The circular economy is not a game – it’s new business fuelled by investment

Matti Kangas | 2019-04-18

We are the last generation that can save our planet from destruction. Election boasts will match reality when Finland leads the world in the circular economy race, with everyone is a winner. Companies in Tesi’s EUR 75 million Circular Economy programme can join the race, too. This is an opportunity to create new business – and sustainable value.

Just the start of Finland becoming the circular economy leader

Political will is profoundly important, but climate goals will not be achieved simply by raising taxes and enforcing prohibitions. As consumers, we can change our shopping habits and steer business activities by altering the demand for products and services. But politicians, companies and consumers aside, also investors and finance providers need to publish more information.

The May 2018 issue of the Politico newspaper ranked EU countries by the progress they had made towards a circular economy, applying the European Commission’s key metrics. Finland did not rank very highly in this comparison: it was placed 22nd out of 28.

Finland’s high levels of recyclable waste coupled with a high waste incineration rate largely account for this. Only some 7% of materials are reused, compared to 27% in the Netherlands. When waste is used as energy, much of the value it contains is lost. Furthermore, Finland and the other Nordic countries still have a lot to do in conventional recycling. Finns do worse in recycling plastics compared to Sweden, for instance. An average Swede sorts out 6.5 kilos of packaging plastic, while in Finland only 1.2 kilos per capita of such plastic lands up in a recycling bin.

Responsibility is good business

Sitra estimates that Finland has the potential to generate at least 1.8 billion euros of circular economy business by 2030. It is not simply about being on the right side, but more about being able at the same time to spot new business opportunities in the extensive field of circularity.

At Tesi, we are convinced that embedding circular economy thinking into all our business activities is both possible and economically profitable. As a state-owned investment company, we are committed to supporting the growth and internationalisation of Finnish companies while also being profitable. Environmental, social and governance (ESG) issues are not just a passing fad, but a hugely significant megatrend. Seizing ESG investment opportunities is also well justified in terms of returns.

According to a Newsweek Vantage report, the assets managed by those asset managers and investors following ESG strategies grew from some USD 13 billion to about USD 23 billion between 2012 and 2016. This figure equates to roughly one-third of the world’s professionally-managed investment wealth.

Ilmarinen, Finland’s largest pension insurance company, has joined a group of 225 institutional investors aiming to influence the operations of the 100 largest global polluters through investments totalling approximately 26 billion euros. Varma, another Finnish pension company, is meanwhile reducing the carbon footprint of its investment portfolio in line with the Paris Agreement. Last year its footprint was 17% less than the 2015 base level.

Numerous business models

We made our first investment under the Circular Economy programme in glass recycler Uusioaines. The company’s plant in Forssa produces cullet, glass powder and abrasive blasting media for industrial use. It also produces foam glass, an ecofriendly insulating product and lightweight fill, from surplus material.

The circular economy is not just recycling. The product-as-a-service business model changes our concept of ownership while at the same time quality gains in importance. Usage needs and utilisation rates vary, so owning capital goods is not always a reasonable option for either companies or private individuals. Tesi’s portfolio company 3 Step IT offers companies IT equipment as a service, from the acquisition of it to replacement and secure recycling. The benefit to companies is maximised by reducing service life inefficiencies, which represent some 80% of the Total Cost of Ownership (TCO).

One of Tesi’s portfolio companies in renewable materials, Kotkamills, has developed a fully recyclable cartonboard for disposable cups that has the same properties as conventional, plastic-coated cupstock. In the USA alone, around 1.1 million tonnes of cupstock a year is used, the equivalent of 120 billion cups. In the recycling process for conventional cupstock, the plastic can be separated but some of the cups end up cluttering the environment.

Growth, internationalisation and circular economy

Before making a decision to invest, we evaluate the company’s business and growth plan, market drivers, technology and competitors, et cetera. Projects must often be of sufficiently large scale before they start to operate profitably, and we want to lend wings to these types of investments. We also examine the prospects for exiting in the future, because our ownership period covers 3−8 years. Our Circular Economy programme also suits companies that have not yet addressed the issue but, for instance, are keen to enhance to improve efficiency in the use of energy and resources.

Obtaining financing should not be an impediment on a carefully planned path to growth. Tesi also operates in the circular economy, together with VC/PE funds and other investors. Exhaustible natural resources cannot wait – nor can your company.

Sitra (the Finnish Innovation Fund) is hosting the World Circular Economy Forum in Helsinki from 3rd to 5th June 2019. For more information: www.wcef2019.com

Matti Kangas