The Circular Economy: Intesa Sanpaolo’s Massimiano Tellini Q&A

Massimiano Tellini, Intesa Sanpaolo’s global head of Circular Economy, speaks to Global Financeabout what a circular economy is and why it is relevant now.

Global Finance: How do you define the circular economy? How is it different from sustainability?

Massimiano Tellini: Circular economy, for us, has a very straightforward definition. Basically, it means how we are able to design a system where economic and social development is detached, or not anymore linked with the exploitation of finite natural resources. The three principles that somehow guide the activities are: exclusive use of renewable energies, ambition to arrive gradually at zero waste, and to make sure that we have an economy which is regenerative by design. What does it mean? Basically, it means that, for example, when we are talking about agriculture, we are talking about business models and techniques and an approach of doing business that actually are not taking out nutrients or using additives or chemicals, agents that prevent the soil and that the rain to regenerate itself.

As a planet, each year we use more resources than are generated. In the last 25 years, the so-called overshooting day has been happening earlier and earlier despite huge hype on the sustainability agenda [Editor’s note: 2019 overshooting day was July 29; in 2009 it was September 25]. This means that something isn’t working. This is the nexus between sustainability and circularity. In order to work, circularity has to be systemic. In order to function, circularity has to call in different players, having a common goal and the ability to work together to make things happen. And this goes back to the difference. Let me bring in an example: plastic is becoming somehow an issue now. The problem, though, isn’t plastic. The problem is the use of the plastic that we make.

GF: What is Banca Intesa’s commitment to the circular economy? What does it mean to finance the circular economy? In what sense it is different from regular commercial lending?

Tellini: Intesa Sanpaolo is among the top sustainable companies around the globe. It is the only Italian bank in the Dow Jones Sustainability Index. When we started this journey, we asked ourselves, how can we finance companies that are less sustainable than us? A couple of years ago, finance was seen as an obstacle to the circular economy, rather than an accelerator. Since the beginning, we thought we needed a true understanding of what circularity means.

The credit is a standard credit. The difference is how you are going to use this credit, what you want to create out of this credit, how you are going to somehow implement the transition [toward a circular economy] the point where you, as a company, are becoming less risky in the near future. I give you an example. In the real estate sector, you have a company which is selling elevators, and someone buys them and need to maintain them. But in the circular economy, the same company isn’t selling the elevator anymore; it’s selling the service of vertical mobility. And, of course, it wants to make sure that the best product is there that the best materials have been used, and they can be used according to the needs. But what is important is that the company retains the ownership of the elevator and is going to guarantee that kind of asset for 40 years, rather than 20.

GF: Do you have more examples?

Tellini: What is required isn’t just the ownership of the asset, but the access to the service. Likewise, for transportation services and cars. Young people maybe don’t need [to own a] car; maybe they just need mobility services for evenings out.

At Intesa, we propose this kind of transaction when companies are going circular. We are looking at the possibility for that client to become less risky in the future. In a nutshell, I’m convinced that companies that are able to shift to a simpler business model, as in the example of the elevators, will have less exposure to outside risk because they might not need to depend on the market as much, and they are less exposed to disruption. It’s important that we are able to put back into the hands of the entrepreneurs the levers for risk mitigation.

GF: Strategic partners of the Ellen MacArthur Foundation include names such as BlackRock, Google, Danone and Philips. What does that mean in term of their participation to the circular economy?

Tellini: All of the strategic partners are genuinely oriented toward a more circular way of doing their business, and that circularity is a way forward for the creation of value. For example, look at Renault, who is also global partner. Renault has an auto plant in Choisy-le-Roi, a suburb of Paris, where they give spare parts a second life and they remanufacture components from old vehicles [editor note, the Choisy-le-Roi Renault plant in Ile-de-France, has been giving spare parts a second life for 70 years and the plant won in 2014 a prize from the France government for its contribution to the circular economy].

Why do they do it? This is an exercise of circularity; you take something which is exhausted, and you try to somehow regenerate it and put it back into the market. Secondly, because it’s convenient from an economic standpoint. The operating margin of that plant was one of the highest of the whole Renault group internationally. This gives you an example of a company that is pursuing its business agenda, but at the same time digging into circularity’s state of mind.

The same goes for IKEA. They are trying to convince you, as a consumer, that you don’t need to buy furniture; you can rent it. And once you can rent it, you keep the ownership. Or Philips, which is working in reconditioning magnetic resonance machines. These machines are very expensive, so it is important that they can be put back into the market for service.

GF: Since Intesa started this process in 2017, how many loans have been given to circular economy projects?

Tellini: This is a work in process, and what I can tell you is this an important project for Intesa. Our starting point is pretty good. What I can share with you is that out of the 5-billion-euro credit facility that we granted for the circular economy, and that we put out on the strategic plan, we already disbursed €1.5 billion for projects and we have a pipeline that is in line with the objectives set in 2018. This is a moving exercise, and we are progressing. We are the first bank that has been able to put out a specific product linked to the circular economy.