ESG Investing

In the Circular Economy, Eliminate Waste to Make Money


In developing countries around the globe, poor families often shop in tiny quantities, buying single servings of the consumer goods they need—shampoo, detergent, coffee creamer, aspirin—in shiny plastic pouches known as sachets.

The global brands selling products in this single-use packaging say it allows low-income consumers to buy products they would not be able to afford in larger quantities. In the end, though, these customers pay more by volume, and all that plastic packaging clogs rivers and contributes to the marine plastics crisis.

To minimize waste production, there is a growing wave of companies who are driving the circular economy. For example, Chilean startup Algramo intends to reduce the environmental damage and pricing inequality of sachets by selling household products “by the gram” for a reasonable price. By refilling a reusable container at Algramo’s vending machines, customers save money and eliminate waste.

What Is the Circular Economy?

Companies like Algramo are challenging the conventional “take-make-waste” mentality with innovative business models that “close the loop” by sharing, reusing, and continuously recycling materials. In addition to the environmental benefit, companies in a circular economy actually make money by designing waste out of the system.

According to some estimates, these business models could be worth $4.5 trillion by 2030. A variety of companies are participating, including:

  • Adopters that are designing reusable or repairable products
  • Enablers like resale platforms
  • Beneficiaries, including corporations that see more demand for their goods due to transitioning to a circular business model

Investors interested in deploying capital in support of the circular economy have a variety of asset classes to choose from, including venture capital and private equity, public equities, and project finance.

“There’s a lot of action and traction in the space,” says Ron Gonen, co-founder and CEO of Closed Loop Partners, a New York–based circular economy specialist firm with a total of $200 million in assets under management across three funds. One of those is the Closed Loop Ventures fund, which invests in 18 companies, including Algramo.

Innovating and Growing Circularity

Many of the adopters in the circular space are startups like Seattle-based Evrnu—a textiles innovation company that uses discarded clothing to produce an engineered fiber that can be made into new garments—and Atlas Organics, a South Carolina company that collects food waste and produces a premium compost that is sold back into the agriculture, landscape, and home gardening markets.

Companies at this stage are also receiving funding from large corporations hoping to capitalize on their technology. For instance, Coca-Cola, Nestlé, Danone, Procter & Gamble, Unilever, and other large brands have faced pressure to reduce their dependence on single-use plastic packaging. In response, they have acquired or partnered with smaller enterprises to achieve this goal.

“There are a number of companies, like P&G and Unilever, that are putting plans in place to aggressively transition,” Gonen says. “And I think whoever is the most aggressive is going to win out in the eyes of consumers and in the eyes of shareholders.”

Investors interested in deploying capital in support of the circular economy have a variety of asset classes to choose from, including venture capital and private equity, public equities, and project finance.

In addition to Closed Loop, there are a handful of venture funds specializing in the circular economy, including California’s Fifth Season Ventures and Britain’s Creolus, which focuses on bioplastics.

Edinburgh-based Circularity Capital, another specialist firm, invests in small and midsize European companies at the next stage of development. The firm closed its first private equity fund, the Circularity European Growth Fund, in January 2019 at £60 million, surpassing its £50 million goal. One of its portfolio companies is London-based ZigZag, which has developed a platform for retailers to manage and resell returned stock in local markets.

“[U]sing the circular economy as a lens to invest enables us to identify opportunities that drive financial value creation in parallel with measurable positive environmental and societal impact,” Ian Nolan, co-founding partner at Circularity Capital, said in a statement. “We are convinced that there is a lot of potential in this area.”

Looking Ahead

Investors are also showing interest in profiitng from the circular economy. BlackRock partnered with the Ellen MacArthur Foundation to launch a circular economy fund in October 2019, with $20 million of seed capital. The fund will invest in publicly held companies contributing to or benefiting from circular economy activities, excluding investments in coal, oil, and gas producers.

These include Adidas, which has committed to using recycled plastic and polyester; Norway’s Tomra, which provides what it calls “reverse vending machines” that allow consumers to return glass bottles and cans to supermarkets; and US company Ball Corp, which makes recyclable aluminum packaging.

Time will tell whether other large firms will also invest in the circular economy. But as Circulate Capital founder and CEO Rob Kaplan wrote, BlackRock’s fund “provides powerful evidence that mainstream institutional investors are getting into the game to turn sustainability challenges into investment opportunities.”

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