Latin America and the Caribbean’s financial systems must look at the circular economy not just as a product but also as a systemic approach to take advantage of its full potential, according to the latest study, Financing the Circular Economy: The Colombian Experience, published by the Inter-American Development Bank and IDB Invest in collaboration with Bancolombia, Banco de Bogotá, and Bancóldex.

The study analyses the role of the financial system in the transition to circularity from the Colombian experience, which among others would allow for achieving the Paris Agreement commitments, facing the climate crisis, and protecting biodiversity.

In Colombia alone, there is an annual potential of $11.7 billion in efficiency and effectiveness savings in the use of materials, new business opportunities and strengthening of value chains, according to the National Circular Economy Strategy (ENEC).

The report explains which are the recommended criteria for analysing and categorising circular economy projects and proposes a methodology that allows identifying funding opportunities that meet the circular transition objectives and, at the same time, contribute to achieving the Sustainable Development Objectives (SDGs), the emission reduction targets, and a just transition, namely an inclusive economy for all.

Likewise, the study proposes a practical tool, a classification system, to identify and categorise circular projects, report circular financing transparently and consistently, and measure positive impacts at an environmental and social level.

With the help of the three Colombian banks that took part, the classification system for circular projects was tested through three pilot projects in the report.

The funding process for circularity requires transparent classification systems that facilitate the process of identifying circular projects and measuring and reporting their environmental, social, and economic benefits. At a global level, some $45.5 billion has been invested to finance this transition through debt instruments, including green, social, and sustainable bonds.

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Source: IDB