Innovative Approaches to De-risking Financing in Asia’s Plastic Circular Economy
As much as US$995 billion in funds need to be sourced between 2022 and 2040 to ensure that circular supply chains can meet world demands for plastics. The massive need for financing has been a subject of discussion in the ongoing negotiations in the legally binding document to curb pollution caused by plastic.
We know that investments in interventions across the entire value chain of plastics are essential to bring about systemic transformation. But the uncertainty and perceived risk when investing in circular economy innovation, especially in emerging markets – have been a reason for many investors to stay off the fence.
Here are four options to fill the funding gap and encourage private capital to benefit the public.
Facilitating policies to expand this market. plastics
Governments can stimulate market demand for circular goods and influence how investors view the sector’s potential with regulatory support. In India,, the introduction of the extended producer Responsibility (EPR) system has led to an immediate market opportunity for Recykal, a circular economy market.
The cloud-based solution provided operational efficiency transparency, traceability, and transparency to India’s highly dispersed supply chain for recycling plastic. Manufacturers and brands have better tools to monitor the route of their waste plastic and ensure that they comply with the brand-new guidelines. Recykal’s growth was accelerated with the launch of the EPR scheme; Recykal successfully raised US$ 26 million from both domestic and international investors over three years.
Capturing capital markets with unique financial instruments
Beyond the array of tools available to them, government is also a critical factor in securing financing through the growth market for capital. One country that has an acute awareness of the issue of plastics is Indonesia, by implementing an innovative strategy to bridge the gap between the nation’s resources and its climate change-related requirements for investment.
It introduced the first ever green sukuk bond (bond structures that comply with Sharia or the Islamic legal system of religion) in the year 2018 to help finance infrastructure projects which includes waste management strategies, as well as to serve as an example of the expansion of capital markets in the country and internationally. Indonesia has since been conducting annual issuances worldwide and is the world’s largest Green Sukuk issuer.
Also, the country is progressing in developing its capital market by launching rupiah-denominated retail sales of sukuks in the green category in 2019, 2020, and 2021. The total amount is US 814 million. Although these innovative financial instruments are in the early stages of development, the government is encouraging the market’s acceptance and familiarity with each issue leveraging the momentum to attract new investors onto the market and help them achieve their sustainability goals.
Early-stage blended financing could create a pipeline to invest
Small and medium-sized businesses are crucial to encouraging innovation in the circularity of plastics. Impact-focused investors, along with the most innovative companies and government agencies, can assist in scaling these promising businesses to draw more capital.
For a case study, the Singapore-based investment management company Circulate Capital extended its first loan to Indonesian recycling startup Tridi Oasis in early 2020, partly backed through the US International Development Finance Corporation (DFC) in partnership with United States Agency for International Development (USAID). With the help of the hybrid finance vehicle and further support for technical issues, Circulate Capital helped Tridi Oasis expand and overcome economic difficulties. Their efforts resulted from a partnership with the startup and ALBA Asia Plastics Recycling Limited, a major global recycler and provider of environmental services.
World-first tool developed to enhance the transparency of plastics circularity finance
Investors typically need the tools to let them determine the areas where the most significant opportunities exist for investing that can generate an impact. They’re trying to gather reliable data which will enable them to make educated decision-making about asset allocation.
Circulate’s Plastics Circularity Investment Tracker addresses this gap in knowledge by offering access to vital information. It focuses on private investment channels aimed at developing a circular economy for plastics in emerging markets. This first-of-its-kind tool will increase transparency and reduce risk because investors have a comprehensive view of the investment environment.
One of the main conclusions from the Investment Tracker was the significant distribution of capital towards recycling and reuse. In contrast, innovative upstream technologies like alternatives to plastics and refill/reuse models needed to be better-funded. With the world’s focus shifting to reducing the use of plastics, there’s an enormous opportunity that needs to beors do not fully utilize to channel more capital towards these new businesses and innovative models.
Visit the Circulate Initiative’s website for more details about Plastics Circularity Investment Tracker and essential developments in the investment industry.