Redirecting resources: Governments urged to raise waste infrastructure investments for emerging markets

01 Aug 2024 --- Emerging markets received only 6% of plastic waste management investments over recent years, despite the greater impact of plastic pollution in these economies, according to the The Circulate Initiative — a non-profit that has recently released an investment tracker tool to aid funding for underfinanced regions.

We sit down with Umesh Madhavan, research director at the non-profit, to discuss geographical investment imbalances and the role reuse and refill solutions can play in addressing related issues. 

He emphasizes that mobilizing finance to address plastic waste in emerging markets requires coordinated action among businesses, governments and other stakeholders in the value chain. 

“Policy plays a critical role in the flow of private capital by creating a cohesive ecosystem for plastic circularity, incentivizing investment and reducing or sharing risk by developing domestic capital markets through green bond issuances and loans,” Mahavan tells Packaging Insights.

For example, minimum recycled content regulation in key markets has created market demand for plastic waste feedstock for recycling.

The Investment Tracker allows users to explore data by geography, solution and investment categories (Image credit: The Circulate Initiative). Lack of investment 
In emerging markets, there is a lack of evidence-based tracking for successful investments, Mahavan stresses. The Circular Initiative’s Plastics Circularity Investment Tracker, launched in cooperation with the International Finance Corporation, provides insights into private investments in plastics circularity globally. 

The interactive tool allows users to explore the data by geography, by type of circularity solution along the plastics value chain and by investment categories. 

“The Investment Tracker is designed to fill this [evidence] gap, with the accompanying insights report showcasing examples of successful, innovative investment models, such as thematic loans and bonds, blended finance and outcomes-based financing, which will be critical to the mobilization of private capital, particularly in emerging markets.”

The tracker includes expanded data, covering 100 countries, featuring more than 5,500 deals from over 3,000 companies, and captures a total deal value of US$190 billion between 2018 and 2023. 

“The ongoing negotiations on the international legally binding instrument on plastic pollution [UN Global Plastics Treaty], including in the marine environment, will be critical to not only mobilize additional capital, but to redirect it to regions where it is most needed,” adds Mahavan.

Investment shortfallINC-5 will be critical to redirect wate management funds to regions where it is most needed.
The Circulate Initiative is now calling for greater investment into tackling plastic pollution, as new data reveals an average of US$32 billion annually of private investment went to plastic circularity between 2018 and 2023, “far below” the one trillion US dollars needed.

Twenty-two million metric tons of plastic waste leaked into the environment in 2019, with the potential to double by 2060. With total investments into plastic circularity since 2018 at only US$190 billion, the current investment trajectory is too slow to meet targets to reduce plastic leakage into the environment by 90% by 2040, warns the initiative.

The latest figures are revealed in the third edition of the Plastics Circularity Investment Tracker.

While investment amounts fall short of financing needs across the plastic lifecycle, 82% of investments are channeled to downstream solutions like recovery and recycling, while solutions such as refill and reuse, which are designed to reduce plastics consumption, received only US$8 billion (4%).

Banks and corporate investment were the top two sources of funding, contributing to 37% and 31% of deal value respectively over the period, finds the initiative. 

While early-stage investment is needed to foster innovation and new business models, only 2% of investments went to firms in this space in their early stages of development.

Investment in upstream solutions like reuse are critical to achieve circularity.Upstream solutions 
Madhavan explains that typically, businesses operating downstream of the value chain are generally more mature and established compared to firms that lie further upstream, which is attractive to investors.

“For example, financing by banks and corporate investments contributed to 37% and 31% of deal value, most in recovery and recycling. Well-established, credit-worthy businesses were the recipients of the investments by banks.”

Upstream solutions that are in the earlier stages of development require patient capital and smaller investment sizes, asserts Madhavan. “It is clear that while the will is there, the scale is not. Early-stage investment is needed to foster innovation and new business models, but this accounted for only 2% of investments, even though these firms comprised 55% of the total number of investments.”

“In contrast, later-stage companies tend to secure larger investment sums due to their established track records and clearer growth trajectories,” he adds.

“While it is necessary to continue investing in such waste management infrastructure, more investment is needed in diverse companies upstream in the value chain that are implementing solutions to reduce and reuse.”

INC-5 opportunities
The Global Plastics Treaty offers an opportunity to establish the systems for monitoring financial flows, to mobilize additional capital and to redirect it to the relevant geographies and solutions across the value chain, says Madhavan.

“With INC-5, the fifth and final round of negotiations set to take place in November and December 2024, this year will be critical in signaling the long-term future of investing in plastics circularity.”

“The plastics treaty offers an opportunity to establish the systems for monitoring financial flows, to mobilize additional capital, and to redirect it to the relevant geographies and solutions across the value chain,” he adds.

“We call upon the financial community including representatives from investment firms, banks, financial institutions, corporates, and governments to utilize this data to better understand the private investment landscape and inform strategic decision-making to tackle the plastic pollution challenge.”

By Natalie Schwertheim