Future Returns: Impact Investing Firm Expands to the Oceans of Latin America and the Caribbean | Kanebridge News
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Future Returns: Impact Investing Firm Expands to the Oceans of Latin America and the Caribbean

Wed, May 24, 2023 8:46amGrey Clock 4 min

The Singapore-based impact investing firm Circulate Capital launched a US$65 million initiative on Tuesday to reduce plastic pollution in Latin America and the Caribbean.

The strategy builds on Circulate Capital’s efforts in South Asia and Southeast Asia to spur the so-called circular economy by investing in companies that turn waste into usable products. Circulate Capital Ocean Fund, which had its first close in 2019, today has US$112 million in assets.

Backing the Latin America and Caribbean initiative are major global corporations, some of which also invested in its previous financing. Among these investors are Paris-based Danone, Michigan-based Dow, and London-based Unilever, companies that depend on sourcing recycled plastic material to meet their own sustainability commitments.

The Inter-American Development Bank Group’s IDB Lab also invested, and, in fact, encouraged Circulate Capital to take its approach to Latin America and the Caribbean, says Rob Kaplan, the firm’s founder.

Wealthy individuals and family offices also have taken an interest in financing the circular-economy approach to the ocean, including Builders Vision, a philanthropic and impact investing platform founded by Lukas Walton—grandson of Walmart founder Sam Walton. Builders Vision has been a longtime supporter of Circulate Capital, which was created in 2018 by Kaplan, a former director of sustainability at Walmart.

After initially learning of Circulate Capital’s approach for reducing plastic waste, Builders Vision realised it needed to back its effort aggressively, says James Lindsay, principal at Builders Vision. Their goal is to make investing in the ocean as popular for investors as investing in clean-tech solutions for the energy transition from fossil fuels.

Ocean health is one of three areas of investing today for Builders Vision, in addition to climate and energy, and food and agriculture, given the critical role oceans play in climate change and the global food supply.

“It’s a major focus and we want everyone to go look at the ocean sector like it’s completely investable, with market rates of return, just like we would with clean tech or sustainable real assets,” Lindsay says. An endowment or foundation may easily be able to include a clean-tech fund in its portfolio, but with “oceans there’s still a lot of hesitancy.”

There are good reasons for that, Lindsay says. One is that there are few companies that have been sold or gone public and thus been able to return money to investors. That’s started to change in the last two years, and Circulate Capital’s investments are part of that story, he says.

Penta recently spoke with Lindsay and Kaplan about Circulate Capital’s latest initiative, and the investing opportunities emerging for cleaning up the ocean.

A ‘Chicken-and-Egg’ Problem

The waste-per-capita ratio in Latin America is one of the highest in the world, and Kaplan says, expectations are that it will increase by at least 25% in the next 30 years. One reason is that more than 40 million people lack access to basic waste collection.

Cleaning up that waste, however, is a “chicken-and-egg problem,” because the waste needs to be collected before it can be recycled, but “why would you collect it if no one’s going to recycle it?” Kaplan says.

Policy developments in Chile and Colombia, however, have begun to create economic opportunities for local recyclers to start up and scale up, he says. Governments in Brazil and Mexico are beginning to consider similar actions. “That is creating a level playing field for these companies to grow much more rapidly,” Kaplan says.

These developments are similar to what Circulate Capital has seen in India, where it has invested in companies such as Mumbai-based Lucro Plastecycle, which recycles flexible plastics into new materials, and Srichakra Polyplast, in Hyderabad, India, which converts old plastic bottles into food-grade quality resins for new plastic bottles.

An Ocean Portfolio

Builders Vision has made 45 investments so far to support oceans, about half with fund managers and accelerators (which fund new entrepreneurs), and another half in direct investments, Lindsay says.

In addition to plastics, Builders invests in aquaculture through, for example, the Yield Lab, an accelerator for entrepreneurs developing sustainable agriculture systems. It also invests in “monitoring, reporting, and verification” technologies that evaluate efforts such as planting mangroves or seagrass to improve the ocean’s ability to absorb carbon, in addition to technologies that filter microplastics and integrate the material into manufacturing processes.

Most of Builders’ ocean investments are in Europe, where there are more ocean-oriented venture funds. That’s because of a European Union initiative to invest in start-up vehicles so they reach a viable size, Lindsay says. Builders’ goal, however, is to invest more with firms such as Circulate Capital that are based closer to the problems they are trying to solve.

“Navigating country risk without having a sense of the landscape is incredibly challenging,” he says. “You’re going to end up deploying some capital pretty poorly.”

Spurring Economic Development

For Circulate Capital, investing in and growing companies that can rethink supply chains for recycling—“from collecting and sorting to processing and manufacturing”—has ancillary benefits.

