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Jul 03, 2023

Funding circularity: Investing in Asia’s circular economy business models

SINGAPORE — For a while now, researchers and policy experts have touted the transition to a circular economy as a way to sustainably handle the world’s growing waste and pollution crisis. The

SINGAPORE — For a while now, researchers and policy experts have touted the transition to a circular economy as a way to sustainably handle the world’s growing waste and pollution crisis. The objective is to rapidly replace the “take-make-waste” business model of the linear economy with the “reuse, repair, refurbish and recycle” model of a circular economy. The ultimate goal would be to achieve zero waste.

But beyond the buzzwords now doing the rounds in the media, how do inventive entrepreneurs and companies make sense of the circular economy? How can businesses adopt this model to reduce resource extraction and increase reuse and recycling? And how can small businesses that are successfully exploring innovative circular models find the money to scale up, especially in emerging economies?

To get answers to some of these questions, Mongabay sat down with Ellen Martin, the chief impact officer at Circulate Capital, an investment management firm based in Singapore that funds circular business models in emerging economies. Launched in 2018 with a $100 million fund, Circulate Capital invests in companies in South and Southeast Asia with the aim of scaling up their circular solutions.

In essence, the circular economy business model helps companies rethink and revamp their supply chains — reinventing their relationships with raw materials and waste. A key part of the process is to reduce the reliance on new raw materials by deriving new products from waste.

“It’s a whole way of creating value that decouples the extraction of resources from the environment and finding ways of making those resources more productive,” Martin explained.

But the concept does more than just reduce waste — it could be a powerful tool in combating the climate crisis. That’s because reusing materials consequently reduces the need to make new ones from scratch, which in turn brings down greenhouse gas emissions associated with the sourcing and manufacture of those products. Circular economy businesses can also reduce the threat of looming raw material shortages.

There are big biodiversity benefits too — at both ends of supply chains. Cutting down on raw material resourcing means less mining and deforestation, less freshwater use and far less pollution. That’s better for wildlife that no longer needs to cope with toxic mining waste and habitat loss and ecosystems polluted with plastics and other dangerous contaminants.

But clearly, if such a wholesale cultural transition is to be made, a massive infusion of investment money is needed — and that money needs to go to the right businesses. It’s essential to identify entrepreneurs around the world, especially in the Global South, who are already practicing innovative circular ideas and provide them with sufficient financial backing to grow their businesses from small-scale pilot projects to fully scaled-up industries.

That’s the goal for investment firms like Circulate Capital.

“We invest across the value chain to recover more material as well as process it and upcycle it into … a close-loop system,” Martin said.

What does that look like out in the world?

Here’s an example: Lucro, a Mumbai, India-based plastic flexible film manufacturer got its start in 2012. But it got critical financial support from Circulate Capital in 2020. Early on, Martin said, Lucro’s founders realized they could do a lot more with the scrap they were generating and throwing away. Investment money from Circulate Capital helped the manufacturer scale up; it now is working to source materials used by consumers that might otherwise end up littering the landscape or the ocean and reusing it to make recycled products.

“If you are in India, milk might come in a plastic milk pouch. They [Lucro] now have an integrated model that collects these from communities throughout India and brings it back to their facility to turn it back into blended recycled pellets that can be used in a wide variety of applications. Or they make new, flexible films with that material,” Martin explained.

When Circulate Capital invested in Lucro, she said, it was producing just 1,000 tons of recycled plastic annually. That has now shot up to 15,000 tons every year.

Another real-world story: In Indonesia, Circulate Capital invested in Tridi Oasis, a company led exclusively by women who recycle bottles made from polyethylene terephthalate (or PET, as it’s commonly called), a strong, lightweight plastic. It recycles those bottles to produce rPET (recycled PET) flakes, which can then be used to make packing materials and textiles. According to the Tridi Oasis website, the company, since its launch in 2015, has recycled 250 million plastic bottles. Last year, Circulate Capital exited the deal with the company after it was acquired by a German recycling firm. However, Martin said it was an example of how it could “help a company grow their capacity and become ready for that type of engagement.”

Circulate Capital’s focus to date on South and Southeast Asia isn’t without reason. For years, countries in the Global North have been exporting their plastic waste to Asia, particularly Southeast Asia. That has, in turn, harmed the environment there and led to a dramatic increase in ocean plastic waste.

However, on the flip side, all those plastic “waste” exports also gave some Asian countries access to a vast amount of raw materials that they could reuse to establish circular economy business models. “It was a logical first step for us to start a trend in investments to build infrastructure to prevent that plastic from leaking into the environment in India and Southeast Asia,” Martin said.

Of course, Circulate Capital faces hurdles in achieving its circular economy mission. It must first search Asia to identify qualified companies with a strong ethic that are already producing sustainable products. Then the investment firm must fund those select companies to help them “scale to a point where they can be part of much larger global supply chains,” Martin said. “But in order to do that, they need to be meeting certain standards. That work is time-consuming and takes effort.”

Despite these challenges, Martin said she is seeing growing support for circular economy models, especially on the policy side. What is now needed, she suggested, is for different players in the finance sector to come together to support identified sustainable business models to become most effective.

“There’s this aspect of blended finance that is needed where we might have a combination of different capital providers getting together to invest in infrastructure across the full value chain,” she said. These funding resources “could include development banks, donor agencies, local governments and philanthropy. All of these complement the role of commercial capital.”

Circulate Capital is now scaling up its own work to expand beyond Asia. This year, it launched an initiative to combat plastic pollution in Latin America, where it will be attempting to replicate the strategy it has achieved in Asia.

The investment firm is also involved in the U.N. negotiations for a global plastic treaty, an international agreement currently under discussion. The 58-nation-strong High Ambition Coalition to End Plastic Pollution is seeking a final treaty document that deals effectively with plastic pollution throughout its entire lifecycle. Martin said Circulate Capital endorses a strong globally binding agreement, as opposed to a watered-down voluntary version that some influential nations, including the United States and China, the world’s biggest plastic producers, are pushing for.

“From our perspective, as an investor, the clearer the guidance, the greater the opportunity,” she said. “It also makes clearer pathways to finance a lot of solutions that need to be put in place.”

Abhishyant Kidangoor is a staff writer at Mongabay. Find him on Twitter @AbhishyantPK.

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