Why is it that despite the success of individual circular business models, we simply aren’t seeing a wider shift across the entire economy? In this episode Lou is joined by the Ellen MacArthur Foundation’s Strategic Finance and investment team, Emily Healy and Joe Rodgers. Together, the team explores how systemic investing and capital orchestration could be the tools we need to take this transition forward, and look at where we are currently seeing this thinking brought into ‘on the ground’ demonstration projects.
Why is it that despite the success of individual circular business models, we simply aren’t seeing a wider shift across the entire economy? In this episode Lou is joined by the Ellen MacArthur Foundation’s Strategic Finance and investment team, Emily Healy and Joe Rodgers.
Together, the team explores how systemic investing and capital orchestration could be the tools we need to take this transition forward, and look at where we are currently seeing this thinking brought into ‘on the ground’ demonstration projects.
Emily and Joe also explain how in many cases the right financing is out there, but more thoughtful allocation and coordination could result in better, more resilient outcomes.
If you enjoyed this episode, then please share with your colleagues, or leave us a review or comment on Apple Podcasts, Spotify or YouTube.
[00:00:00.000] - Lou Waldegrave
It's like a massive jigsaw puzzle, isn't it?
[00:00:02.260] - Emily Healy
What are the key interventions that need to change to create a circular shift in that market, in that city?
[00:00:08.360] - Joe Rodgers
How do we finance that, and how do we make the most of that opportunity and overcome the challenges that we're seeing?
[00:00:12.940] - Emily Healy
What do you really need to get right? What are banks doing? What are investors doing? What kind of innovation is being financed? What are the opportunities like? What's really growing?
[00:00:20.400] - Joe Rodgers
What is this concept? How do we grab the opportunity of it?
[00:00:23.050] - Lou Waldegrave
Why are we not seeing a broader shift across the economy as a whole?
[00:00:27.920] - Lou Waldegrave
Welcome to The Circular Economy Show. Today, I'm thrilled to be joined by the Ellen MacArthur Foundation's strategic finance and investment team, Emily Healy and Joe Rodgers. In this episode, we're asking why is it that despite the success of individual circular business models, we aren't seeing a wider shift across the entire economy? We'll explore how systemic investing and capital orchestration could be the tools we need to take this transition forward. And we'll be looking at where we are currently seeing this thinking brought into on-the-ground, real-life demonstration projects.
[00:01:12.260] - Lou Waldegrave
Well, thank you so much, Em and Jo, for joining me today and for looking like you've just rocked up from the catwalks of Milan. For those of you who are just listening to The Circular Economy Show today, Em and Joe present both the beauty and the brainiac package for the foundation. And we're thrilled to have them here. Now, you guys have been working together on finance and the circular economy for roughly 4 years. Em, you've been here 8. Joe, you joined the foundation about 4 years ago. You must have navigated some huge changes in that time. What are you sensing now as we move on?
[00:01:54.720] - Emily Healy
Well, thank you for embarrassing us.
[00:01:56.810] - Lou Waldegrave
Hey, no worries.
[00:01:58.330] - Emily Healy
To start off.
[00:01:59.150] - Lou Waldegrave
The colleague you can rely on.
[00:02:01.730] - Emily Healy
Maybe it may be helpful to start about how things have shifted over the last few years. Because when we really started, when we set up our programme on finance, it was in 2019 and the world was in a very different place. It was pre-COVID, it was pre a lot of the kind of geopolitical things that we've seen. And there was a real like groundswell in the finance sector. Circular economy was starting to become a more known concept, and it was a really interesting and exciting time to be thinking about it. And I think it was the reason we did start the programme was because there was this interest from the financial sector. And we started by highlighting where is finance already flowing? What are banks doing? What are investors doing? What kind of innovation is being financed? What are the opportunities? What's really growing? And then we sort of have seen it at that peak, that excitement and growth in financing peak at about 2021, and then go down slightly as it's become a more challenging economic environment. And it's obviously not true... It's not true just of circular economy, but sustainable investing in general is when people are... When it's harder economic times, the people shift to things that are more familiar and there's less willingness to take risks. So I guess we're seeing some of that.
[00:03:28.660] - Lou Waldegrave
You've literally ridden that financial rollercoaster.
