Necessary next step on valuation for enabling a circular economy - A pathway to implement IFRS for used parts

An international expert group in the fields of remanufacturing, reverse logistics and investment in circular economy businesses is currently working on a collaborative project (Co.Project) of the CE100 programme of the Ellen MacArthur Foundation. The Co.Project strives to improve the access to finance for circular economy businesses by empowering them to value their used parts (cores) according to the IFRS (International Financial Reporting Standard).

CE100 Co.Project ReValU-Parts (Rethinking the Value of Used Parts)

A successful company should be able to a transition from one development stage to the next with the support of the relevant funding. It rests with the management team of the company to persuade financiers of the merits of their business to access funding. Financiers are not only looking for strong businesses that are capable of moving to the next stage of development, they are also seeking appropriate pricing or risk weighted returns from their investment (debt or equity).

Although capital is available for funding, assessing the value of a business and deploying the right form of funding to the specific initiatives are major challenges for circular economy businesses. When dealing with physical products, no matter what circular economy approach businesses choose, such as repairing, refurbishing or remanufacturing, at some point in their circular economy activity, they have used parts in their stock and must financially evaluate them.

For this purpose the Co.Project deals with the question of how the existing inventory valuation according to the International Financial Reporting Standard (IFRS) can be applied to the valuation of used parts of remanufacturing companies. The focus is set on circular economy business cases in the automotive aftermarket and the printer and printer supply industry, where used parts are taken back for remanufacturing. The objective is to transfer the results to other remanufacturing industries.

Circular Economy Solutions GmbH is the Co.Project Lead and collaborates with eight organizations Lexmark, ING, Circularity Capital, PGGM (Dutch Pension Fund), Accounting Norway, Topolytics, University of London and NBA (Dutch Professional Organization for Accountants) to leverage the CE100 network with the aim of overcoming the challenge for circular economy business to access funding.

The latest Co.Project workshop was held on January, 18^th 2019 in Frankfurt (Main) to discuss valuation methods of cores and their impact on the value of a circular business model.

From left to right: Frido Kranen (PGGM), Christine Lundberg Lasen (Accounting Norway), Frances Kärsten (C-ECO), Peter Bartel (C-ECO), Andrew Shanon (Circularity Capitol), Paul Hurks (NBA)