EBF urges stronger financing framework for EU Circular Economy Act

With the European Commission’s consultation on the upcoming Circular Economy Act (CEA) closing on 6 November, attention is turning to how the EU will mobilise investment to meet its circularity ambitions.

The Act – first announced on 1 August 2025 – aims to establish a Single Market for secondary raw materials, strengthen Europe’s economic resilience and competitiveness, and help the bloc double its circularity rate by 2030. Expected to be adopted in 2026, it will form a key pillar of the EU’s Clean Industrial Deal and Competitiveness Compass strategies.

Amid the consultation, the European Banking Federation (EBF) has issued a detailed position paper urging the European Commission to design the Circular Economy Act in a way that enables private finance to scale circular solutions, corrects market distortions, and builds a viable investment ecosystem for circular business models. The EBF, representing over 3,500 banks across Europe, argues that financial system alignment is crucial to transforming circularity from niche innovation into a mainstream economic driver.

Unlocking capital for circularity

In its submission, the EBF underscores that transitioning to a circular economy requires more than regulatory targets – it requires clear, bankable projects that attract both private and public capital. While current EU frameworks promote sustainability, circularity remains underrepresented in financing instruments and risk assessment methodologies.

The Federation’s primary recommendation is that the Circular Economy Act should correct existing market failures that prevent circular projects from achieving commercial viability. This includes pricing externalities, setting clear standards for recycled content, and using public procurement to drive long-term demand for circular products and services. EBF stresses that these measures should create structural and permanent incentives, rather than rely on temporary subsidies, ensuring investors have the confidence to back long-term circular ventures.

Financing instruments and a ‘Bank for Circularity’

To boost funding, the EBF calls for systematic integration of circular principles, such as durability, repairability, and recyclability, into EU public financing instruments and green taxonomy criteria. The Federation also proposes establishing a dedicated “Bank for Circularity”, modelled after the Hydrogen Bank and Decarbonisation Bank, to de-risk investment and offer off-take guarantees for recycled materials and circular technologies.

Such a vehicle, according to the EBF, could play a catalytic role by offering guarantees and blended finance mechanisms that leverage limited public budgets to crowd in private investment. The EBF highlights that simplicity, replicability, and scalability should be key features of these instruments, allowing circular innovation, particularly in high-risk, high-impact technologies, to reach commercial maturity.

Rewarding circular business models

European banks are already active in financing product-as-a-service and circular leasing models, but the EBF stresses that the regulatory environment must evolve to recognise and reward these approaches. Under current frameworks, circular models often face higher capital requirements or lack the necessary data to demonstrate lower risk.

The EBF recommends developing a supportive regulatory classification for service-based circular models and creating data-sharing mechanisms that allow banks to better assess creditworthiness and sustainability performance. This would allow lenders to offer preferential terms for genuinely circular portfolios and expand access to finance for SMEs pursuing circular strategies.

Building the data infrastructure

Data transparency is identified as a foundational enabler of circular finance. The EBF calls for improved access to consistent, reliable, and forward-looking data on material flows, product life cycles, and sustainability performance. While the Corporate Sustainability Reporting Directive (CSRD) is a step forward, its scope remains limited, and many smaller firms engaged in circular activities are not yet covered.

To address this, the EBF suggests incentivising voluntary disclosure of essential circularity metrics and urging Member States to make available national-level data through harmonized, searchable digital platforms. This would enable investors and financial institutions to assess projects with greater precision, reducing perceived risk and improving capital allocation efficiency.

Driving Europe’s competitiveness through circular finance

The EBF concludes that aligning Europe’s financial system with circular economy objectives is not only an environmental imperative but also an economic and strategic necessity. Circularity, the Federation argues, is central to reducing raw material dependencies, strengthening supply chain resilience, and enhancing Europe’s global competitiveness in a resource-constrained world.

The EBF notes that the transition to a circular economy must go hand in hand with a financial transition, and by embedding circularity into financial frameworks, the EU can turn sustainability ambition into bankable opportunity.