Attracting investment in recycling and circular economy

Financial institutions and investment funds have to face some obstacles im making investment into plastic recycling sector.

Since its appearance, plastic materials have become more and more popular in daily life, generating more plastic waste. In Vietnam only, an estimated 2,500 tons of plastic waste is discharged across the country daily.

Writing on World Economic Forum, Rob Kaplan, CEO of Circulate Capital, said while investment in the recycling and circular economy space is occurring, particularly in the South and Southeast Asia regions, the flows of capital are neither large enough nor sufficiently consistent to scale solutions.

Meanwhile, the plastic pollution crisis persists. Despite progress on several fronts, only 9 per cent of all plastic waste ever generated has been recycled.

Rob Kaplan stated that to-date, much of the capital behind solutions is strategic, for example put up by plastics supply chain actors, concessionary in nature from international development institutions, or from highly focused impact investors and philanthropic funders.

Conspicuously absent are mainstream financial institution, broadly comprising financial intermediaries, asset managers and trading venues, which seeks a commercial rate of return.

Low potential investment option?

The absent is seen despite solid evidence that emerging markets offer a significant opportunity for achieving the largest impact on plastic waste mismanagement and an attractive risk-adjusted return, according to white paper developed by Circulate Capital.

It said negative perceptions of recycling and the circular economy in emerging markets persist, particularly when it comes to the lack of a track record for investment and a landscape dominated by small deals.

Rob Kaplan analyzed that there are two biggest obstacles to recycling and waste treatment.

The first is that early-stage technologies are concentrated in developed markets, lacking capital, and risky to transfer to emerging markets.

The second is that applying such innovations in emerging markets carries additional risks, including legal/regulatory, management expertise and workforce, and supply chain risks.

Moreover, the recycled plastic market is quite unstable when depending mainly on the cost of primary plastic materials and instability of input.

Packaging Recycling Organization Vietnam (PRO Vietnam) commented that poor quality input due to shortcomings in the collection, sorting and pre-treatment process is a considerable difficulty for recycling.

Solutions to attract investment

Rob Kaplan suggested a several ways that financial institutions and investment funds can use to mitigate fluctuations in waste management and recycling.

Firstly, financial institutions can create financial instruments such as futures, options, insurance-like vehicles to manage absolute and relative price risk.

Secondly, they can participate in cross-sectoral planning at the national level to ensure transparency in local projects. For example, Vietnam launched National Plastics Action Partnership Program, an initiative highly appreciated by Circular Capital fund.

Thirdly, financial institutions can expand their cooperation with partners having experience in sustainable development investment in general and investment in plastic recycling in particular.

It will help investment funds and financial institutions get easier in finding suitable investment projects when their ability to identify and assess risks is enhanced.

Credit: TheLEADER