A circular economy investment pioneer reveals how to unlock impact | GreenBiz

Investing in the Circular Economy: A Path to Sustainable Development

Introduction

There is a growing number of circular economy startups, products, and services seeking funding and investment opportunities across various industries. The potential economic benefits of realizing a circular economy are estimated to be $4.5 trillion, according to Accenture. The circular economy offers a profitable and regenerative model, but intelligent investments are crucial for its widespread adoption. In this report, we will explore the insights of Bridget Croke, Managing Director at Closed Loop Partners (CLP), an investment firm dedicated to accelerating the transition to a circular economy. CLP has made over 65 investments, contributing to the circulation of 4.8 million tons of materials.

CLP’s Investments in Advancing Circularity

CLP’s portfolio includes companies such as Molg, Solarcycle, and Thrilling. Molg utilizes robotics and design software to improve assembly and disassembly processes, maximizing the value of recovered materials. Solarcycle provides a platform for the restoration, renewal, and recycling of solar panels. Thrilling is a boutique vintage clothing marketplace that digitizes inventory, enabling resale channels at scale.

Investment Strategies for Advancing Circularity

Question: What types of investments offer the biggest potential for advancing circularity at scale?

Answer (Bridget Croke): The circular economy requires a holistic approach, as there is no single solution to achieve system-wide change. Strategies such as reducing, reusing, recycling, renting, remanufacturing, refilling, and redesigning products and materials are essential to extend their lifespan and eliminate waste. This shift impacts every part of the value chain and provides a framework for global corporations, startups, governments, and cities to reimagine capitalism, reduce costs, increase efficiency, and protect the environment. CLP invests in companies that directly contribute to the circular economy by focusing on specific material streams and making them more circular through processes like materials recovery facilities (MRFs) or material processors.

Focus on the fundamentals: running a profitable business, building a great team, and creating something with market demand.

However, due to the interconnected nature of supply chains, enabling solutions are often necessary to unlock catalytic impact. These solutions include transparency tools, logistical solutions, and technology platforms that indirectly support companies in advancing direct impact.

Barriers to Circular Economy Adoption and Accelerating Investments

Question: What are the gaps or roadblocks to more companies adopting circular economy practices or business models? What do investors need to accelerate investments in the circular economy?

Answer (Bridget Croke): Our goal is to de-risk circular investments for companies and traditional investors by building supportive systems. This includes investing in infrastructure and enabling technologies that facilitate companies’ internal transition to a circular economy, such as design changes, new packaging formats, and new business models. Investors require consistent demand signals from brands and their largest manufacturers, where sustainability commitments are backed by financial investments and transparently implemented within supply chains. Offtake agreements, demand signals, and contracts from brands can reduce investment risks. Catalytic capital can also ensure that other investors in the capital stack achieve the necessary return profile. Ultimately, it is crucial to demonstrate that the circular transition benefits consumers and provides an equal or better experience.

Question: How do you address the “chicken or the egg” dilemma of circularity needing to be profitable to be pursued, yet circularity at scale not being justified until circular ventures prove profitable?

Answer (Bridget Croke): Advancing the circular economy requires incremental progress and multiple solutions to drive systems-level change and mitigate unintended consequences. Experimentation is critical to making progress towards scale. CLP’s Center for the Circular Economy focuses on partnerships with consortiums of major brands to test solutions in the market and assess their potential for scalability. Testing and iteration enable scalability while minimizing unintended consequences. CLP invests in companies at different stages of growth, including early-stage, growth companies, and profitable middle-market companies. Additionally, building the necessary infrastructure to support companies in their circular transition is essential, which is why CLP’s operating group, Circular Services, focuses on developing circular infrastructure.

To make steps toward scale, there is a critical need for experimentation.

CLP aims to influence and support corporate partners in participating in the circular transition. Companies may need to invest more initially to achieve economies of scale and reach a profitable state for the circular economy.

Integration of Circular Economy and Climate Goals

Question: Many investors have clear carbon and climate goals, but not necessarily specific circularity goals. Are any investors currently tying circularity goals to their climate goals? How? What metrics or KPIs are being used?

Answer (Bridget Croke): Climate and circular economy goals are starting to merge, with most investors prioritizing climate action. The circular economy is recognized as a crucial solution to address the climate crisis, as up to 70% of greenhouse gas emissions are associated with everyday products. By prolonging the lifespan of goods and resources at their highest value, the circular economy reduces the need for extraction and landfilling, which are significant sources of emissions. However, when circular solutions do not align with climate goals, adjustments must be made to ensure alignment. Metrics such as greenhouse gas emissions avoided and materials kept in circulation are used to measure the impact of investments.

Advice for Circular Startups and Companies

Question: What advice would you give to circular startups or companies with circular projects who are trying to attract capital?

Answer (Bridget Croke): Focus on the fundamentals of running a profitable business, building a great team, and creating something with market demand. Circular businesses often involve logistics, so it is essential to consider not only the cost of technology but also the cost of moving materials.