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Episode 80: Investing in a Circular Economy (Transcript)

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[00:00:00] Liz Bothwell: Hi everyone, welcome to Waste360's NothingWasted!x Podcast. On every episode, we invite the most interesting people in waste recycling and organics to sit down with us and chat candidly about their thoughts, their work, this unique industry and so much more. Thanks for listening and enjoy this episode.

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[00:00:26] Liz: Hi everyone. This is Liz Bothwell from Waste360 with Rob Kaplan, Founder and CEO of Circulate Capital. Welcome, Rob, and thanks for being on the show today.

[00:00:36] Rob Kaplan: Hi, Liz. It's great to be here.

[00:00:37] Liz: We normally start in the beginning. I'd love to hear more about your background, how you founded Circulate Capital, and your love for sustainability.

[00:00:48] Rob: I have spent most of my career working in the environmental sustainability space. I spent about 10 years in corporate sustainability. I was in the beverage industry and then, I was at Walmart where I wore a variety of hats for supply chain, partnerships, investments, and sustainable packaging globally for the company. That's where I helped [unintelligible 00:01:15] co-found an investment firm in the US called Closed Loop Partners, and at Walmart, we made an anchor investment in one of the first funds there. After a little bit of time, I went and joined Closed Loop as a managing director, and a few years ago a number of our corporate partners came to us and asked us to think about an emerging market strategy.

It was just about the time that ocean conservancy had come out with some research that found that most of the plastic that gets into the ocean comes from just a handful of countries in South and Southeast Asia, and that if we invested in waste recycling in the circular economy in those markets, we could cut the flow of plastic pollution nearly in half. That was our founding insight and we spent some time looking at the opportunities, the investment pipeline, what a potential strategy would be. This was back in 2017 into 2018, and it was around that time that we were just ready to share out some of our findings, that the whole topic really blew up and plastic and plastic pollution was no longer a flip on the radar, it was priority number one for many of the multinational corporates, but also governments and stakeholders around the world.

While we had been thinking about a slower build, it became clear that the time was now to activate, so I took the leap of faith and spun off the project in what became Circulate Capital, we founded the company in the summer of 2018, a couple of years ago. We've now raised our first fund which is called The Circulate Capital Ocean Fund, we invest in companies, technologies, and projects that prevent plastic pollution, and advance a circular economy. Here in South and Southeast Asia. I'm living here in Singapore with my family.

[00:03:16] Liz: That's great. What a story and I love the timing, it couldn't have been better to really get this going. Can you tell me more about the unique model at Circulate? I know you rely on local innovators and a fresh pipeline of investable projects there. I'd love to hear more about that and the entrepreneurs you work with.

[00:03:41] Rob: Yes, sure. I think one of the most unique things about our strategy is that the Ocean Fund is backed by several large corporates, we've raised just over a hundred million dollars from PepsiCo, who was our first investor, but also Coca-Cola, Unilever, Danone, Procter & Gamble, CHANEL, Dow, and CP Chem. We're working with startups and SMEs, primarily in India and Indonesia, but also across Southeast Asia, that are on the front lines of fighting plastic pollution and advancing recycling. They're collection companies, recycling companies, processors, manufacturers using plastic waste to create higher-value products across the board. We've done two investments so far one in India and one in Indonesia.

[00:04:38] Liz: What do you think the biggest challenge is? I know that for example, HP has helped build recycling infrastructure in Haiti, are you finding that it's infrastructure? Is it culture? Is it thinking? What are you seeing on the ground?

[00:04:53] Rob: I think we're primarily focused on the infrastructure side of the equation. One of the good things about the markets here is that there's a lot of low hanging fruit. Recycling, and waste management has been under-invested or even ignored for a long period of time, that means that there's a lot of opportunities to really leapfrog some of the systems that have been in existence here to date, but also going like landlines to cell phones where we don't have to worry about the legacy infrastructure that we have in the US and Europe, for example, to really drive a lot of efficiencies.

[00:05:38] Liz: That's great. I bet you're going to see a lot of innovation come out of that with that thinking.

