Green Financing: Financing Circular Economy Companies : Case Studies of Ragn-Sellsföretagen AB and Inrego AB

Abstract: The circular economy (CE) has been identified as a catalyst in sustainable development and economic growth that has the potential to move society from the traditional linear model of resource consumption in the form of take-make-waste to an innovative circular model in the form of reduce-reuse-recycle. Transitioning from the linear economy to the CE requires changes in four areas: material and product design, business models, global reverse networks and enabling business environments. This study considers the financing needs of CE companies as a result of business model changes. Through the case studies of Ragn-Sellsföretagen AB and Inrego AB, analysed with secondary data from ING Bank and primary data collected through semi-structured interviews with the case companies, this research sheds more light on the financing needs of circular economy companies and how they are financed. Findings from this research suggest that the financing needs of circular economy companies depend on the value proposition of the company. In accordance with the pecking order of capital structure, all financing needs of the companies studied are financed from internal sources, particularly retained earnings before external debt financing is accessed. Findings indicate the willingness of banks to finance circular economy companies. The results of this research suggest that the circular economy companies studied do not need financial support from the government or its agencies to succeed even though favourable laws are welcomed. They report that their long-term success depends on their ability to remain innovative in their business models, aligning with Schumpeter’s creative destruction model.