirement funds.
One challenge will be the identification and quantification of risks that occur when financial decisions are based on different variables, such as terms, residual value, and other financial constitutions. As previously mentioned in this chapter, it is preferable to combine research and practice to avoid an 'analysis paralysis'. This combination should result in the identification of both risks and opportunities. Our goal should be long-term value retention and material revaluation, which has great potential to interest financial institutions as well.
A programme has the advantage of knowledge sharing and, given the longer timeframe, also has opportunities to resolve common problems for all projects at once.
It is time to thoroughly reassess whether the financial system is still future-proof. We should question whether current long-term investments that are 'safe' and 'solid' are still safe and solid in a fast-changing economic system. Financial institutions should reassess their investment portfolios with a 'circular mindset', because it takes less value destruction into account and has the potential to lead to solid, long-term investments. After all, all materials are revolving and have the potential to become solid 'commodities' to invest in.