Think ahead to this $2 trillion opportunity

Think ahead to this $2 trillion opportunity

Closing the loop opens opportunities
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Closing the loop on waste opens market opportunities in the billions and trillions.

In 2017, Closed Loop Partners conducted a study, with support from the Goldman Sachs Center for Environmental Markets and Wells Fargo Foundation, of the capital landscape supporting circular supply chains in North America. We looked at recent trends in investment activity, unmet demand, near-term forecasts, and projections to achieve a fully circular infrastructure by 2030. Through surveys, interviews, and analysis of third-party data, we gained key insights about where capital is — and is not yet — flowing. This research is a benchmark of the opportunity for investors interested in how to deploy capital into the circular economy.

We found that more than $10 billion of investment is currently flowing each year, but much of this capital is being deployed to advance "linear" supply chain models. Shifting this investment to circular models would realize untapped investment opportunity and returns.

In early October, Closed Loop Partners convened more than 100 stakeholders across the value chain and from the investment community, representing billions of dollars of capital, to catalyze relationships and set a course of collective action that will accelerate the transition to more circular supply chains.  Below are the key insights from the study and convening.

Significant investment capital supports expensive linear supply chains

In the United States, cities pay more than $5 billion a year to landfill recyclable paper, metal, plastics, glass, as well as food, clothing and electronics. Globally, $80-$120 billion of economic value from plastic packaging material is lost each year, according to the Ellen MacArthur Foundation's New Plastics Economy effort.

Underpinning the linear economy is investment capital. In our research, we found about $10 billion a year in relevant deals, and much of it is supporting this linear infrastructure, such as landfill waste-to-energy plants. (These deals include acquisitions, public and private equity, venture capital, and debt in waste management, recycling and end-market manufacturing using recycled content.)

U.S. map of Closed Loop Fund projects
In addition, we found more than $800 million of concessionary capital going to recycling infrastructure (based on the most recent year of data available from each source). Eighty percent comes from public sources subsidizing general operations for solid waste and recycling infrastructure as it exists today. The map below shows aggregate grants and concessionary capital by region, including $30 million from Closed Loop Fund loans and Foundation grants.

Concessionary capital is critical for creating more investable opportunities for mainstream investors. Closed Loop Fund, for example, is deploying capital in the form of below market rate loans. Across our portfolio to date, we have helped to unlock more than $90 million in capital from mainstream investors; much of that capital would not be available without our concessionary capital in play.

Transitioning U.S. manufacturing to circular supply chains could unlock a $2 trillion opportunity

We are missing a tremendous opportunity to unlock trillions in economic value and create a lasting positive impact on the environment. Building a more circular supply chain includes expanding convenient access to curbside single-stream recycling for any resident, ensuring there is efficient sorting and processing capacity for more materials, and developing markets for a variety of end uses with value.

Circular supply chains
In our analysis, the upside of building a circular supply chain has dramatic social, environmental, and economic benefits, including:
  • 30 million more households with access to convenient recycling
  • 80 million tons of material recovered from residential single-stream recycling — a lift of 4x
  • 250-350 million metric tons of CO2 equivalent reduced
  • $7 billion in new revenue opportunities from recycling for cities and recyclers
  • Innovation in processing technologies and business models
  • $2 trillion-plus in annual U.S. revenues generated by circular manufacturing

Investment opportunities exist for mainstream investors with help from catalytic capital

 With $10 billion a year in investment dollars supporting the old linear model, too much capital is waiting on the sidelines. Why? In more than 20 interviews of investors, fund managers and advisors, we heard several themes:

  • Private capital lacks visibility across the system.
  • The supply side is controlled by a few players.
  • There is too much volatility and challenging pricing in commodities markets.
  • Capital seekers lack longer-term customer agreements.
  • Innovative technologies exist, but they are too early stage or unproven.

Some mainstream investors, such as CLF co-investor Comerica Bank, already have figured out how to mitigate these risks and find value in circular supply chain opportunities. At the same time, "catalytic capital" can play an important role in de-risking investments, proving business models and stimulating even more investment. Other support, including subsidized R&D, long-term contract and price floors, loan guarantees and green procurement or codes, also can help drive additional investment. (We’ll explore solutions to these challenges in future articles.)

Closed Loop Fund portfolio
Closed Loop Fund was created to deploy catalytic capital to scale public and private models of innovation within circular supply chains. Our investment approach is beginning to reap benefits for investors, cities and the environment. (At right: Closed Loop’s investment allocation and impact to date, as of September.)

We need more capital and other supports to have impact on the system

 At our October gathering, we were joined by stakeholders across the system and from the investment community. Conversations throughout the day surfaced several important facets of what’s needed to succeed, including:

  • Investors need to engage more with system actors. Cross-fertilization would unlock significantly more capital in this area, yield better sightlines across the system into where investment is needed, educate actors as issues evolve and encourage greater certainty in the future.
  • We need stronger demand from diverse and robust end markets. While "circular economy" language often implies products and packaging going back into the same type of products and packaging, participants raised the importance of considering open loops to allow for the flow of materials to the best economic and environmental use.
  • Supportive policies, standards and guidelines can set the stage and accelerate investment. For all stakeholders, a strong framework that promotes recycling and use of recycled materials is critically important for growth, scale and investment to occur.
  • Technology needs to be transferred into new markets. As investors look to opportunities outside of developed markets, best-in-class advanced recycling technologies need to be shared with developing markets; further exploration of how best to transfer technologies is needed.

With an aim to invest $100 million by 2025, Closed Loop Fund is demonstrating the investable opportunities that can create broad systems change and impact with more circular supply chains. However, the amount of capital required to truly transform the system is much greater. Institutional and other investors need to play a role in meeting capital demand on a large scale. Once that happens, we see billions of dollars in investment opportunity on the horizon.

From our perspective, the idea of transitioning from linear to circular supply chains is no longer a question of "can we?" but "how fast?" As we look ahead to our fourth year, we expect to further clarify a roadmap for collective action and capital that can close the loop by 2030. We look forward to engaging with investment partners that bring capital across the return spectrum to make that vision a reality.