For anyone committed to fighting our biggest environmental challenge – the global climate crisis – there is no rest for the weary. As I recently wrote, the big takeaway from this fall’s COP27 conference was indisputable – we are at an all hands deck moment to stop global warming.
Sometimes the best way to see forward is to understand where you’ve come from. So, I want to share some of my reflections from four years of investing to build a circular economy for plastic and fight the climate crisis; as well as share thoughts on where I think the sector is headed.
Where we’ve come from
What a four years it has been. You know, you were all there!
The idea of creating an investment firm in partnership with global brands to scale solutions to the plastic waste crisis was borne out of the insight that we are stronger together. The problem is just too massive for any one company or organization or government to solve on their own.
It took most of 2017 and into 2018 to develop our investment strategy that was underpinned by two key ideas: (1) there was a significant untapped opportunity to invest in recycling supply chains in South and Southeast Asia (SSEA); and (2) no one else was investing to meet the need.
Our challenge from day one was enormous. We were proving an innovative investment model with limited visibility to the pipeline and a short-handed team in SSEA, a region with a still-emerging venture and growth equity track record. These trends led to what I have often referred to in this column as a “missing middle” – a lack of connectivity between the investment opportunities and the billions of dollars of capital we needed to remediate the plastic waste crisis. Big multinational corporations and institutional investors needed better ways to access and vet the opportunities.
Four Years Filled with Unexpected Challenges But Also Encouraging Progress
We — and our partners — encountered lots of stumbling blocks along the way that required new thinking and solutions — from challenges in integrating our portfolio companies into a global supply chain to overcoming regulatory hurdles and finding ways to keep our portfolio companies operational during a global pandemic. Vital to these efforts was the support of our partners who gave new meaning to the term “strategic investor.”
I’m incredibly proud to say that together with our investors and other stakeholders, we’ve made tangible progress. Today our firm has $175 million in assets under management; has reviewed more than 1,000 deals and invested $80 million in 14 companies. More importantly, we are starting to see tangible results:
● Financial Returns: Our first exit and a couple of key follow-on rounds
● Plastic Pollution Prevented: +130,000 tons since 2020
● GHGs Reduced: +200,000 tons since 2020
● Capital Catalyzed: +$30 million unlocked in co-investments
We now find ourselves at a critical inflection point. With a climate crisis that is only more dire, we are evolving to meet the moment. Today we are laser focused on investing at the nexus of climate-tech and plastic waste. And with an investment model with significant proof of concept, we believe we are on the path to unlock $1 billion of capital to prevent 150 million tons of plastic pollution by 2030. Frankly, it’s not just an aspiration, it is what is needed.
Our mission is underpinned by three key ideas: circularity, value and impact, so it’s worth using these ideas to frame what we’re seeing in the marketplace four years in.
(1) Creating Circularity At Scale
There are significant ecosystem tailwinds driving the creation and expansion of circular supply chains. The Circulate Initiative, our nonprofit partner that I’ve written about elsewhere, has built an incubation network to help create a pipeline of deals. But we need so much more than just deal flow.
One significant sign towards the development of creating greater circularity is the proliferation of Extended Producer Policy (EPR) frameworks across SSEA — from India to The Philippines. India, for example, has also launched new Plastic Waste Managed rules that include recycled content mandatory minimums, similar to those that exist in the EU.
What does this mean in everyday terms? It means that fighting plastic waste is no longer just about banning plastic straws! Governments across the region are stepping up to enact regulations with real teeth to support the kinds of overall systems we can invest in at scale.
More than anything, I’m most encouraged that 175 nations have committed to negotiating a global plastic treaty. To maximize impact we will need to have industry at the negotiating table, but I am confident the negotiators are keeping all stakeholders in the mix. It’s step-change like this that is essential to scaling circularity quickly if we have any hope of staving off the climate crisis.
(2) Value and Returns at Scale: Go Big, Go Fast or Go Home
Investor interest in the circular economy is scaling. When we started out, few investors, let alone larger institutional ones, were familiar with the circular economy or understood the urgency of allocating capital to the space. Today, investors are far more sophisticated and educated about the circular economy. While there’s more talk than action, investors are no longer asking why they should care and many more are actively looking at deals in the space. We are even starting to see some welcome competition for deals!
What’s more, the amount of capital going into private equity firms investing in circular economy solutions has increased by a factor of 6-7x since we began our own journey, but most of it has focused on opportunities in the U.S. and Europe rather than in high growth markets such as SSEA or Latin America and the Caribbean (LAC), where the most plastic is leaking into the environment. After four years of hard boots-on-the-ground work, some of the companies in these regions are ready for prime time. By way of example, one of our portfolio companies, Recykal, which is a digital platform for recycling waste management, raised USD 20 million from Morgan Stanley
The bottom line is that we as a community of investors and entrepreneurs have no choice but to go big, go fast or go home. There’s a huge investment opportunity to help these companies scale up, but if we don’t take advantage of the moment, we as an industry will fall only further behind the eight ball and miss our moment. And a leadership vacuum on the investment side will likely be filled by regulatory-driven solutions that on their own will ultimately be less effective. Failure’s not an option.
So, we’re thinking bigger. Not just in terms of AUM and impact goals, but in the “how” of what we’re doing. We are looking at how to put in place longer-term offtake contracts or build not one recycling plant but financing five at a time. Everyone in the industry needs to be asking themselves the question “what does scale really look like?” and “what can I do to contribute to accelerating it?” or we won’t get there.
(3) Driving Impact at Scale Can Solve Multiple Societal Problems at Once
What’s perhaps most exciting and encouraging about looking to drive impact at scale is that many of our environmental and social challenges are inextricably linked. This isn’t just about solving the plastic crisis. It’s about improving livelihoods by creating jobs and spurring economic development. It’s about improving the social supply chain and about creating more gender diversity. We’re seeing these important co-existent outcomes wherever we’ve been able to invest across the SSEA region.
A holistic, more integrated approach to driving multiple outcomes is not limited to the SSEA region. Investors everywhere should be thinking about how solving one of the UN’s Sustainable Development Goals can drive others.
The path ahead
It’s been an action packed four years, but it will be nothing compared to the challenge of accomplishing the goals we’ve set out for ourselves in the next four. We need to be focused on cross-fertilization – learning from patterns that we can apply across our portfolio companies and in new geographies. Scaling means making fewer mistakes, learning faster and moving bigger. It means deploying capital to maximum effect. And, of course, demonstrating how to take proven businesses and scale them quickly in ways that achieve circularity.
I hope for those reading this column that our learnings and convictions can help inspire more firms to get involved in developing circular economies for plastics, as well as other areas that can help us solve our biggest environmental challenges, create jobs, boost our economies, and create greater equity around the globe. We will only get there together!