Circular economy promotes a transition away from linear modes of production and consumption to systems with circular material flows that can significantly improve resource productivity. However, transforming linear business models to circular business models posits a number of financial consequences for product companies as they need to secure more capital in a stock of products that will be rented out over time and therefore will encounter a slower, more volatile cash flow in the short term compared to linear direct sales of products. This paper discusses the role of financial actors in circular business ecosystems and alternative financing solutions when moving from product-dominant business models to product-as-a-service or function-based business models and demonstrates a solution where state-of-the-art AI modelling can be incorporated for financial risk assessment. We provide an open implementation and a thorough empirical evaluation of an AI-model which learns to predict residual value of stocks of used items. Furthermore, the paper highlights solutions, managerial implications and potentials for financing circular business models, argues the importance of different forms of data in future business ecosystems, and puts forward recommendations for how AI can help overcoming some of the challenges ahead.
Sara Fallahi, Ann-Charlotte Mellquist, Olof Mogren, Edvin Listo Zec, Lukas Hallquist