WE PRESENT TO YOU: THE CIRCULAR SERVICE PLATFORM


A TECHNICAL-ADMINISTRATIVE INFRASTRUCTURE FOR MANAGING VALUE IN CIRCULAR NETWORKS

This Community of Practice (COP) — an interdisciplinary open learning space — was different from all other projects I have been doing so far. We didn’t study a specific circular problem this time, but we studied a solution: a platform for circular business networks with the aim to grow the circular economy. This may sound easy, it was far from easy!

In a circular economy, assets are no longer sold. Rather, assets are collectively serviced by circular service (CISE) networks, comprising all stakeholders involved in keeping an asset functioning. This requires unprecedented levels of cooperation and coordination, with high administrative costs and the need for trust and transparency in the network. Redesigning business processes towards cooperation and transparency diametrically opposes the business logic we are used to.

Cooperation and transparency diametrically oppose the business logic we are used to

We found out that the use of distributed ledger technology (DLT) could be useful for our desired outcome of coordinating transactions, the provenance of assets throughout their lifecycle, automatic execution of payments and providing trust in the network. However, (1) if there is no wish for providing services (e.g. repair, upgrades) directly on the asset (rather via an intermediary ) or (2) there is no need for handling many micropayments to be distributed over a network of participants, conventional database technologies might apply.

The starting point of our COP was a Proof-of-Concept (POC) developed by Rabobank, that fully automates the payment administration of assets that are offered in a pay-per-use proposition, such as cars (pay per km driven), and milk robots (pay per litre of milk). This seemed to fit our pilot case study of Bundles very well. Bundles is a circular company that provides its customers with the service of ‘clean laundry’, by providing them a durable washing machine and charging them per washing cycle. Bundles is in need for new financial structures and administrative tools to grow its business.

In addition to its basic functionality of automatically charging end-users for using an asset (e.g. per washing cycle), the COP introduced several other features:

  1. The automatic distribution of the paid use fees to network participants to compensate for servicing the asset. This enables service providers to engage with the assets, without a central party to coordinate;
  2. A transparent ledger containing information regarding revenues that are generated by a specific asset. This enables a clear division of rights and obligations regarding collateral and cashflows;
  3. Micropayments (smaller then €0,01) against low cost. This makes high volumes of transactions with small amounts affordable;
  4. Accessibility for anyone contributing to a circular economy, stimulating circular competition and lower prices;
  5. Community-ownership and maintenance by the CISE network participants. This allows the proceeds to be distributed amongst the CISE network rather than creating rents for the platform;
  6. The ability for all network participants, including end-users, to co-finance assets or innovations. Repayments are based on generated use fees, leading to new types of circular financial products;
  7. A governance structure of the platform in the so-called code of conduct. This covers rules governing: (a) the eligibility of access to the platform, (b) the rights and obligations regarding the management of the platform (and corresponding legal entity), (c) decision-making processes, and (d) constitutional arrangements.

The technical infrastructure we developed is meant for scaling circular initiatives. Commercial benefits should therefore not come from the maintenance of the infrastructure but from the circular business activity that is facilitated by it. It is therefore essential that the CISE Platform is open-source, not-for-profit and community-maintained.

However, a private, permissioned, DLT system was chosen, to fit the experimental phase we are in. Although the platform inherently places incentives for circularity, minimal eligibility criteria needed to be introduced to ensure the circular character of the platform. Also, sub-optimal design choices were necessary to ensure privacy. A roadmap will be developed to work towards an optimal architecture. For the interested reader, choices regarding technical design configurations can be found in the white paper.

A general problem with these types of projects is that they come with high implementation and maintenance costs. Moreover, viability of the project is still uncertain. Additionally, expert knowledge on software architecture is needed to be able to assess the related development risks.

We do believe, however, that such a platform could be transformational to the circular economy, enabling CISE networks in a wide array of sectors. To realize this potential requires tremendous effort, dedication and cooperation. We have taken the first steps, but a long path still lies ahead. The support of many is crucial to its success. We invite anyone that is interested in being part of the circular economy to join our network and engage with us in future developments.

Further reading:

Would like to join or want more information, contact Elisa Achterberg at e.achterberg@uu.nl.

Elisa Achterberg


Central banks ignore climate risks at their peril


A shortened version of this letter was published on the website of the Financial Times.

In the article ‘Sustainable finance: central banks test water on climate risk’ (December 6) Mr Paul Fisher argues that “governments could add climate goals to central banks remits as a secondary objective”. It is important to notice that this has already been done for the European Central Bank (ECB) as the EU Treaty states: “Without prejudice to the objective of price stability, the ESCB shall support the general economic policies” (Treaty on the Functioning of the European Union (TFEU) 2012, Article 127(1)).
According to Article 3(3) of the Treaty on European Union (TEU) these include “sustainable development” and “a high level of protection and improvement of the quality of the environment.” Since the Paris Accord, signed by both the EU and all of its member states, it is undisputed that combating climate change is a priority in these fields.

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Rens van Tilburg


Climate finance: regulation, big business or collaborative action?


If you put five hundred actors from the financial sector in a French palace for three days, will this solve the climate financing gap? I recently spent three days in the Palais Brongniart at the Climate Finance conference to find out. I found three strategies that the financial industry are using to try to upscale climate (and SDG) finance: regulate, find the business case and ‘we have to do it together’.

