ETC ST Report 2025/5: Financing circular economy ambitions in Europe: trends and gaps

13 May 2026

Olga Zhminko, Wim Van Opstal, Christoph Chrysalis, Ulrich Kral, Paul-Simon Glade, Lea Schneider, Sabine Fritz, Dani Sangers, Lize Borms, Henning Wilts

The transition to a more circular economy is recognised as critical in the EU both for the competitiveness of the EU economy and to ensure meeting the EU environmental agenda. The EU aims to accelerate the transition to a circular economy, which requires considerable financial mobilisation. It becomes essential to first understand what is considered circular economy by the public and private institutions involved in financing, how investments into circular economy have evolved over time and what the financing gaps are.

A proper and comparable understanding of what is intended by “circular economy” is one of the main barriers for the uptake of financing. The 2020 Circular Economy Action Plan refers to the whole life cycle of products, from design and extraction, to production, use and end of life. This study found that the interpretations of circular economy by related EU policies are aligned. Different related policies, such as those for waste, also include more references to financing, especially in the recent years. On the other hand, the circular economy definition across financial institutions lacks congruency, comparability, and comprehensiveness. Sustainable finance policies include considerations of circular economy; however, approaches and definitions are not aligned. Waste and recycling are the easiest identifiable circular activities for the finance sector, while circular activities are mostly sector-agnostic requiring qualitative assessment. Circular economy finance can therefore cover a combination of circular economy activities and specific sectors. Definition of circular economy finance is impacted by available methodologies, indicators, and databases. Hence, to mobilise financing for circular economy projects, financial market players have been using the circular economy considerations within the EU Taxonomy, the sustainable finance disclosure directives, and nomenclature of economic activities. The European Investment Bank (EIB), the EU lending arm, has been using an evolving concept for circular economy projects. Available data on ecolabels is currently very limited to contribute to the financing of circular economy.

Different studies have assessed current investments into circular economy in the EU as well as financing needs and gaps. The values of current annual investments range from EUR 18 billion (Platform on Sustainable Finance), to EUR 120 billion (EIB and European Commission study), and to EUR 137.9 billion (EU Circular Economy Framework methodology). These studies differ in assessment approaches and in scope which signals the need for harmonisation to have comparable results. Independent on definitional inconsistencies which undermine comparability and policy targeting, investment needs remain significantly unmet. Although EU public funding (e.g. EU funding programmes like Cohesion Fund, Just Transition fund, European Regional Development Fund, Horizon Europe, LIFE Programme, Recovery and Resilience Fund) proved to be instrumental for circular economy progress – even without being specifically designed circular economy programmes, – tracking public finance at the national level is still fragmented due to the links of circular economy measures to other environmental objectives and the lack of clarity in definition of circular economy funding. Across the EU, both sectoral and regional imbalances persist in the financing of the circular economy, too. The imbalance in circular economy finance development of EU Member States stems also from differences in institutional readiness and economic structures. Member States’ maturity of circular economy policies, environmental considerations in the national budgeting processes, involvement of national development banks, and private finance sector initiatives – all contribute to evolvement of circular economy finance, as country case studies prove. Data availability and quality vary depending on the source, the maturity and standardisation of particular market instruments, with blind spots remaining unresolved, as analysis of current assessment methodologies shows. To support strategic decision-making and to enable progress in the underdeveloped circular economy activities (like circular design), shifting the focus from established and monitorable activities (like waste recycling) is needed. For that monitoring frameworks need further evolvement.

The EU circular economy goals require substantial new capital, driven by the ambition of the EU Circular Economy Action Plan (CEAP 2020) and related regulations, corporate strategies, technological innovation, and societal and market shifts. These drivers influence the scale and composition of capital required across circular strategies along the value chain. The assessment of the investment gap for circular economy in the EU goes up to EUR 1.2 trillion in cumulative investments by 2040 (EIB and European Commission study). Capital-intensive after-use solutions (mostly recycling), service-based models with delayed revenue, circular design interventions with long payback periods, and sufficiency-based approaches, all present different financial profiles. Scaling pathways also influence investment needs. Replication requires flexible and context specific instruments, mainstreaming requires blended and risk reducing finance, and deeper behavioural change requires institutional learning within finance. Innovative solutions are needed to address market failures and barriers to circular economy financing. Adapted risk assessment approaches that recognise circular economy business models are a common enabler for financing circular projects. The thematic deep dives into financing circular start-ups and Product-Service Systems (PSS) within this study illustrate specific investment gaps and solutions and allow for a refined discussion of implications for businesses, policy makers, and the finance sector.

The insights from this report, including the analysis of the definition, current investments, future needs, and investment gaps in circular economy finance, also support the enhancement of metrics for the monitoring of the financing of the circular economy. The Circularity Metrics Lab of the European Environment Agency provides an exploratory platform, where currently finance related metrics remain limited. The only existing indicator, based on circular lending, by the European Investment Bank can be strengthened through greater disaggregation (e.g. by time, country, and circular business model typology). New data emerging from sustainable finance legislation offers potential for more structured and comparable finance metrics once reporting cycles mature. Complementary sources, such as commercial financial databases and natural language processing of disclosures, provide further opportunities to address current data gaps. This report includes a phased indicator development pathway that can support more systematic monitoring of circular economy finance.