Investors are increasingly dividing investment prospects into two groups: Those that are part of the traditional linear economy in which products are created, used, and then disposed of; or the new sustainable circular economy. And they’re increasingly choosing to deploy capital to companies in the latter group.
Since 2019, assets in public equity funds dedicated to the circular economy grew 28-fold from US$300 million to almost US$9.5 billion by the end of November; bond investments are up 500% during that period; and the number of private equity funds are up more than 10-fold, according to the Ellen MacArthur Foundation, a United Kingdom-based non-profit group.
As its name indicates, the circular economy is a sustainable closed-loop model in which companies are committed to reusing, recycling, repurposing materials, with the goal of producing no waste.
Rather than a niche within environmental social and governance (ESG) investing, the circular economy is a lens through which investment prospects can be sized up, says Ron
founder and CEO of Singapore-based Circulate Capital, a private investment firm with some US$106 million in its Circulate Capital Ocean Fund, which invests in companies in South and Southeast Asia focusing on improving recycling and waste management capabilities, and US$25 million in its climate tech fund Circulate Capital Disrupt.
Sustainability, Large and Small
Investment opportunities in the circular economy run the gamut from small technology companies developing new materials, products or processes to help further the closed loop ideal, or large companies committed to transitioning to the sustainable model.
New York-based Closed Loop Partners, a venture capital firm, invests in start-ups such as Dimpora, which makes sustainable membranes to waterproof clothing, and surpassed its $50 million capital target in December.
Ricron Panels, a Gujarat, India, based company launched in 2005, transforms plastic waste into durable materials that can be used to make furniture or as a plywood alternative in building construction. The company is part of private equity firm Circulate Capital’s Ocean Fund.
At the other end of the size spectrum, some major brands are changing practices to conform to a sustainable model. Adidas sells a line of shoes and clothing made from recycled ocean plastics. Global chemical company Solvay, based in Brussels, is turning waste into raw materials in numerous industries from healthcare to technology. And the Boulogne-Billancourt, France-based car maker Renault has opened the first auto manufacturing plant dedicated to circular practices, such as remaking components and using recycled plastics.
Investors’ motivation to align capital with their values has been growing for years as a sense of urgency mounts to solve global environmental problems. Assets in environmental, social, and governance (ESG) investments have grown from US$22.8 trillion in 2018 to more than US$35 trillion last year, and on track to hit US$50 trillion in 2025, according to the Global Sustainable Investment Alliance based in Washington D.C.