The transition to a circular economy has become a global imperative for minimising environmental pollution at the planet scale as it enables drastic efficiency improvements at various levels. On top of advancing towards their climate mitigation and adaptation goals, by implementing circular practices, countries can foster economic growth, enhance resources independence and create new opportunities for innovation and job creation.
Recognising the key role of the financial sector in driving this transition, the Inter-American Development Bank (IDB) and IDB Invest have been at the forefront of efforts to promote circular economy financing in the Latin American and Caribbean (LAC) region, notably through the development of a common understanding to define and categorise circular initiatives, i.e. a Circular Economy Categorisation System (CECS).
CECS are crucial in accelerating the transition away from the traditional take-make-waste model by providing a structured framework to identify, assess, and prioritise circular economy projects. These systems enable financial institutions and investors to recognise the circularity potential of projects based on an array of criteria set by sectoral experts. Therefore, CECS greatly facilitates funding and investment decisions for projects paving the way forward to a more sustainable economy.
At the same time, it is imperative to recognise that the circular economy is not exclusive to the bigger players, on the contrary, if MSMEs are not included, a real transition towards the circular economy will never be achieved due to their role within the value chains and, therefore, in the flow of materials and resources.
Building upon the success of the circular economy financing work developed in Colombia, BASE has been contracted by IDB Invest to promote the financing of the circular economy in the financial and microfinance system in Peru, and develop a categorisation system that would facilitate investments in local projects contributing to the circular economy. The ultimate goal is to create an enabling environment for circular economy financing and empower the microfinance sector to contribute effectively to the circular transition in the country.
Aligned with the country’s Green Finance Roadmap, which emphasises the need to step up sustainable financing, including circular economy initiatives, this project will 1) adapt and adjust the CECS developed for Colombia to the Peruvian reality, and 2) build the capacity of municipal savings and credit cooperatives (Cajas Municipales de Ahorro y Credito – CMAC) that serve micro, small and medium-sized enterprises to develop a circular portfolio. The team intend to achieve this by conducting the following activities:
– A Circular Economy Diagnosis: A comprehensive assessment of the progress, challenges, and key actors to promote circular economy financing in Peru. The diagnosis includes the mapping and analysis of the institutional environment (e.g., policies, regulations and initiatives to promote CE by the government, international cooperation, business associations, etc.), the analysis of progress at the business level, identifying enabling elements, as well as the identification of the main barriers to progress in circularity in value chains, and in particular in the inclusion of MSMEs in the transition, and reviewing experiences within municipal savings and credit cooperatives (CMACs), commercial banks, and development banks.
– Adaptation of the CECS for Peru: Building upon the insights gathered from the diagnosis, the CECS is adjusted to suit the Peruvian financial system. This adaptation includes methodology and procedures to identify circular initiatives, guidelines for impact indicators identification, and measurement, reporting, and verification (MRV) of circular initiatives. The adapted CECS has undergone rigorous peer review by stakeholders, including the Peruvian Federation of Municipal Savings and Loan Associations (FEPCMAC), Peru’s Ministry of Environment, Peru’s National Industrial Association (SNI), UNEP FI, Enel, SMI (Sustainable Materials and Innovation), GIZ, and the Ellen MacArthur Foundation.
– Capacity Building Programme: A comprehensive training program delivered through virtual and face-to-face sessions aimed at building internal capacities within the 11 CMACs that are members of the FEPCMAC. The program aligns the language, promotes understanding, and facilitates the application of the proposed Peruvian circular economy categorisation.
– Action and Follow-up Plan: A strategic plan designed for FEPCMAC and the CMACs, outlining the necessary actions and activities to integrate circular economy principles into the CMACs’ system. The plan is expected to generate circular economy-focused financial products, increase the size of the circular finance portfolio, and drive the evolution of the circularity level within the circular project portfolio in the medium and long term.
