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Circulate Capital is betting that small investments funded partly by some well-known corporate backers can help tackle one of the biggest global pollution problems: plastic waste.

“Plastic waste is not just a global crisis that threatens economic recovery, climate, and nature. It is also an investment opportunity that can flip it from a scourge into an engine for economic development," said Rob Kaplan, who founded Circulate in 2017. Initially the firm sought to back companies in India and Southeast Asia, such as recycling or waste-sorting companies, that help reduce the amount of plastic waste that winds up in the ocean.

In 2019 it raised a $106 million debt and project finance fund, Circulate Capital Ocean Fund, backed by a handful of large multinational corporations that include Coca-Cola Co., Danone SA, Procter & Gamble Co. and Unilever PLC. It now aims to raise a $50 million fund to broaden both its investor base and its investment remit.

Circulate is one of a small but growing number of firms investing in companies that contribute to what they call the circular economy, a business model that seeks to eliminate waste that organizations produce, continuously reuse products and materials and regenerate natural systems. An estimated 30 private-market funds, including private-equity, venture and debt strategies focused on the circular economy in the first half of 2020, up from just three in 2016, according to a report last year from the Ellen MacArthur Foundation, a nonprofit organization.

A number of large multinational corporations are funding these firms’ efforts as part of a broader push to reduce both the overall waste their own companies produce and the amount of virgin materials they use.

“What’s really evident with these [objectives] is they aren’t things you can do as a company alone," said Richard Slater, chief research & development officer at Unilever. “There are system changes you need to make."

Unilever, which has backed funds managed by Circulate and New York-based Closed Loop Partners, aims to cut in half the amount of virgin plastic it uses by 2025 and plans to collect and process more plastic packaging than it sells. Coca-Cola, also a backer of Circulate’s Ocean fund, aims to make all of its global packaging recyclable by 2025 and to use at least 50% of recycled packaging material by 2030, among other goals.

Matt Echols, Coca-Cola’s global vice president of public affairs communications and sustainability function operations, said backing companies in the circular economy is as much about seeking returns as it is about reaching sustainability targets.

“It’s an investment, not a gift," he said. “What we will do is look at some of these [portfolio] companies as potential suppliers of recycled material."

Circulate has backed at least seven companies through its Ocean Fund so far, including Nepra Waste Management Pvt. Ltd., an Indian waste collection company, and Tridi Oasis, an Indonesian plastic bottle recycler that produces polyethylene terephthalate, or PET, flakes, an industrial material.

With its newest fund, Circulate expects to expand its investment remit to the U.S. and Europe and broaden its strategy to include companies that produce technologies and materials. The new fund has already attracted initial pledges from noncorporate investors such as family offices, according to Mr. Kaplan.

Early backing from large corporate investors can help young firms attract other types of investors, according to Bridget Croke, managing director at New York-based Closed Loop Partners. Closed Loop, which managed around $164 million in regulatory assets at the end of last year, invests across private-equity, venture capital, debt and infrastructure funds.

Closed Loop is currently pitching to investors several funds, including the Closed Loop Circular Plastic Fund, which targets recycling technologies, equipment and infrastructure deals across North America. The firm raised an initial $25 million from corporate backers Dow Inc., Nova Chemicals Corp. and LyondellBasell Industries NV and aims to grow the fund to $100 million, according to a press release.

Ms. Croke said when the firm started raising money for these types of investments, it only had the strategic corporate investors. Now, “we have more family offices, individuals and banks than we have [corporations]," she said. “The corporates have created that security that brings more investors to the table."

This story has been published from a wire agency feed without modifications to the text

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