Not only do these companies contribute to the fight against climate change, they also create jobs and help local economies.

“Across Latin America and the Caribbean there are millions and millions of people whose livelihoods depend on collecting and trading plastic waste,” Kaplan says. “As we develop the supply chains, and help them scale, that creates more economic opportunity for those vulnerable populations—if it’s done in a responsible way, which is a big part of how we invest.”

In Kaplan’s view, the problem of plastic waste and ocean health will only be solved when “we stop thinking about it just as an environmental issue and start thinking about it as an economic development opportunity.”

Companies such as Lucro and Srichakra are beginning to scale, but Kaplan says the plastics problem in South Asia and Southeast Asia alone will still require “many, many billions” of dollars of investment to solve. Part of Circulate Capital’s role is to catalyse capital by proving these investments can work.

The firm’s second ocean fund, for instance, brought in development finance institutions such as the World Bank Group’s International Finance Corp. and the European Investment Bank in addition to family offices and private investors.

“We’re seeing more investors getting interested in the space. We’re seeing these companies successfully hit their targets and their milestones,” Kaplan says. “Those are all positive directions. But there’s still a lot more work to be done before we can say we’re moving the needle.”


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China’s EV Juggernaut Is a Warning for the West

Competitive pressure and creativity have made Chinese-designed and -built electric cars formidable competitors

Thu, Jun 8, 2023 4 min

China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features and price. Then came reports that in the first quarter of 2023 it dethroned Japan as the world’s largest auto exporter.

How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third.

Start with industrial policy—the use of government resources to help favoured sectors. China has practiced industrial policy for decades. While it’s finding increased favour even in the U.S., the concept remains controversial. Governments have a poor record of identifying winning technologies and often end up subsidising inferior and wasteful capacity, including in China.

But in the case of EVs, Chinese industrial policy had a couple of things going for it. First, governments around the world saw climate change as an enduring threat that would require decade-long interventions to transition away from fossil fuels. China bet correctly that in transportation, the transition would favour electric vehicles.

In 2009, China started handing out generous subsidies to buyers of EVs. Public procurement of taxis and buses was targeted to electric vehicles, rechargers were subsidised, and provincial governments stumped up capital for lithium mining and refining for EV batteries. In 2020 NIO, at the time an aspiring challenger to Tesla, avoided bankruptcy thanks to a government-led bailout.

While industrial policy guaranteed a demand for EVs, protectionism ensured those EVs would be made in China, by Chinese companies. To qualify for subsidies, cars had to be domestically made, although foreign brands did qualify. They also had to have batteries made by Chinese companies, giving Chinese national champions like Contemporary Amperex Technology and BYD an advantage over then-market leaders from Japan and South Korea.

To sell in China, foreign automakers had to abide by conditions intended to upgrade the local industry’s skills. State-owned Guangzhou Automobile Group developed the manufacturing know-how necessary to become a player in EVs thanks to joint ventures with Toyota and Honda, said Gregor Sebastian, an analyst at Germany’s Mercator Institute for China Studies.

Despite all that government support, sales of EVs remained weak until 2019, when China let Tesla open a wholly owned factory in Shanghai. “It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specialising in the Chinese auto industry.

Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart. “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine. “In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.”

Thanks to that competition and focus on execution, the EV industry went from a niche industrial-policy project to a sprawling ecosystem of predominantly private companies. Much of this happened below the Western radar while China was cut off from the world because of Covid-19 restrictions.

When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”

Manufacturers of gasoline cars are product-oriented, whereas EV manufacturers, like tech companies, are user-oriented, Le said. Chinese EVs feature at least two, often three, display screens, one suitable for watching movies from the back seat, multiple lidars (laser-based sensors) for driver assistance, and even a microphone for karaoke (quickly copied by Tesla). Meanwhile, Chinese suppliers such as CATL have gone from laggard to leader.

Chinese dominance of EVs isn’t preordained. The low barriers to entry exploited by Chinese brands also open the door to future non-Chinese competitors. Nor does China’s success in EVs necessarily translate to other sectors where industrial policy matters less and creativity, privacy and deeply woven technological capability—such as software, cloud computing and semiconductors—matter more.

Still, the threat to Western auto market share posed by Chinese EVs is one for which Western policy makers have no obvious answer. “You can shut off your own market and to a certain extent that will shield production for your domestic needs,” said Sebastian. “The question really is, what are you going to do for the global south, countries that are still very happily trading with China?”

Western companies themselves are likely to respond by deepening their presence in China—not to sell cars, but for proximity to the most sophisticated customers and suppliers. Jörg Wuttke, the past president of the European Union Chamber of Commerce in China, calls China a “fitness centre.” Even as conditions there become steadily more difficult, Western multinationals “have to be there. It keeps you fit.”


Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

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