[00:03:31.800] - Joe Rodgers
And I think so much of the shift as well has been has reflected in the shift that the foundation's been through as well. It started about what is the circular economy? And a lot of the questions that were coming from the finance sector then was like, "What is this concept? How do we grab the opportunity of it?" And over the last 4 years, we've really seen that shift to going to like, "How do we finance that? And how do we make the most of that opportunity and overcome the challenges that we're seeing?" And I think in that past, we've seen a lot of those exciting opportunities come be realised. And that is reflected in the business world and some of the amazing growth that's been seen around circular economy and specific circular economy businesses as well.
[00:04:13.810] - Lou Waldegrave
Yeah, I mean, to date, correct me if I'm wrong, guys, but we have highlighted successful circular business models: fashion resale, the refurbishment of electronics. So if these guys are managing to gain successful traction and finance, why are we not seeing a broader shift across the economy as a whole?
[00:04:40.670] - Joe Rodgers
Yeah, I mean, I think, and as we said, we've seen those great individual success stories and that's been realised from everything that we've always talked about with the circular economy: consumers gaining access to assets and products at lower value, those products existing in the circular economy for longer, and then the benefits from nature and climate as well. And that's a lot of the reasons why finance is attracted to circular economy, it's kind of got that economic value and then also the environmental impact as well.
[00:05:09.670] - Joe Rodgers
And it's even to say that those success stories come from hard, difficult to finance opportunities. It's not like it's really easy. And as you said, Emily, it's a difficult funding environment now, and a lot of those circular business models and circular businesses require high upfront investment. Often it's starting at a very small scale and needing to bridge to larger scales to really build that demand and that supply, and then needing a lot of technical knowledge to make those successful. So while they've been, there's been those bright spots of success and those individual stories, they still face an uphill struggle against a broader system.
[00:05:55.930] - Emily Healy
Yeah, maybe jump in and say, I know that we would have... And I think something we would have liked to see over the last 6 years I've been focusing on it is just more of those examples. And now we've got some really strong cases examples that we love talking about. But I think something that's become more apparent, and we've heard that reflected through financial institutions that we've talked to, is that individual success stories themselves are not enough. If you invest in just... If you're looking at just one solution and trying to fund that, you're missing the whole systemic perspective of circular economy. You have circular businesses that are still trying to operate in a linear economy, and that's always going to be an uphill struggle. They're always going to fit face potentially higher costs, lack of demand, or uncertain demand, maybe an uncertain policy environment about whether those policies are going to create incentives for their business model or not in future. There's a hope that that will happen, but it's not always the case. Maybe policies that help internalise carbon emissions would, again, enhance the business case for certain business models.
[00:07:12.190] - Emily Healy
Have to think about it in a system. For example, if you think about a recycling plant, it's downstream. It's not an example that we really like to give, but it is something that gets funded typically. A circular project that does get funded, whether it's by development finance, whether it's by public sector government funding, or it might be bank funding. But that plant will never be... If you're just thinking about investing in one single facility, it will never be optimised. It will run at a lower margin than it possibly could, or potentially it will have to be subsidised because the economics won't stack up if you aren't also thinking about where's the feedstock for that plant? Where's the materials? Do you have enough quantity? Where's it coming from? How complicated is the logistics? What cost does that add? How well is it sorted? If you think about the whole chain, like people in their houses, is there education campaigns? Are they aware of what they need to do to help that, whatever their packaging or whatever it is that they have actually be recycled at the end of the day?
[00:08:22.360] - Emily Healy
And then at the other end on the kind of demand side, you also think about someone's got to use this material. Who are the companies that are going to use it? Is there commitments? Is there certainties that someone is going to buy that recycled material? And further down the chain for someone to buy it, they also have to figure out how they integrate it into their products, think about how their products are designed, think about their factories and their manufacturing processes. Can they just substitute one for the other? Do they need to rethink how they do that? So it's a really complex system. And I think that's why we're not seeing the broader shift is because there's too much focus on individual solutions rather than the whole system.
[00:09:07.680] - Lou Waldegrave
So if we were to think of it... I mean, it's like a massive jigsaw puzzle, isn't it, really? If the system isn't currently designed to bring all those pieces together, which it's not at the moment, is there an alternative?
[00:09:24.330] - Emily Healy
Yeah, I don't know if you wanted to—
[00:09:26.190] - Lou Waldegrave
Sorry, Joe.
[00:09:26.830] - Joe Rodgers
No, no, no.
[00:09:27.720] - Lou Waldegrave
Is there an alternative?
