Here’s how private investors can turn plastic into gold

(Credit: Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Rob Kaplan, Chief Executive Officer, Circulate Capital

  • A lack of capital is a significant barrier to creating a profitable plastics recycling market in emerging economies.
  • But attractive returns are there for the taking – while tackling plastic pollution at the same time.
  • Here’s how financial institutions can accelerate the creation of this marketplace.
  • One of the greatest impediments to our ability to transition to a circular economy for plastics in emerging markets is a dearth of private investment capital. While investment in the recycling and circular economy space is occurring, particularly in the South and Southeast Asia regions, the flows of capital are neither large enough nor sufficiently consistent to scale solutions.

    Meanwhile the plastic pollution crisis persists. Despite progress on several fronts, only 9% of all plastic waste ever generated has been recycled, and the flow of plastics into rivers, oceans and other natural ecosystems is expected to triple by 2040 without drastic action.

    To-date, much of the capital behind solutions is strategic (it’s put up by plastics supply chain actors, for example), concessionary in nature (from international development institutions), or from highly focused impact investors and philanthropic funders. Conspicuously absent are mainstream financial institutions— broadly comprising financial intermediaries, asset managers and trading venues— seeking a commercial rate of return. This is despite solid evidence that emerging markets offer a significant opportunity for achieving (a) the largest impact on plastic waste mismanagement and (b) an attractive risk-adjusted return.

    Financial institutions can participate in accelerating the development of a recycling and circular economy marketplace and, in turn, unlock opportunities for new investment. There are already a number of actors proving the investability of circular plastics models in emerging markets, who are referenced where possible in the hopes of spurring more financial institutions into action.

    These observations are based on a recent white paper Circulate Capital developed in collaboration with the World Economic Forum’s Global Plastic Action Partnership.

    Build a more ‘investible’ circular economy

    Negative perceptions of recycling and the circular economy in emerging markets persist, particularly when it comes to the lack of a track record for investment and a landscape dominated by small deals. Financial institutions can take two key steps to help counter this view:

    1. Creating track records for new investments. Financial institutions can consider prioritizing capital flows to recycling and circular economy markets and supply chain verticals where more track records already exist. For example, Circulate Capital Ocean Fund, representing $106 million in committed capital from the plastics supply chain – including leading companies such as PepsiCo, Coca-Cola, Danone, Dow, Procter & Gamble, Chanel, Unilever and CP Chem – for investment in South and Southeast Asia, is committed to disclosing its financial and impact returns.

    Financial institutions can also promote disclosure of financial performance and impact on plastic waste at the company and project levels as part of a broader sustainability discussion. For instance, through the creation of investment indices, underwriting capital raisings, or extending loans that incorporate metrics related to plastics circularity.

    2. Building stronger pipelines. Financial institutions can look to deploy capital via venture capital/private equity deals, funds or other vehicles that aggregate and channel capital to recycling and circular economy. For example, Morova’s Althelia Sustainable Ocean Fund, a $132 million vehicle focused on the circular economy and other ocean-related business models, has invested $2 million in India in an effort that seeks to transform informal sector actors into ‘waste-preneurs.’ The German development bank KFW, the European Investment Bank, together with French insurers BNP Paribas Cardif and Garance, are all investors in Althelia Sustainable Ocean Fund.

    Financial institutions can also explore innovative investor partnerships across the financing spectrum that encourage and facilitate acceptance of greater risk. For example, the Asian Development Bank has recently launched a Clean and Sustainable Ocean Partnership with the European Investment Bank in the Indo-Pacific region; this provides technical assistance and advisory support to help entities get sustainable blue economy and clean oceans projects off the ground.

    Do more to address volatility

    During a transition from a linear to circular economy, downstream (waste management and recycling) investments must contend with dynamic commodities markets influenced by a) historically high price volatility and b) supply-demand disconnect. Financial institutions have a great deal of recourse in terms of mitigating these fluctuations:

    1. Creating financial instruments (such as futures, options, insurance-like vehicles) to manage absolute and relative price risk in connection with recycled plastics and provide liquidity to resulting exchange-based contracts.

    2. Underwriting or investing in issuances, or extending loans, where the use of proceeds concerns long-term supply or demand contracts, and annual reporting is required on their application. For example, PepsiCo’s U$1 billion, 30-year inaugural green bond in October 2019 included sustainable plastics and packaging purchases and investments as eligible projects within its use of proceeds.

    3. Advising on, underwriting, or investing in new recycled plastics spot market trading venues (that is, similar to agricultural physical commodity markets) or platforms that encourage price discovery and product standardization (for example by polymer type, quality and quantity).

    Drive capital toward more early-stage innovations

    Two of the biggest obstacles to creating more innovation are a) early-stage technologies are concentrated in developed markets, lacking capital, and risky to transfer to emerging markets; and b) applying such innovations in emerging markets carries additional risks, including legal/regulatory, management expertise and workforce, and supply chain risks.

    To address these issues, financial institutions can deploy capital at scale by investing in and/or underwriting via early-stage innovation funds, such as Sky Ocean Ventures Fund, with $25 million deployed to new technologies, materials, and business models, and companies, such as RWDC Industries (a Singapore-registered/US-located facility), a PHA-based biomaterials producer which raised $133 million in Series B funds in May 2020. Plastic

    What is the World Economic Forum doing about plastic pollution?

    More than 90% of plastic is never recycled, and a whopping 8 million metric tons of plastic waste are dumped into the oceans annually. At this rate, there will be more plastic than fish in the world’s oceans by 2050.

    The Global Plastic Action Partnership (GPAP) is a collaboration between businesses, international donors, national and local governments, community groups and world-class experts seeking meaningful actions to beat plastic pollution.

