Asia well-poised to harness potential of plastics circular economy: Circulate Capital

INVESTORS can play a key role in reducing plastic waste and must rouse themselves from the sidelines where they’ve historically parked themselves to allocate more capital towards this - especially given the significant investment opportunities in the plastics circular economy in Asia, in particular. 

Such is the view of Rob Kaplan, chief executive officer and founder of Singapore-based investment management firm Circulate Capital. Kaplan was speaking to The Business Times on the back of news that the European Investment Bank (EIB) had committed to invest up to US$20 million in the firm’s Circulate Capital Ocean Fund I-B (CCOF I-B).

The fund invests both into disruptive innovations aligned with the firm’s climate-tech strategy, and into the South and South-east Asia recycling value chain, alongside the firm’s US$112m Circulate Capital Ocean Fund. 

Citing Google’s recently released “Closing the Plastics Circularity Gap” report, Kaplan noted that more than US$430 billion needs to be invested over the next 2 decades to ensure circular supply chains can meet the growing demand for plastics.

“Investors have the opportunity to help solve the plastic waste issue, fight climate change and capture the economic value of plastic,” he said. “(Yet) institutional investors have historically been sitting on the sidelines of investing in the waste and recycling sector.”

Moving from a linear to circular economy model involves a transformation of the supply chain - and investment capital is needed to fund the innovation needed and to scale up new technologies and business models for them to become viable in the long run. “We need (investors) to allocate more capital to the space in order to bridge the gap identified in the Google study,” noted Kaplan. 

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Google’s study posited a business-as-usual scenario (BAU) where recycled plastics re-entering the economy would more than triple to 77 million metric tonnes by 2040 - while 86 per cent of plastics will be landfilled, incinerated, or leaked into the environment. It termed the growing total volume of plastics, compared with the volume of plastics coming from circular supply chains, the “plastics circularity gap”.

It said this gap is growing rapidly and, by 2040, under a BAU scenario, would translate into a cumulative 7.7 billion metric tonnes of plastics being left mismanaged - equivalent to the weight of approximately 16 times the mass of the entire human population living on earth today.

“To unlock more capital, we must prove that investing in this sector is scalable and can generate competitive returns, while meeting sustainability and ESG (environmental, social and governance) targets,” Kaplan explained. 

“But mainstream investors are currently sitting on the sidelines because they do not have access to the information and tools they need, such as a visible pipeline or investment track record. This results in a failure to connect capital and viable enterprises,” he added.

This is where funds like Circulate Capital and multilateral lenders like the EIB come in.

According to Kaplan, Circulate Capital invests in companies across the plastic recycling value chain, in order to scale these companies and to demonstrate the investment opportunity - which will pave the way for “the billions more” needed to build sustainable, circular systems.

EIB’s recent commitment to CCOF I-B, Kaplan pointed out, is a strong indicator that the waste, recycling, and circular economy industry is ready for institutional capital to drive real change and transform the global value chain.

EIB’s vice-president Ricardo Mourinho Félix said that it chose to invest in CCOF I-B because the fund makes projects aimed at reducing pollution, by recycling and re-using plastics, financially viable.

Kaplan said: “As more financial institutions recognise the value of circular approaches and integrate environmental priorities into their investment decisions, with EIB’s Climate Bank Roadmap and Clean and Sustainable Ocean Programme serving as strong examples, we expect to see an acceleration of capital into the sector.”

A case in point is The Alliance to End Plastic Waste and Lombard Odier Investment Managers’ announcement, just last week, of their intention to launch a new circular plastic fund - which aims to raise US$500 million from institutional and other accredited investors for scalable solutions to remove plastic waste from the environment, increase recycling, and drive the global transition towards a circular economy for the plastic value chain.

Kaplan added: “The case for institutional capital to step up has never been stronger. In order to effectively stem the tide of plastic pollution, we need financial institutions to scale solutions advancing the circular economy.”

And the investment opportunities across Asia are significant, with Kaplan saying that they exist across the entire value chain - from downstream solutions that deal with plastics already in the market, to upstream innovations that reduce waste and create circular products and business models.

Circulate Capital has identified 4 main solutions that have the potential to make significant impact in addressing the current gaps across the plastic value chain: 

• Developing disruptive innovation to ensure that products are designed to use recycled plastic or made from innovative materials, and for a recycling destiny; 

• Increasing collection and sorting to eliminate leakage into the environment and ensure plastic waste is cleanly sorted and processed to enable recycling;

• Deploying upcycling technologies to increase the value of recycled products; and

• Scaling digitisation by applying Big Data, deep tech and artificial intelligence to drive efficiency, transparency and traceability across the supply chain. 

“Asia is well-poised to unlock and maximise the potential of a circular economy,” Kaplan noted. “Most of the world’s ocean plastic leakage comes from the region, but research by Ocean Conservancy shows that we can reduce global plastic leakage by 45 per cent through investments in waste management and recycling in just 5 Asian countries. 

“And, according to a study (“Breaking the Plastic Wave”, by The Pew Charitable Trusts and Systemiq), an 80 per cent reduction of plastic waste leakage is possible by 2040, by using existing technologies, if we combine upstream and downstream solutions to achieve system change.”