[00:09:29.960] - Joe Rodgers
We were looking at each other then. I mean, yeah, in many cases the right financing does exist. As Emily mentioned in that example, we do see infrastructure being funded, but the complexity which Emily spoke about in that system is just down to one material stream, to one investment. And that is absolutely the mandate of finance, finding those single-point solutions and matching their return and risk expectations. But the way to knit those things together, we're seeing some really interesting emergent ideas in systemic investing. So this is the concept that you can bring together, different stakeholders from across the system, not just finance, business as well, and policy, and then actually start to create interventions at all points, so upstream, downstream, and in the middle, to maximise that opportunity and get that multiplier effect. So to come back to the recycling plant example, if you have a really well-resourced collection and sorting system, then that is no longer a cost that has to be absorbed by that recycling plant. And then on the other side, you have a demand for the product that's coming out.
[00:10:52.130] - Joe Rodgers
So it's something that we see this concept of systemic investing as a really good fit for circular economy and an emerging idea that we are starting to explore and understand more. And we think there's a really great opportunity to bring those financial stakeholders together and move beyond that single point of financing and start to really build longer-lasting systemic shifts.
[00:11:20.740] - Emily Healy
Maybe if I jump in, I think it feels like a really natural fit in terms of the shift that we've gone through. Initially, it was really trying to meet finance where they are, and we're still trying to do that. Understanding what are their risk-return expectations, what are the types of capital that they have available to allocate to circular economy, how do that align with sector geography, et cetera, and then highlighting the relevant opportunities for, that's where circular economy was growing and that fit within our vision of a circular economy. Because I think that's a crucial piece of helping the fact that we've done to date is help financial players understand what counts for circular economy and what's not, what's actually going to get us towards the system we're trying to build. But we've hit up against this wall of, that just ends up highlighting single-point solutions and misses the systemic perspective. So trying to bring the ideas of systemic investing, which is lots of players have been really building on this. We've been inspired by the TransCap initiative in particular over the last couple of years and trying to think about how you bring a systemic perspective, not just to the changes we're making in the real economy, but also bringing the financial perspective.
[00:12:41.620] - Lou Waldegrave
Can I just take you back? What is the TransCap initiative for those who don't know?
[00:12:47.290] - Emily Healy
So they are a not-for-profit, and they are, I guess, a similar type of organisation to us, but they are developing and communicating about the concept of systemic investing.
[00:12:58.330] - Lou Waldegrave
Right, okay, sorry.
[00:12:58.990] - Emily Healy
I'm building the field and knowledge base.
[00:13:01.310] - Lou Waldegrave
Thanks.
[00:13:01.710] - Emily Healy
And highlighting case examples. And I think that there are some emerging examples that they've highlighted of how systemic investing is being employed to help place-based systemic transitions in particular. I think that lines up really nicely with where our work is going, where we're really trying to demonstrate implementation on the ground. And when you actually talk about financing, if you're going to get practical, it actually has to be in a place. What are you financing? Is it infrastructure or is it a company or is it... What is it?
[00:13:37.490] - Lou Waldegrave
So how is this showing up in our work at the moment?
[00:13:42.050] - Emily Healy
I think for us, it's really about trying to put the ideas into practise in the real-life projects. And maybe something to say is that we talk a lot about the financing of the real stuff in circular economy, like infrastructure, business models, and innovation, I guess being the three design and innovation that we talk about a lot. But it's also thinking about a much broader spectrum of capital, also thinking about how we bring in philanthropic capital and the typical players that would fund policy engagement and shifts or consumer behaviour campaigns or shifts to understanding how you shift governance models to better suit a circular economy. So it's bringing the whole picture together, not just the real things that money can go to.
[00:14:34.160] - Joe Rodgers
Yeah, and I think to build on that, when we talk about bringing different types of capital together, and I think this is a lot of the conversation, blended finance is brought up a lot. And I think the key thing to note here is that systemic investing and capital orchestration goes beyond just bringing together public and private money in one facility. But it's also about how do you then engage corporates to sign offtake agreements, or as you said, philanthropy to provide grants for social programmes that would also support these shifts in these systems. And I think that's one of the early examples that we're looking at is working in Brazil on waste management infrastructure. There was, again, as Emily said, building a place-based project around a city and bringing together all of those different three main players of business, finance, and policy, but also still talking to philanthropy about how do we fundamentally change the way that waste streams are managed in one particular place. And that also echoes that broader shift that we're seeing from what to how, and we can actually start to get real in places and put numbers to these projects, which allow us to see this in a practical sense. I think at the moment a lot of this work is just in the idea phase, so we're really excited to be taking it from the idea phase into actual real projects.