    In Ghana, for example, GPAP is working with technology giant SAP to create a group of more than 2,000 waste pickers and measuring the quantities and types of plastic that they collect. This data is then analysed alongside the prices that are paid throughout the value chain by buyers in Ghana and internationally.

    It aims to show how businesses, communities and governments can redesign the global “take-make-dispose” economy as a circular one in which products and materials are redesigned, recovered and reused to reduce environmental impacts.

    Read more in our impact story.

    The good news for financial institutions is that there is an enormous opportunity to invest in recycling and circular economy solutions in ways that meet their risk / return preferences while simultaneously unlocking capital flows to accelerate growth in the space. Further, as we start to understand the linkages between investing in the circular plastics value chain and climate change outcomes, recycling and circular economy investments must become part of the consideration set for climate-oriented investors. The case for institutional capital to step up has never been stronger, and we need financial institutions to begin allocating their capital to recycling and circular economy in the fight against plastic pollution if we want to stem the tide. Now is the time to invest.

    the sting Milestones

    Featured Stings

    Can we feed everyone without unleashing disaster? Read on

    These campaigners want to give a quarter of the UK back to nature

    How to build a more resilient and inclusive global system

    Stopping antimicrobial resistance would cost just USD 2 per person a year

    China Unlimited: an exclusive interview with the former Ambassador of Hungary to China

    Healthcare workers’ safety: a forgotten necessity

    Understanding the ‘second brain’ in your gut

    5 things to know about the exploding world of pro gaming

    First EU-wide protection for whistle-blowers agreed

    The EU has to prove it can remain one piece

    These 8 countries have perfect scores for women’s rights at work

    International Women’s Day: Where does she belong?

    Africa-Europe Alliance: European Commission committed to a sustainable African agri-food sector

    4 things ISPs can do to reduce the impact of cybercrime

    Trump ‘used’ G20 to side with Putin and split climate and trade packs

    State aid: Commission opens in-depth investigation into arbitration award in favour of Antin to be paid by Spain

    Vile act of torture prohibited ‘under all circumstances’, UN chief affirms on International Day to support victims

    3 ways to ensure the internet’s future is creative, collaborative and fair

    This lethal fungus is threatening to wipe out the world’s bananas

    EU food watchdog: more transparency, better risk prevention

    New rules on drivers’ working conditions and fair competition in road transport

    Help African farmers cope with climate change threats, UN food agency urges

    Why cybersecurity matters more than ever during the coronavirus pandemic

    Europe eyes to replace US as China’s prime foreign partner

    3 ways to make technologies more inclusive for people with disabilities

    Confidence in the COVID-19 vaccine grows in UK and US, but global concerns about side effects are on the rise

    Preventing and resolving conflicts must form ‘backbone’ of collective efforts – UN chief

    UPDATED: Thousands flee fighting around Libyan capital as Guterres condemns escalation, urges ‘immediate halt’ to all military operations

    How emerging markets will shape Africa in 2020

    5 factors driving the Chinese lawtech boom

    This tool shows you which cities will flood as ice sheets melt

    High-tech or ‘high-touch’: UK survey gives clues to the jobs of the future

    Security Council urges ‘maximum restraint’ around Gulf region as Iran and United States trade diplomatic blows in New York

    EU Parliament says ‘no’ to austerity budget

    ISIS fighters fleeing Mosul for Syria can topple Assad. Why did the US now decide to uproot them from Iraq?

    China and China-EU Relations in the New Era

    5 things you might not know about forests – but should

    More hiring freedom can reduce teacher shortages in disadvantaged areas

    When it comes to envirotech adoption, NGOs can lead us out of the woods

    ‘Extinction crisis’ pushes countries to agree stronger protection for global wildlife

    Why we need both science and humanities for a Fourth Industrial Revolution education

    The digital transformation is a skills and education opportunity for all. Companies must use it

    European Commission increases support for the EU’s beekeeping sector

    Building a Climate-Resilient Future – A new EU Strategy on Adaptation to Climate Change

    The UK option: An overarching alternative for the whole Brexit options

    ‘The time for action is now’ senior UN peacekeeping official says, urging support for regional force combating Sahel terrorism

    Mediterranean migrant drownings should spur greater action by European countries, urge UN agencies

    Carbon levy on EU imports needed to raise global climate ambition

    Iran: women hunger strikers entitled to medical care, UN rights experts urge

    It is now the era to evolve mutually as the bacteria do

    COVID-19: Revised rules to encourage banks to lend to companies and households

    Fashion’s hot new trend: clothes you don’t need to wash (very often)

    Stronger partnerships with post-conflict countries needed to ensure ‘path towards durable peace’: UN chief

    Republic of Korea President proposes DMZ as future ‘peace and cooperation district’ on Peninsula

    Women’s work faces the greatest risk of automation, says new research

    May led Britain to chaos, now looks for way out with unpredictable DUP

    We must rethink and repurpose cybersecurity for the COVID-19 era

    EU-Turkey relations: EU considers imposing sanctions while Turkey keeps violating Cyprus’ sovereignty

    National parks give a $6 trillion boost to mental health worldwide

    Here’s how data can shine a light on financial crime

    Will Eurozone be able to repay its debts? Is a bubble forming there?

    Eight years in, Syria still embroiled in conflict ‘that no longer sparks outrage’, Security Council hears

    Difficulties of vaccination against COVID-19

    Services are the hidden side of the US-China trade war

    More Stings?

    Speak your Mind Here

    Fill in your details below or click an icon to log in: Logo

    You are commenting using your account. Log Out /  Change )

    Google photo

    You are commenting using your Google account. Log Out /  Change )

    Twitter picture

    You are commenting using your Twitter account. Log Out /  Change )

    Facebook photo

    You are commenting using your Facebook account. Log Out /  Change )

    Connecting to %s