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Helen Toxopeus


Fintech and the promise of sustainability


Fintech and sustainability are the two major drivers of change in the financial sector. There isn’t a financial institution that’s not involved in it. There isn’t a startup that does not derive its right to exist from it. What is striking about this, however, is that the combination is rare. Fintech is usually primarily a way of organising the existing financial practice more efficiently. But what is the role of fintech in creating a financial sector that includes green and social values?

In 2016, the UN Environmental Programme (UNEP) published a report called Fintech and Sustainable Development. The report presents sustainable development and new (financial) technology as the two ‘strains’ of DNA. They both have the same ‘basic potential as drivers of change and impact’ and are suitable for ‘creating new, sustainable business models’.

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Commonizing our future


Last Tuesday, the knights of the future assembled in the Hall of Knights in The Hague, to co-create, connect and #commonize our future. Inspiring talks were alternated with interdisciplinary working sessions to come up with challenges to address big societal problems using technology (such as Blockchain).

What makes this technological revolution so valuable to me is that it triggers us to fundamentally re-think our current system and our underlying values.

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Elisa Achterberg


Why will we buy ‘light’ rather than lamps in the future?


Perhaps a better question is: “Who will own the light on your bedside table?”

In this lecture at the Dutch University, Elisa Achterberg answers the question “Why will we buy ‘light’ rather than lamps in the future” and talks about her career from econometrician in financial risk management, through permaculture designer, to researcher into the role of the financial system in a circular economy. The revenue model of the linear economy: selling products that are ‘almost broken’ is a thing of the past. In a circular economy, revenue models for the future are developed, in which economic incentives shift to sustainability and cooperation. However, the pressing question that Elisa is currently addressing is how do we ensure that the circular economy is truly a system change and not a business-as-usual situation? Now that the financial world has woken up and is eager to join, it is time to be extra alert. Who is going to make those new circular products and who will take the lead? And who makes sure that the money flows in the right direction? View the lecture here.

Elisa Achterberg


Sustainable finance, all by itself


When we started to work on the ecological part of sustainable finance some five years ago, with our report on the impact of the carbon bubble on the European financial system, this at times could feel quite lonely. It was up to us to push the message with people on the other side of the table, mostly looking highly skeptical, if now outright bored.

Now, returning after a four month sabbatical, I find reports by an FSB taskforce on financial climate disclosure and by the EU expertgroup on sustainable finance. My six wonderful colleagues at the Sustainable Finance Lab are working with leading Dutch financial institutions on finding ways to finance fair and circular smartphones, started two Horizon 2020 programmes on the financing of eco-innovations (INNOPATHS and NATURVATION) and our co-chair gave a presentation on the circular economy in parliament. By invitation of the Dutch central bank financial institutions are making progress in diverse fields as carbon accounting and climate risk assessment, sustainable finance education and impact measurement. The Sustainable Pension Investment Lab has gone live. The movement for now also greening monetary policy is gaining momentum. Just to name some highlights.

So can I go back travelling? Maybe I can, but then again, the issues at stake are just too interesting, and the urgency for change so big, not to want to be involved. How can our quickly increasing insight into the financial risk of climate change, but also biodiversity loss and other ecological issues, be used by financial risk managers and supervisors? And what about the social dimension of sustainability?  What should the sustainable model mandates that the EU expertgroup discussed in its interim report look like? And in what way is the whole phenomenon of purpose driven business relevant to finance?  Questions we will answer in the year ahead.

Rens van Tilburg


Sustainable finance, all by itself


When we started to work on the ecological part of sustainable finance some five years ago, with our report on the impact of the carbon bubble on the European financial system, this at times could feel quite lonely. It was up to us to push the message with people on the other side of the table, mostly looking highly skeptical, if now outright bored.

Now, returning after a four month sabbatical, I find reports by an FSB taskforce on financial climate disclosure and by the EU expertgroup on sustainable finance. My six wonderful colleagues at the Sustainable Finance Lab are working with leading Dutch financial institutions on finding ways to finance fair and circular smartphones, started two Horizon 2020 programmes on the financing of eco-innovations (INNOPATHS and NATURVATION) and our co-chair gave a presentation on the circular economy in parliament. By invitation of the Dutch central bank financial institutions are making progress in diverse fields as carbon accounting and climate risk assessment, sustainable finance education and impact measurement. The Sustainable Pension Investment Lab has gone live. The movement for now also greening monetary policy is gaining momentum. Just to name some highlights.

So can I go back travelling? Maybe I can, but then again, the issues at stake are just too interesting, and the urgency for change so big, not to want to be involved. How can our quickly increasing insight into the financial risk of climate change, but also biodiversity loss and other ecological issues, be used by financial risk managers and supervisors? And what about the social dimension of sustainability?  What should the sustainable model mandates that the EU expertgroup discussed in its interim report look like? And in what way is the whole phenomenon of purpose driven business relevant to finance?  Questions we will answer in the year ahead.

 

Rens van Tilburg


ECB should look out the window more often


On June 14th ECB Vice President Vitorio Constancio gave a speech at Utrecht University School of Economics on the ECB’s negative interest rate experiment. It was a most interesting lecture in which he argued the equilibrium real interest rate (the rate at which demand and supply for capital equalize) in Europe and much of the West may in fact be negative. Secular stagnation due to low productivity growth, labor replacing technological change and sluggish demand may have pushed demand below capacity and the real interest rate at which Western economies achieve full employment at stable inflation rates could then be negative. A most interesting proposition.

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Mark Sanders