[00:16:05.090] - Emily Healy
Can I also jump in on that because I think it's in terms of how the process works on those projects is we've typically defined a vision for a circular economy in our key sectors, so plastic packaging, and brought business and policy around that. And that's still the foundation, and that hasn't gone away. And the way we see it is that now when we're moving into specific places, you first need to understand what are the key interventions that need to change to create a circular shift in that market, in that city, and which ones are likely to have the biggest outsized impact. What do you really need to get right for all the other pieces of the puzzle to flow and follow? Because it's really complex. You're not going to be able to do it all. And then once you've identified those really key intervention points and how they connect to each other, playing that convening role, which we've always done at the foundation and with business, with policy, with finance, around this is the shift that we need to see, these are the interventions. But then the additional layer that we need to figure out, and this is all new work for us. So it's exciting, but it will be very emergent. We're not pretending that we have all the answers by any means.
[00:17:25.120] - Lou Waldegrave
But you're working towards them, right?
[00:17:27.060] - Emily Healy
Yeah, hopefully. And I think there's a growing community of practise who hopefully we can learn from, and hopefully we can also share learnings from our projects as we're coming out and as we figure out what are the different types of capital that we think are needed for that system shift for the project in Brazil. And the way we're thinking about it is can we mobilise business and philanthropic contributions to fund that system to make the business case stack up that then you can crowd in public and private financing, like development finance, also private finance to demonstrate well-working circular systems, whilst we also work on the policy engagement side.
[00:18:17.250] - Emily Healy
And it's exciting, but it's very new. And I think we, over time, we hope that we'll be able to develop our thinking and replicate that across other programme areas in critical minerals and fashion, and other plastic programmes.
[00:18:32.300] - Lou Waldegrave
Set up a blueprint type of thing.
[00:18:34.690] - Emily Healy
Yeah, and hopefully share that more broadly. Hopefully we'll be back here in a year and have some real things to share. Although this is obviously really long-term work. We're talking for this project is 5 to 7 years, just in one place and hoping to replicate that in other major regions in the Global South.
[00:18:52.930] - Lou Waldegrave
Joe, what's key to success?
[00:18:56.540] - Joe Rodgers
I think, as Emily just said, it's really complex work, and I think it's already key to highlight that it's not like there's a load of time and money sitting around waiting to do this. This is an extra layer of coordination and of convening that needs to come together around those specific systems and problems and work together to maximise those and to find those out. So I feel like for us at EMF as a foundation, playing that role of bringing those key stakeholders and actors together is a really key factor to providing that time and resource and being able to do that and building the trust and the confidence in this idea to showing that it's something that can work in the real world.
[00:19:56.420] - Emily Healy
I think also like-minded financial players. I don't know exactly the right wording because we're talking about such a spectrum from funders to financial institutions to all these different types of players, which makes it complicated. But I think we'll probably find a natural fit with financial players and stakeholders who already have a systemic mindset and ability to have impact really embedded into their mandate. So philanthropic foundations and philanthropy who we already work very closely with, but also development finance and public sector finance who, again, have a mandate to create impact. And obviously, we've always engaged very closely with a private finance audience, but I think they will fall... All the pieces need to line up for them to be able to engage. So I think in terms of working this through, we'll probably find a bit of a coalition of the willing with the stakeholders who are already more aligned to this sort of thinking.
[00:21:08.930] - Joe Rodgers
Absolutely. As we start on this journey, it's about learning together and understanding how these ideas and this theory land in the real world and the real challenges that need to be worked through, whether that's the right governance, the right different types of financing, different types of projects, but identifying those stakeholders and players that want to go on that journey with us and be that coalition of the willing.
[00:21:35.540] - Lou Waldegrave
Thank you guys so much for joining me today. And if anyone can take on the challenge, I know it's you two. And I want you back in a year to report your progress, please.
[00:21:46.920] - Joe Rodgers
Sounds like a plan.
[00:21:48.060] - Emily Healy
We'd love to.
[00:21:49.350] - Lou Waldegrave
Good, see you later.
[00:21:51.740] - Lou Waldegrave
Thanks so much to Emily and Joe for taking us through how in many cases the right financing is definitely out there, but more thoughtful allocation and coordination could result in better and more resilient outcomes. As we discussed, concerted action within a system builds true economic resilience, and through capital orchestration, Finance doesn't just enable change, it can drive it. Thanks so much for joining us today. If you enjoyed this episode, please give us a like or a comment and share with your colleagues and friends. Don't forget to subscribe wherever you get your podcasts, and we'll see you next time.