By Valencia Dea
“Why do you focus on such a niche sector? Are there many investable opportunities?”
This is the most common question fellow investors ask me when I introduce Circulate Capital’s Ocean Fund. A few years ago, I would have asked the same! Since then, I have learned that we are facing an ocean plastic crisis that poses a threat not only to marine life and related ecosystems but also to our own health. Today, traces of toxic microplastic particles are commonly found in fish and human populations. Further, I discovered that our country is among the largest marine polluters in the world. Did you know that one million tonnes of our plastic waste leaks to the ocean every year?
A recent study from Ocean Conservancy has indicated that we could reduce 45% of global ocean plastic pollution by simply improving waste management and recycling in five South and Southeast Asian countries, including Indonesia. Today, we do not have sufficient waste management infrastructure across the country to deal with the waste that is generated, and therefore, our mismanaged waste ends up being burned and thrown to the waterway. Unfortunately, building integrated waste management systems in these five countries would cost billions of dollars. Government and philanthropic investment alone would not be sufficient. Although necessary, many large institutional investors might be wary of investing as there is a lack of track records and investable companies at scale. So what can we do?
Having entered into the sector in the past year, I encountered a number of exciting solutions, from low-cost local-fit waste management models, tech-driven collection services, innovative material producers to recycling businesses that recycle plastic waste that is currently not recycled and have no value in the market. Not only do they address environmental problems, but some also improve community livelihoods, including for the informal sectors. The current challenge is that many of these innovative solutions struggle to scale-up as they fail to get capital from banks and investors. The current COVID-19 pandemic further impedes their growth as waste collectors struggle to collect many materials due to decreasing consumption, as many recyclers are unable to sell their products because their buyers temporarily shut down their operations, and as recycled plastics are losing their competitiveness due to the declining price of virgin plastic.
These existing solutions are the future of our waste and recycling infrastructure. If nobody invests and supports them at this stage, how will they be able to grow, attract bigger institutional capital, and contribute more significantly to solve the plastic waste crisis? The role of investors is critical at this stage. While it might not fit everyone’s appetite, the sector is suitable for risk-tolerant investors who do not target highly aggressive financial returns but see the value of positive impact and/or a circular supply chain, such as corporates and impact-driven investors.
Coming back to the question in my opening, yes, there is currently a lack of growth-stage investable opportunities and success stories. However, rather than seeing this as a discouraging factor, this is exactly why the Ocean Fund was established: to build a robust investable pipeline, demonstrate the financial viability of the sector, and share our learnings with other investors.
Valencia Dea is an investment manager at Circulate Capital. The firm focuses on financing companies and infrastructure that prevent the flod of plastic waste into the ocean.