Circular Economy

FIs can develop specific policies and procedures to address the most salient human rights and environmental risks relating to their Circular Economy portfolio.

Policies and procedures should define the scope of the Circular Economy – promoting sustainable resource use, reducing waste, and fostering innovation in recycling, remanufacturing, and product life extension – and the FI’s approach to integrating human rights into the transition to a Circular Economy aligned with the corporate responsibility to respect human rights embedded in the UNGPs. Policies should reaffirm commitment to internationally recognised human rights standards such as the International Bill of Human Rights  and the ILO Fundamental Conventions, recognising that the latter apply to all workers including informal workers in Circular Economy value chains.

Policies and procedures can also include a commitment to key sector-specific standards, as well as to standards which address the most salient human rights issues in the sector, as well as relevant regulations, such as the new EU Batteries Regulation, which expressly references the UNGPs. They may also reference Circular Economy-specific voluntary guidelines, such as the Fair Circularity Principles and the Harmonized Responsible Sourcing Framework for Recycled Plastics

Any commitments by FIs to these standards, or any concrete expectations for clients/investee based on these standards, should be accompanied by an explanation of how the human rights-related expectations embedded in these standards will be implemented.

FIs’ Circular Economy policies can set clear expectations and requirements of how to address human rights risks throughout the Circular Economy, including downstream and upstream value chains. This can include:

• Specific policies and procedures on issues such as: conservation and sustainable use of finite resources such as water, energy, or land, which take account of local community need for these resources now and in the future;
• Ensuring free, prior and informed consultation and consent of local and Indigenous Peoples (where applicable);
• Ensuring that vulnerable groups are part of the consultation process and including a complaints mechanism for local communities; and on the relocation of communities, including measures around consultation, prompt and adequate compensation and continuation of livelihoods.

For further information, see ‘Taking Action – Strengthen human rights in FI policies’.

See also ‘Policy commitments and human rights’ for practical guidance on how to develop policy commitments which are consistent with the UNGPs, and how to integrate relevant human rights commitments in other policies and procedures.

Human rights screening and risk assessment should cover all key entities in the downstream and upstream value chain, and specifically informal workers engaged in the waste management and recycling value chain. Risk assessment of transactions which promote scaling up the Circular Economy will require a particular focus on informal waste workers who play a substantial role in the collection, sorting and recycling of materials, and will be significantly impacted by increases in recycling.

FIs should assess whether their clients’ / investees’ activities in the sector are likely to impact on vulnerable groups (children and young workers, informal waste workers and workers at risk of job displacement, vulnerable consumers, marginalised communities), and to evaluate the systems that their clients have in place to mitigate and prevent these impacts.

FIs can seek to ensure that screening and risk assessments reflect key contextual risk factors in the Circular Economy:

• Operational and geographical context: for instance, the conditions of informal waste and recycling workers are context-specific and will vary significantly depending on the geography and waste management ecosystem for materials, as well as the regulatory environment (such as Extended Producer Responsibility (EPR) regulations). FIs should also be attentive to the potential human rights impacts of redesigning value chains from linear to circular, which may result in shifts away from suppliers and geographies, or outsourcing of production to countries with weaker regulations. There are also specific health and safety risks associated with certain operations in the circular economy, particularly in relation to picking and handling waste.
• Type of business relationship: it is likely that the highest risk may be associated with recycling and waste management upstream value chains, to which both FI and client / investee are likely directly linked. Companies in these value chains, including private waste management companies, have limited understanding, experience and exposure to their human rights responsibilities. It is also important to understand value chain dynamics, including regulatory or commercial shifts – including mechanisation / automation – which could deprive upstream value chain waste and recycling workers of access to recyclable content, or impedes market entry, thereby threatening livelihoods.
• Client / investee specific risk factors: during initial screening FIs should consult public and proprietary resources to assess human rights risks related to the (potential) client / investee, including reports of human rights abuses in their operations or value chains
• Presence of vulnerable groups: HRDD should be particularly sensitive to the risks to often marginalised groups in the Circular Economy, including refugees, children and young people, minorities and women.

See ‘Taking Action – Strengthen FI risk management systems and processes’. See also ‘Human Rights Screening and Risk Assessment’ for practical guidance on developing risk screening and assessment systems and processes.

Throughout the financing cycle, FIs should gather information on how clients / investees are managing specific human rights risks and impacts relevant to Circular economy.  This could include requiring clients / investees to provide information on:

• Grievances and reports: Human rights claims or complaints, along with the measures adopted to address them.
• Labour management: Description of how labour issues are managed, specifically in relation to most vulnerable workers including waste management and recycling workers.
• Incident log: Labour and occupational safety and health incidents and/or worker complaints, as well as the mitigation/ prevention measures taken. This should extend to contractors’ and sub-contractors’ workforces.
• Environmental management systems: The company’s environmental management systems and certifications, including approach to managing hazardous and biological waste; process for identifying health risks to workers and communities due to the chemicals present in recycling and reuse of products.
• Water use and pollution: The company’s approach to water management and pollution prevention, particularly in relation to the use of water in water-stressed areas.
• List of suppliers: A complete list of suppliers, where possible including their locations, types of products provided, and the volume of business conducted with them.
• Supplier assessments: The company’s approach to assessing and monitoring suppliers’ compliance with human rights standards, including any measures implemented.
• Consultation: Approach to consultation with potentially affected groups and other relevant stakeholders, including processes, participants, findings and outcomes.