[00:05:43] Rob: Yes. The waste is viewed very differently here, in many of the countries we work with, and work in and back home. The value of it is much clearer and in fact, there are millions of people whose livelihoods depend on waste. That's a great opportunity because it's incredibly efficient and directly connected to people and culture but at the same time, these are terribly at-risk populations. A lot of the work we do is, how do our investments, not just prevent plastic pollution, but how do we improve the livelihoods of the communities in [inaudible 00:06:27] these companies are operating?

[00:06:29] Liz: Fantastic, I'd love to see that. Rob, what do you say to people, even back home here, who says, "Hey, the ocean plastics problem is primarily an issue in Asia and it really is their responsibility to fix"?

[00:06:43] Rob: I think one of the things we've learned over the last few years is that plastic pollution is really a global problem, and it hits us back home in a couple of key ways. First of all, the US still exports a lot of waste, and oftentimes, you find that it's the waste that's entering the environment here that originally was used and disposed of in developed markets like the US, Europe, and Australia. It's sent here to places that are less equipped to deal with it. But at the same time, if you want ocean plastic stopped, we all use the ocean and whether you're in Cape Cod or California, doesn't really matter. If you want the plastic position stopped, you have to go to the source.

[00:07:33] Liz: Absolutely, I think that's great and the work you're doing is so important. I love that it's local, and the fact that you spun off to do that because you saw that need. That's amazing.

[00:07:46] Rob: Timing is everything. You're in the right place at the right time with a strategy that was ready to go just at a time when there was a lot of demand for it, and a lot of need for it. We were well placed.

[00:08:00] Liz: That's great. How has the pandemic affected your work, Rob? I know everyone was so worried about the increase, and still is worried about the increased use of PPE and, of course, single-use plastics, do you think it's as bad as we feared?

[00:08:17] Rob: Yes. We're definitely seeing it here in Asia, there is definitely a spike in plastic pollution because single-use plastic and PPE have been skyrocketing, but also I was talking earlier about the informal sector waste pickers, that really manage the front lines of waste collection and recycling. Those individuals, those people were not able to operate during COVID lockdowns, we had pretty severe lockdowns across Southeast Asia for periods of time, and as much as 80% of the recycling system basically had to shut down with it, and that just basically meant all this plastic that was also spiking in use at the same time, was basically going into an already strained system.

I think now that we've started to see the lockdowns ending and the recycling system starting to reopen, it really has shown us that the time is now to invest because these are the companies that we need to not just survive the pandemic, but really thrive and be stronger coming out the other side of it.

[00:09:32] Liz: Definitely. Do you think that has hit a tipping point for everyone else beyond Asia? It feels that way here, it seems that the pandemic has really put a spotlight on the issues, and the need for focusing on sustainability.

[00:09:50] Rob: I think so. We've seen a lot of government and east thought leader, stakeholder narratives, in Asia talking more about resilience, talking more about long term sustainability, and environment being a key part of that. The topic of ocean plastic and plastic pollution really became a priority on the agenda because of consumer outrage, wasn't anything other than people, consumers, and voters. It isn't saying that this was unacceptable, and that's why we have this conversation even today. I don't see any reason why that outrage would dissipate as a result of COVID. In fact, we just talked about plastic pollution is probably increasing right now, so we would expect that outrage to increase alongside it.

[00:10:48] Liz: Makes sense. I know for you, when you talk sustainability you really have a business focused on it, I've always said that when those two things come together then, you will reach the mass approval on sustainability, I feel like you've done a great job of that. Do you feel finally click for people who maybe felt that sustainability was more aspirational in nature, now that you say, "Hey, there's some real business benefits to it"?

[00:11:20] Rob: Yes. As we look at this challenge, it's been pretty clear that it's going to take many billions and billions of dollars to really solve plastic pollution, and build the circular economy. That's, obviously, a lot more than the $100 million we've been able to pull together. What we think a lot about is, "How do we catalyze capital using this 100 million that we've been able to come in alongside our corporate partners but use that to unlock additional financing?" Really, the place where those billions are going to come from are large scale institutional investors, infrastructure investors, pension funds, sovereign wealth funds, the folks who are financing the future of infrastructure in Asia.

