In a world where climate risks, resource scarcity, and supply chain instability are growing concerns, circular economy models offer a clear path forward. The Circularity Gap Report: Finance [1], launched by Circle Economy and KPMG, dives deep into the role of finance in accelerating the circular transition. The findings are both encouraging and urgent: Although circular investments are expanding quickly, they still represent only a small fraction of global capital flows and much of the funding falls short of delivering meaningful impact.
Circular investment is growing fast
Between 2018 and 2023, over $164 billion was invested globally into circular economy business models. That’s an 87 % increase in investment between 2021–2023 compared to 2018–2020. Circularity is clearly gaining traction, attracting interest from investors, startups, and large companies alike.
Yet despite this growth, circular investments account for just 2 % of global capital flows which is far too low to drive meaningful, system-wide transformation.
Most capital goes to “safe” solutions
Most of the investment goes into low-barrier circular models like:
- Repair
- Reuse
- Recycling
These are important but they don’t address the root of the problem. Only 4.7 % of funding is directed toward “high-impact” circular solutions such as:
- Circular product design
- Material innovation
- System-level transformation
These are the kinds of investments that can truly decouple economic growth from resource use but they remain underfunded, perceived as risky or unfamiliar.
Why companies should care: circular pays off
The report finds that circular business models offer strong, risk-adjusted returns. Benefits include:
- New revenue streams from resale, remanufacturing, and services
- Reduced resource dependency amid rising geopolitical and environmental risks
- Improved ESG performance and compliance with future regulations
Hence, the circular economy isn’t just good for the planet: it’s good for business.
The circularity gap remains on the rise
Despite investment growth, the global economy remains only 6.9 % circular, down from 9.1 % in 2018. This means over 93 % of materials used globally still end up as waste, burned, buried, or lost.
This widening circularity gap underlines the urgency for deeper structural change and more strategic financing.
How to accelerate circular finance
To close the gap, the report recommends action across three key fronts:
Investors & financial institutions
- Adapt risk models to recognize circular benefits
- Expand circular finance instruments (e.g. sustainability-linked loans, transition bonds)
- Engage portfolio companies on circular KPIs
Regulators
- Introduce mandatory reporting of material and resource use
- Define circularity standards for financial disclosures
- Include resource risk in climate stress testing
Governments & public sector
- Promote circular R&D and infrastructure with public funds
- Use green public procurement to create demand
- Reform tax systems to reward circular practices (e.g. lower VAT for repair)
Conclusion: Finance must shift from follower to leader
Finance holds the power to drive market shifts and enable major transitions but in the circular economy, it still lags. The real opportunity lies in circular models that rethink systems at their core. To unlock that potential, we must shift capital from incremental fixes to systemic change and that requires courage, innovation, and new frameworks for risk and return. Capital is available, and innovative solutions are taking shape. Now is the moment for finance to take the lead in closing the circularity gap.
In this evolving regulatory and market landscape, companies need support to adapt and lead. This is where DFGE – Institute for Energy, Ecology and Economy plays a key role. DFGE helps businesses translate circular economy goals into practical actions, aligned with both EU regulations and international sustainability frameworks. The emphasis is not only on regulatory requirements, but especially on the business impact and value creation potential for companies.
We are happy to support your company on this important topic. If you have any questions, feel free to contact us at or by phone at +49 8192 99733-20.
Sources
[1] Circle Economy (June, 2025). Circularity Gap Report: Finance. Available: https://www.circularity-gap.world/finance