Effective client engagement helps to build a common understanding of risks, gaps, and required actions. This ensures that measures can be adequately appropriated and implemented. Engagement with clients / investee in the Circular Economy can focus on:

• Integrating a human rights-based approach into Circular Economy policies, processes and practices: many companies’ Circular Economy initiatives have been driven by compliance with environmental regulations. Where addressed, human rights considerations have largely been approached through the lens of voluntary social programmes. There is a need for more robust approaches to using leverage at scale where companies are linked to such impacts, drawing on experiences tackling other systemic human rights issues in value chains, and for corporate advocacy on impacts on informal waste sector workers.
• Considering jobs impacts: companies can consider ways in which workers can be re-skilled to respond to changes in production and manufacturing. For example. this may consider loss of livelihoods, due to automation, AI, or value chain re-engineering linked to the Circular Economy.

See also ‘Taking Action – Client / Investee Engagement’.

Contractual requirements are also a common tool to build leverage, and FIs should consider integrating human rights considerations into financing contracts with clients, based on organisational human rights policies and commitments.

Pending financing modality, FIs can seek to use contractual leverage with clients / investees to encourage the ‘cascading’ of human rights-respecting business practice along the value chain. This may commence with the requirement that the client / investee develops and implements a code conduct for suppliers and contractors aligned with the international standards which responds to all identified human rights risks for a defined scope of the value chain. Where appropriate, specific risk mitigants and process requirements – including monitoring, reporting and stakeholder engagement – can be elaborated in the action plan and covenanted in contractual agreements.

See also ‘Taking Action – Contractual provisions’.

To require and incentivise clients / investees to integrate human rights considerations in their policies, processes and risk management systems, FIs can support clients / investees in the development of mitigation plans, agree on timelines and specific actions.

FIs working with clients / investees in the Circular Economy can focus efforts in all the following areas:

• Mitigating occupational health risks for formal waste, recycling and sanitation workers: Mechanisms to reduce these risks will involve a combination of improving management practices, technology and worker behaviour.
• Mitigating occupational health risks for informal waste, recycling and sanitation workers: For informal workers who are at heightened risk of occupational health and safety risks, it is important to provide basic equipment such as gloves, safety glasses, and masks, as well as training for informal waste pickers on safe collection methods.
• Ensuring accessible health services to waste, recycling and sanitation workers, especially the informal workforce: Providing informal workers with access to healthcare would reduce health related risks for workers.
• Reducing barriers to higher income opportunities for marginalised groups: Companies can create focused initiatives that target underserved groups, such as women, refugees or displaced persons, or persons with disabilities, for higher income jobs. This can help eliminate unique entry barriers to better jobs. To understand the needs of marginalised workers, companies can partner with specialist organisations with relevant knowledge and experience.
• Job retraining and skills development programmes: Job retraining or skill-building programs, in combination with social support programs such as in health care and child education, can support adult career transitions and minimise periods of vulnerability.
• Ensuring a gender-responsive approach: Many of the most vulnerable rightsholders in Circular Economy value chains are women, who may face specific vulnerabilities and be exposed to particular human rights impacts, including those affecting personal safety and security, discrimination and harassment, and livelihoods. Companies should therefore adopt gender responsive HRDD to identify and address the human rights impacts to women in relation to their Circular Economy activities.

For more general information, see ‘Taking Action – Action Plans and Specific Mitigations’.

In relation to circular economy this could include for example refraining from providing financing to projects which have the potential to negatively impact on community workers’ health and safety, for example projects which involve the handling of hazardous waste without an adequate plan in place to manage health and safety risks.

See ‘Taking Action – Avoid actions and omissions that facilitate or incentivise human rights abuses’.

FIs should work collaboratively with relevant stakeholders to inform their policies, identify risks, improve monitoring systems and grievance mechanisms, as well as to address entrenched human rights challenges in the Circular Economy. This should Involve meaningful consultation with potentially affected groups and other relevant stakeholders, as appropriate to the nature and context of the operation. The relevant stakeholders for FIs financing the Circular economy would include: other banks and investors with similar portfolios, industry associations and groups representing healthcare practitioners, regulators, multilateral organisations, NGOs or consumer groups working on human rights issues linked to the sector, trade unions, and rightsholders affected or potentially affected by client / investee activities, and their legitimate representatives.

Specifically, FIs can participate in different collective initiatives with other stakeholders to eliminate unique entry barriers to better jobs and support higher income opportunities for marginalised groups. See the sector guidelines and frameworks on human rights.

FIs can also promote collective action among companies in the same segment of the circular economy, which can help them to identify and address some of the root causes of adverse impacts to vulnerable rightsholders, and informal waste workers in particular. The Informal waste sector is not typically organised into entities that companies are used to engaging with, making stakeholder engagement more challenging. For waste management companies and aggregators, this may require taking significant steps to create direct engagement with waste pickers that addresses existing mistrust. For other companies further upstream or downstream, it may mean engagement with legitimate representatives of the informal waste sector community, or credible proxies for their views, to align on expectations and action.

