Re-wiring CAPEX and Finance in Circular Value Chains: A Case Study of Advanced Materials

The subject of the joint IMD-EPFL research proposal is the reduction of scope 3 emissions and the re-wiring of CAPEX and finance within circular value chains.

Introduction: Industrial Decarbonization

Decarbonization is essential for our industrial economy to remain within the remaining carbon budget of 200 GtCO₂e and to align with the goals of the Paris Agreement, which are under increasing strain. Six of the nine planetary boundaries have already been crossed, and the time lines of reversal are non-trivial. As stated by Mark Carney, former Governor of the Bank of England, climate change suffers from the “Tragedy of the Horizon”—its catastrophic impacts will manifest well beyond the traditional decision-making horizons of most financial and economic actors. From a financial perspective, investing in mitigation today is far more cost-effective than bearing the escalating costs of adaptation as climate impacts intensify. Yet, despite clear evidence, action continues to be delayed.
Key points include:
• Up to 80% of a product’s lifetime emissions are determined during design and material selection.
• Society extracts 90 GT of raw materials annually, projected to rise to 190 GT by 2050.
• In the past six years, 500 BT of raw materials have been consumed.

Targeting Scope 3 Emissions

Addressing Scope 3 emissions, which can account for up to 70% of a company’s total emissions, is critical. Eight supply chains, including food, construction, and automotive, are responsible for over 50% of global emissions. Collaborative action is needed to reduce these emissions, with a focus on Petro-chemical product derivatives. Multinational corporations stepping up and investing in associated physical assets while assisting businesses along our value chains can drive reduction of carbon footprints and environmental impacts.
The Role of Finance in Circular Value Chains
Significant investment is required to meet NetZero targets. McKinsey & Company estimate $275 trillion is needed in physical assets by 2050. Delaying mitigation increases costs and risks losing 10% of total economic value by mid-century. Companies must balance current product sales with investments in sustainable intermediates and new business models.

Case Study: Advanced Materials

Advanced materials like carbon fiber are essential but challenging to decarbonize. Collaboration across technology, policy, and finance is needed to re-wire linear supply chains. Key research questions include how CAPEX and financial strategies can be restructured to enable transformative shifts in material flows and achieve substantial emissions reductions.

Financial Re-allocation in Supply Chains

Finance is vital for modifying mass and CO2e flows in the advanced materials value chain. CAPEX needs to be re-allocated across the value chain, particularly downstream at end-of-life stages. This requires novel business models and collaborations across the value chain.

Anticipated deliverables

The carbon fiber industry illustrates the need to re-wire CAPEX and finance for circular value chains.
IMD and EPFL will model using Monte Carlo approaches the revenue to CAPEX ratios of alternative sustainability strategies for the CF industry to 2050 for the enablers of: bio-precursors, low energy carbonization, and recycling for post-industrial and end of life waste streams. Road maps will be presented as to how CO2e can be reduced by modifying mass flows in the industry, enabled by targeted finance that shows a clear return on investment and strong market pull.
The findings will be disseminated through technical publications and used as teaching material. Additional funding mechanisms will be pursued to continue the work at a larger scale.