Right now, they're waiting on the sidelines because of exactly what you just talked about. They don't really see waste, recycling, and the circular economy as a competitive investment opportunity. Every investment we make, we want to not only fight plastic pollution by the time, but we also want to demonstrate that intervention in that business as saleable and bankable. Start to crowding capital from those institutional investors over time because that's really the only way we'll achieve the scale of impact we all want.

[00:12:49] Liz: Definitely. Rob, what do you think the role of the waste and recycling industry is in supporting a circular economy?

[00:12:57] Rob: Right now, we live in a world where waste and recycling are the industries that manage most of the material that has the potential to be circular. I think we also recognize that there are incredible inefficiencies in the system, we're not truly closing the loop, we're not truly plastic to plastic infinitely, and that's true in other materials as well. I view it as a reality of where the systems are today and how do we start to bring in new technology to really enhance those systems to achieve that fully circular economy promise and aspiration. I see the recycling and waste management systems as critical enablers to getting us there. 

[00:13:50] Liz: True. You seem to be a pro at collaboration on many levels, whether it was your working in DC, and now this work that you're doing in bringing in so many multinational corporations to help with that. Do you have any tips for people on how to collaborate well and the importance of partnership?

[00:14:13] Rob: We seem pretty clearly. I think COVID has made this more apparent than ever, but we're going to need next-level partnerships to achieve the impact we want. Going it alone or exploring these types of opportunities and models from the pre-COVID days just aren't going to cut it anymore. These types of collaborations and partnerships are truly the only way we will really start to make the impact we want and see the change in the world that we want.  We're very focused on that as a mindset and a pathway. Some of the things that we've really tried to build into our partnerships, things that not often talk about, are how do you build a partnership that gives everybody exactly what they need, but not necessarily a lot more.

For example, with Circulate Capitals Ocean Fund we're investing across South and Southeast Asia, we have some partners who care more about India than they do about Indonesia. We have some partners who care more about Indonesia than they do about India. But we had to structure in a way that gave them enough of what they needed that it was a worthwhile investment for them, but also that a rising tide lifts all boats, helping them recognize, and giving them that opportunity to show that. Even if you did as much work as you possibly could in the country that you care about, we're still going to have the plastic problem, and that we really need to solve it systemically.

[00:15:49] Liz: True. I can't wait to see what else you do around that.

[00:15:53] Rob: Not all corporations and partners are enlightening, most are driven by their own interests in the problems they're trying to solve. It is a challenge, how do you help these organizations whether their governments, activists, civil society, or corporates recognize that it's not about my solution versus your solution or my part of the value chain is the only thing that I care about, but really that we are all in this challenge together and we'll be more successful together. That doesn't come naturally, it is an evolution. We've seen a lot from the leaders, but I think there's a pretty large middle section of the bell curve that are not ready to get there yet.

[00:16:42] Liz: I'm sure. You hit the nail on the head when you say the key to partnership is giving enough to pull them in and make them feel comfortable that they are getting something out of it while the rising tide lifts all boats. That's a great way to enter any partnership, I think.

[00:17:00] Rob: Couldn't agree more.

[00:17:01] Liz: I'm fascinated, if you could tell our listeners a little bit about the two female entrepreneurs that you recently back.

[00:17:11] Rob: One of our first investments is a really exciting company in Indonesia, Tridi Oasis. It was founded by two powerhouse female entrepreneurs that became quite passionate about the topic of plastic pollution and decided that their contribution would be to create a recycling company. One of them is more of the business side and the other woman is a talented engineer. She literally engineered her first recycling line from scratch herself.

We have been working. I found them many years ago and were introduced to them. We've been working with them to try and help them move to a proper facility, we help finance a new production line, which allowed them to basically triple their capacity, and we're working very closely with them. But also our corporate partners among investors to help them improve their quality and their consistency. The material that they're recycling can get into food grade bottle grade and become truly bottle to bottle.

[00:18:19] Liz: That's impressive. It sounds like those two partners complement each other well.

