Breaking Free From Financial Inertia : The Barriers Causing and Enablers Mitigating Financial Inertia in Circular Business Model Transitions

Abstract: Background: Regulations and Governments prompt companies to reassess their practices and align with sustainability standards. It emphasizes a transition towards circular business practices, which requires large amounts of capital to commit to the adoption of circularity fully. The transportation sector is a prime example of an industry undergoing a significant circular transformation due to its environmental impact. Circular servitization has complemented the circular transformation by offering products as services instead of selling them outright. This has had severe financial statement implications since the operations differ from linear practices and requires large investments. Financial institutions still assume techniques, modulation, and evaluation processes adapted for linear purposes, which creates obstacles to capturing the value circular business models generate. Subsequently, financial institutions are hesitant to fund circular business models due to the perception of increased risk. Hence, financial inertia occurs and hinders the development of circular businesses.  Purpose: This research adopts the perspective of financial institutions and examines the barriers and enablers that impact companies' transitions to circular business models, leading to or mitigating financial inertia.  Method: The study is qualitative and adopted an abductive approach to contrast theory and findings with the interpretive research paradigm. The primary data was collected from eleven different respondents from a Swedish financial institution. Sampling was done non-randomly with a purposive sample and a convenience input to gather data from respondents who were part of the financial institution and knowledgeable in the circular transition.  Findings: The aim of the study was to answer two research questions regarding barriers causing, and enablers mitigating financial inertia. The findings provided three soft and six hard barriers relating to financial techniques, modeling, and evaluation methods, along with internal competence about circularity, stakeholder involvement, and regulations. Additionally, the study found three soft and six hard enablers which could be interpreted as underlying drivers for mitigating financial inertia.