Ocean plastic costs. It costs the earth and it costs us money. In economic terms, plastic does $13 billion in damage to marine ecosystems annually. As much as 95% of the value of plastic packaging — worth $80 to $120 billion annually — is lost to the economy after the first-use cycle. It’s a massive problem.
In the past, short-term solutions have targeted symptoms rather than the cause. Efforts to raise consumer awareness of single use plastics like straws, while hugely effective in raising awareness and becoming part of the popular zeitgeist, do little to address the enormity of the ocean plastic problem — as, fortunately, these kinds of single use plastics represent less than 1% of ocean plastic.
Ocean plastic is a systems problem that demands a comprehensive, systems solution. Of the estimated trillions of development finance dollars spent annually, in 2012, less than .5% of it went to solid waste management. So how do we solve the problem — and where will we get the resources to do it?
There are no silver bullets. To turn plastic waste into a resource, we need to engage a suite of solutions: from public policy and corporate commitments to financial incentives and changes in human behavior.
However, we know where to start: India, Indonesia, Vietnam, Thailand, and The Philippines. Studies show that a 45% global reduction in plastic leakage to the ocean can be achieved by improving waste management and recycling in these five countries.
Especially in South and Southeast Asia, the challenge is that those working on the problem — from waste collection, to aggregation, to recycling — lack funding and scale. Potential investors are wary of the sector as they don’t have the evidence-based track records, pipeline of investable opportunities and intermediated investment products necessary to build confidence and unlock large-scale capital.
At each stage of a company’s growth, different forms of capital are necessary for the type of expansion that can enable systemic conversion of waste into value. But, there are critical financing gaps — from philanthropic and human capital to seed capital and mezzanine debt — that must be filled to create ecosystems of innovation, investment, entrepreneurship and public-private partnerships.
The Emergence of A New Plastic Waste Asset Class
Infusions of investment from the capital markets is critical if we want to scale lasting solutions. And, the only way capital markets will act at scale is if investors have the confidence that this is a money-making opportunity. Otherwise, it will languish in subscale experiments and pilot purgatory. By financing scalable and replicable solutions from local innovators who are implementing on the front lines of plastic pollution, and by incentivizing a new generation of social entrepreneurs to build a fresh pipeline of potential projects, the problem of ocean plastic can be turned into a massive opportunity.
The good news is that — thanks to the awareness building of vanguard organizations such as Ocean Conservancy and awareness built by anti-straw campaigns — funds are beginning to flow from investors eager to deploy into solutions that provide financial returns as well as a positive environmental impact. Unfortunately, while these players are few and far between across Southeast Asia, we can look to India, which has a richer history of venture investing, for signals of what is possible for investors.
Starting in 2013, Aavishkaar, an early-stage venture capital provider, began investing and cultivating in the Ahmedabad-based waste processing firm Nepra Resource Management Pvt. Ltd, which operates under the ‘Let’s Recycle’ brand. And, last year, they made an $6.5 million follow-on investment alongside Asha Impact, the proceeds of which will be used to fund Nepra’s expansion to three new cities.
At the other end of the spectrum, in August 2018, in a significant development for the solid waste management (SWM) sector, private equity investor KKR announced that it acquired a 60% interest in Hyderabad-based Ramky Enviro Engineers Ltd (REEL) for $530 million. REEL, which had a turnover of $260 million in the year to March 2018, operates in environment management services include collection, transport and processing of hazardous, municipal, biomedical and e-waste, as well as recycling of paper, plastic and chemicals. The transaction is the largest ever in the Indian SWM space.
These are just some of the new, investible solutions from emerging entrepreneurs that are catching favor with an institutional investor class, and the kinds of initiatives that will be necessary to scale lasting solutions. Smart investors are paying attention to these “bright spot” examples and others as they decide whether to join in. But, there is a wide gap in the scale between these two transactions and they just aren’t common enough — especially in smaller countries across Southeast Asia.
More risk-tolerant capital is needed to incubate and invest in the companies and infrastructure projects that will become the future of waste and recycling across the region.
Corporate investors are uniquely positioned to meet that need because don’t need the same financial returns of a KKR or Aavishkaar and they get their value from a functioning supply chain that can deliver recycled material for their supply chains. In October, my firm announced an investment strategy with investors that include global companies like PepsiCo, The Coca-Cola Company, Danone, Dow, Procter & Gamble, and Unilever, which expect to commit more than $100m to incubate and invest in solutions in South and Southeast Asia. The goal is to unlock billions of dollars from public and private institutional investors and demonstrate that investment in ocean plastic solutions will provide financial returns.
It won’t be easy. It demands the creation and realignment of the entire ecosystem that generates and remediates ocean plastic pollution — developing a circular economy that takes old plastic and turns it into a new, reusable resource for future materials. But the process will turn ocean plastic from a problem into an economic and development opportunity for emerging markets around the world. Going forward, I plan to write on the growing role of institutional investors who are teaming up with entrepreneurs that are tackling innovations and some of our biggest environmental challenges.