More broadly, encouraging clients / investees to engage meaningfully with communities that live around formal and informal waste and wastewater infrastructure is important to understand how changes to the site may affect communities’ livelihoods, health, property and quality of life. A community awareness and education plan should be considered part of health and safety measures, supported by engagement with community leaders to explore access to landfill and the related safety and security issues, and alternatives for local communities. Recognition of existing communities’ rights should be supported by policies and procedures on the conservation of cultural, historical or religious sites which form the basis of the identity of local and/or indigenous groups, and an assessment to evaluate a project’s positive and adverse effects on indigenous peoples and examine alternatives where adverse impacts may be significant.

See ‘Taking Action – Stakeholder engagement and collaboration’. See also ‘Stakeholder engagement’ for guidance on collaborating, engaging and pursuing collective action.

FIs can enhance transparency and disclosure practices by providing stakeholders with access to sufficient, relevant and frequent information about finance and investments, including potential human rights impacts, mitigation measures, and grievance mechanisms. FIs can also develop and publish reports against clear indicators reflecting a human rights perspective, including salient issues, measures, and results.

While several voluntary reporting metrics and standards exist to support corporate disclosure on circularity at a product and company level – such as GRI 306: Waste,  Circulytics, WBCSD Circular Transition Indicators – these do not currently integrate a human rights dimension. It is therefore important for FIs to determine a defined number of key indicators to track human rights performance in Circular Economy transactions (see ‘Monitoring and evaluation’ below).

FIs should encourage Circular economy clients / investees to disclose to report granularly on human rights impacts, including in relation to the value chain. Key thematic areas of relevance include health and safety and gender equality and inclusion. In relation to waste and recycling firms, companies / investees can consider increased transparency and disclosure in relation to how companies source materials and manage waste.

See also ‘Taking Action – Transparency and disclosure’.

In relation to the Circular Economy, FIs can provide training and capacity building for FI staff on key human rights issues the identification, prevention, and mitigation of human rights abuses in the Circular Economy.

FIs should also ensure that clients / investees have sufficient technical, financial and logistical resources available, including an interdisciplinary team that includes qualified with human rights expertise and knowledge on the local context. Many companies in these value chains, including private waste management companies, have limited understanding, experience and exposure to their human rights responsibilities. Additionally, many companies do not recognise informal waste and recycling value chains as part of their own value chains. Waste management, including plastic waste collection and recycling value chains, can lack transparency, and as a result, it is difficult for any actor to know who the other actors in their value chains are and to have visibility into the conditions on the ground for waste pickers.

See also ‘Taking Action – Capacity building and training’.

FIs can work with clients / investees to establish robust monitoring and evaluation mechanisms to track the effectiveness of measures taken to prevent and mitigate human rights abuses at the portfolio level. This should focus on mechanisms which allow for continuous feedback and improvement, ensuring that the FI’s human rights practices evolve based on sector- and region-specific lessons learned and emerging best practices. The complaints received through the grievance mechanism should also be used as input to evaluate the effectiveness of the measures implemented.

At the operational level, FIs can support clients / investees to adopt monitoring mechanisms that are appropriate to the level of risk, and led by teams with relevant skills and expertise. In relation to Circular Economy, FIs can focus on waste and recycling upstream value chains, these can be based on the indicators set out in the Harmonized Responsible Sourcing Framework for Recycled Plastics, which cover economic empowerment, health and safety, autonomy and inclusion, collective representation and gender equality.

FIs should also ensure that clients / investees have appropriate procedures in place to cascade monitoring through the value chain. This should extend to informal waste, recycling and sewerage workers who are at significant risk of negative human rights impacts, including injury, diseases and exposure to toxic materials.

See ‘Taking Action – Monitoring and disclosure’ for practical guidance on monitoring and evaluation processes to track human rights risks and impacts associated with business activities

FIs should ensure that accessible and effective grievance mechanisms are in place to enable affected stakeholders to raise concerns and seek redress for any alleged human rights abuses related to their investment or lending activities in the Circular Economy. This includes requiring clients/investees to have in place or to participate in a grievance mechanism aligned with Principle 31 of the UNGPs.

FIs can set up their own grievance mechanisms, participate in one or more grievance mechanisms established together with other FIs, or participate systematically in clients’ / investees’ grievance mechanisms. In relation to workers, note that grievance mechanisms established by existing industrial relations systems and collective bargaining agreements can constitute effective and credible mechanisms to respect labour rights. FIs should encourage clients / investees to ensure that the human rights impacts of their Circular Economy activities are included in grievance mechanisms and can be accessed by affected peoples, including communities located near the activities, as well as workers. 

Sector collaboration may help to harmonise and streamline grievance mechanisms across Circular Economy value chains, for example through working with other companies in the segment to co-create a grievance mechanism – e.g. at a new project site – to ensure it is effective.

See ‘Taking Action – Improve and support the effectiveness of grievance mechanisms to ensure and enable remedy’.