Financial sustainability of circular innovations in SMEs. A case study from the fashion industry in Italy

Circular actions cannot be considered sustainable if their financial benefits are not demonstrated. While the environmental benefits of the circular economy have been widely studied, sustainable development from a financial point of view has been much less studied. In this paper we assess the financial benefits of circular innovations applied in the fashion industry that have been previously assessed as sustainable using the Life Cycle Assessment. The focus is on two innovative processes such as salt recovery and tannin baths reuse that reuse water, chemicals and raw materials in an Italian small company operating in the tanning industry. A cost benefit analysis was carried to evaluate the net contribution of these actions to the operating margin. Then we model a forward-looking cash flow projection in order to determine the fundamental value of circular investments. Through these practices, the company achieved an increase in operating profitability above 30% and the 10-year value of the salt recovery is 159,061.40 euros, while the reused tanning water equals just over one million euros. The results show unexpected and strong financial benefits that can leverage similar initiatives that would advance resource equity and finally promote a real and convenient industrial dedication to environmental guardianship.