Circular Finance through the Circular Risk Scorecard
Circular businesses provide effective hedging of financial risks associated with linear economic thinking, such as operating under the false assumption of infinite availability and affordability of raw materials. These 'linear risks' threaten the future resilience of businesses and economies.
To achieve a more resilient economy, linear risks and circular opportunities must therefore be explicitly included in financial decision-making. In addition, circular risk must be estimated more realistically an thereby shifting the focuses of (risk) models to the future, by seeking securities in future cash flows, long-term stability and multi-stakeholder supply chain contracts.
In 2022, the Risk project group, consisting of experts from Rabobank, ABN AMRO, ING, Triodos and Invest-NL, started working on developing a method to assess financing of circular entrepreneurs through a 'circular lens’. They have developed a generic, open source tool with which the opportunities and risks of circular businesses can be assessed more realistically: the Circular Risk Scorecard (CRS).
Purpose of the Circular Risk Scorecard
Primarily, the CRS is a tool that can be applied to make a more realistic assessment of a company's long-term business risks. In addition, the CRS offers a way to collect (anonymized) data about (default) risks of circular (and non-circular) businesses. This (anonymized) data can be used to link circular risks and opportunities to the continuity of circular businesses. This is part of the transition towards a circular standard in financing in 2030. This objective has been set in the Circular Financing Roadmap 2030.
Content of the Circular Risk Scorecard
The CRS calculates a risk score between 0-100, in which a low score corresponds to a low circular risk. The score is determined based on a total of six risk factors, three of which are not currently included in the existing risk models:
- the circularity of the product;
- the suitability of the product for circularity;
- the scarcity of the raw materials used.
In addition, the score is determined by three risk factors that are currently included in the existing risk models, but which are viewed in the CRS through a 'circular lens' and are therefore assessed differently:
- the robustness of the contracts;
- the market competitiveness;
- the experience of the management team.
Application of the Circular Risk Scorecard
The CRS can be used/applied in various ways, namely as:
- Adjustment of risk perception and/or pricing via the existing risk models at banks (in addition to the existing risk models);
- Deal selection at financial institutions;
- Training for colleagues at financial institutions;
- Training for circular entrepreneurs.
Access to the Circular Risk Scorecard
The CRS can be accessed via the following link: Streamlit (circularriskscorecard.streamlit.app)
Guidance for the Circular Risk Scorecard
To provide support, a manual has been written for the use of the CRS.
Circular Risk Scorecard - a practical guide
(Free) Training and discussion sessions
If you have become enthusiastic and want to know more, we organize a free 2-hour online interactive training on how to use the CRS. Dates are:
- Tuesday 5 March 16.00-17.00h
- Wednesday 27 March 16.00-17.00h
If you are interested, please register via jeroen@copper8.com.
Contact
The Risk project group, part of the Kopgroep Circulair Financieren, is supervised by Copper8, Circular Finance Lab and RiskQuest. RiskQuest built the CRS. For more information, please contact the project lead Jeroen van Muiswinkel (jeroen@copper8.com).
