Financing Sustainable Market Actors in Circular Economy

19 Pages Posted: 26 Oct 2018

See all articles by Jukka Mähönen

Jukka Mähönen

University of Oslo - Faculty of Law; University of Helsinki - Faculty of Law

Date Written: October 26, 2018


Lack of capital is one of the most important barriers to the adoption of sustainable and circular economy. Shifting from a linear to a circular business model requires novel innovations in distribution planning, inventory management, production planning and management of reverse logistics networks, with high upfront costs and long payback periods. As implementing a circular economy business model also demands continuous monitoring and improvement of the products’ lifecycle, resources must be allocated to keep all stakeholders in the life cycle value chain committed. The challenging finance gap between need of capital and cash flow generated is recognised one of the most important obstacles of circular economy.

Due to its specific importance for circular economy and due to the intrinsic heterogeneity of corporate finance generally, it is crucial to analyse the drivers and obstacles different kind of investors have in creating sustainable value in sustainable and circular economy business models. Short-term legal and financial systems supporting ‘take, make and waste’ business models are not necessarily conducive to the new settings that circular economy requires. Private equity and venture capital are problematic for startups in circular economy as they lack the high growth and relatively fast payback (exit) horizons required by investors. Public listing of equity and bonds is challenging for circular economy business models as they require track record, size and maturity meeting the scale and requirements of capital markets and institutional investors. Albeit ‘near banks’ like Google, Apple and Amazon platforms provide new payment facilities and working capital solutions for circular economy enterprises, especially startups, the most promising vehicles for circular economy business model financing are owner-member-user-based crowdfunding and other forms of peer to peer financing and participation arrangements and platforms. They affect directly to the participants’ behaviour by strengthening an open, transparent and interactive lifecycle-based business model, engaging a high number of user participation and commitment, emphasising community and shared ownership aspects and limiting access of short-term profit and takeover-seeking investors. Crowdfunding is increasingly popular to create commitment-based funds for projects in which financial institutions and private equity investors are not investing. A cooperative is specific a peer to peer financing model for sustainable businesses especially in its multi-stakeholder form, opening the business to a heterogenous group of financier-member-owners, remaining however as hard to disrupt by takeovers. Cooperative form gives also the user-members a unique possibility to own sharing platforms and other market places themselves.

In this Chapter, crowdfunding and modern cooperative-based financing are discussed and compared to analyse what kind of dynamics are crucial for a successful financing of a sustainable circular economy business model. Specific attention is given to the drivers that increase the investors’ commitment for long-term circular economy-based behaviour.

Suggested Citation

Mähönen, Jukka T, Financing Sustainable Market Actors in Circular Economy (October 26, 2018). University of Oslo Faculty of Law Research Paper No. 2018-28, Available at SSRN: or

Jukka T Mähönen (Contact Author)

University of Oslo - Faculty of Law ( email )

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N-0162, Oslo
+4722859534 (Phone)


University of Helsinki - Faculty of Law ( email )

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Helsinki, FIN-0001 4

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