[00:18:23] Rob: Yes. Any entrepreneur that you're looking to back it's really important that they have a partner. That's a good rule of thumb.

[00:18:35] Liz: Are you pretty impressed with what you're seeing there in terms of an entrepreneurial mindset and technology coming forward to show you what they can do?

[00:18:46] Rob: I've been incredibly impressed by the entrepreneurs that we had the opportunity to meet and get to know, and are investing again and hope to soon invest in. I'd say we're dealing with a lot of small medium-sized enterprises that have never taken on outside capital before. They're incredible entrepreneurs, but they've never thought about what would it take to 10X what they're doing. That hasn't really been an option on the table, there's never been an investment group coming in and offering that.

We spend a lot of time trying to build a growth mindset with our portfolio and pipeline companies and figure out how do we help them develop their leadership skills. Because certainly what got them here, isn't going to get them there. We all recognize that, so how do we work with these exciting entrepreneurs to get to that next level. That's a big part of what we do, and it's probably the most exciting thing that we do.

[00:19:49] Liz: I bet that is exciting. I'm sure they're grateful to have that guidance too.

[00:19:54] Rob: Usually. It's a process for everybody.

[00:19:59] Liz: I'm sure. I know we talked about the circular economy and I know creating one is difficult and complex. You've spoken a lot about the business side of it, but what else needs to happen for circular economy to really become a reality in our lifetime? Can you talk a little bit about the full circle? What you see and what your hopes are for it?

[00:20:27] Rob: Yes. The circular economy, I've worked in a wide variety of sustainability issues over my career, on the policy side, in clean air and clean water. At Walmart, I had the opportunity to work across dozens and dozens of supply chains to think about sustainability impact and everything from apparel, to food, to packaging, and beyond, but the circular economy has really resonated with me because it has this cross-cutting impact opportunity where it changes how we consume and produce products. It engages every individual in a way that topics like climate change really struggle to do.

The promise in the aspiration of the circular economy is so exciting for us and for me. The reality too, though, is it is an aspiration and we talked a little bit about how today, in most cases, what we're talking about is recycling. To really get to that change and truly circular systems requires significant levels of innovation. New materials, new technologies that can enable closed-loop recycling. The full connectivity with the organic side of the equation. There's a lot more work to be done there.

I think policymakers have a huge role to play about raising the floor and bringing in incentives to allow this work to happen more extensively and holistically, avoiding the traps of quick wins, which really are not going to solve the problems. Investors and some companies can light the way, but it really needs to become a culture-wide movement to achieve the impact we want.

[00:22:33] Liz: Definitely. For you, the work you're doing, what would be success for you, say, in five years in the companies you're supporting?

[00:22:42] Rob: We hope to deploy this $100 million, we hope to be able to turn that and catalyze that into another $100 million from other investors. We hope to see these companies that we're starting to deploy capital into grow, into thriving businesses. Then, over the next five years, really build the case to show that this is not just a pilot or an example, but a truly investable asset class that brings in traditional, conventional, and institutional investors.

[00:23:21] Liz: Good for you. Any other partnerships up your sleeve we can talk about?

[00:23:26] Rob: [laughs] I think the one partnership we're working on is keeping most of my attention these days, but we're always working on trying to bring a new corporate partners and other investors in the deals we're doing. Frankly, we were just talking about this today. One transaction we're looking to do, they need more capital than we would normally have available, so we're trying to find ways to bring other investors in faster. Either directly with us or alongside us because there's so much opportunity.

We've done, I think, a great job of unearthing and preparing, but it's getting to the point where I think we'll start to see a lot more investors and investing capital coming in.

[00:24:13] Liz: I bet you will, for sure. I can't wait to see what else is happening down the road and what other entrepreneurs you find. This is exciting stuff, Rob.

[00:24:23] Rob: Thank, Liz. I look forward to sharing with you. Please, have me back.

[00:24:26] Liz: Yes, I would love to. Thank you, Rob. Keep up the great work. I look forward to talking with you soon.

[00:24:32] Rob: Okay. Have a great rest your day.

[00:24:34] Liz: You too. Thanks again. Bye-bye.

[00:24:35] Rob: Bye.

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