News and Blog

20 February, 2015

Waste Management and the Circular Economy

As part of EcoMachines’ new initiative, ‘EcoMachines Spotlight: Resource Recovery and the Circular Economy’, I recently shared my views onthe opportunities available in the waste management sector with two leading industry publications, the CIWM Journal and Waste Planning Magazine. In my two articles, I stressed the new investment prospects that would be presented to the industry were it to fully engage with the move towards a Circular Economy. A summary of my views can be found below, and the full articles can be downloaded here and here. You can find out more about our new Circular Economy initiative here.

 

The waste industry is going through a period of disruptive change, with traditional linear models (from production to consumption to scrapheap) being challenged by alternative processes and business models. New systems which seek to recycle, up-cycle and reuse waste streams are increasingly backed by policy makers, business leaders and the general public. In response, waste disposal methods are adapting, with an increasing focus on alternative methods of waste management.

 

The Circular Economy is a relatively novel concept of a ‘closed loop’ approach to resource use, which involves using materials for as long as possible, extracting their maximum value, and then recovering and regenerating them at the end of their life. When implemented, the potential for disruption of traditional disposal methods is significant and the potential for new investment opportunities huge. According to analysis by McKinsey, a global shift to circularity could add $1 trillion to the global economy by 2025.

 

Traditionally the waste industry has been associated with the end of product life cycles. However the move to a circular economy provides a strategic opportunity for such businesses to shift to the centre of the production-consumption chain. With one fifth of the UK economy already operating on circular principles and the potential for this to rise to 27% by 2020 (according to WRAP), we are at a key point in the growth of this model, providing opportunities as well as challenges from the redesigning of systems. Waste industry players that fail to respond fast enough may find themselves increasingly marginalised, and with reduced access to waste streams. As a result, I am expecting to see some major industry changes, with new players pushing out incumbents or current players adapting their businesses and industrial technology to fit with circular models of operation.

 

The Investment Opportunity

 

Despite the high potential for significant returns, levels of investment in the space have so far been relatively low. There are naturally concerns about the scalability of circular models, and many individuals see the circular economy as coterminous with corporate social responsibility programmes. In my opinion, this could not be further from the case. Many circular economy business opportunities make clear business sense, plugging market gaps and failures and converting waste streams into higher value uses. Numerous opportunities are emerging from the crossover of technology trends around the spaces of robotics, materials science, Internet of Things, and advanced engineering with specific industrial waste application areas.

 

For example, EcoMachines has backed Recycling Technologies, a company that turns waste plastic into a valuable synthetic oil. The solution transforms a waste stream, which would typically go to landfill or be incinerated, into a valuable resource for the economy. Venture Capitalists and investors keen to pursue investment opportunities in this space have a unique opportunity. In the UK especially, there are a large number of scientists and serial entrepreneurs all keen to exploit such commercial possibilities.

 

Challenges

 

The waste industry will face a number of challenges emerging from its convergence with the circular economy. As we start to see re-designs of industrial systems according to circular principles, key parts of the industry may be left out of the loop. Within a circular business model, it is unlikely a producer would allow a potentially valuable resource to leave their ecosystem and go through an outdated waste infrastructure.

 

Another challenge is the perception by many VC investors of the waste industry (and engineering technology companies more broadly) as slow-moving and capital intensive, especially when compared to the TechCity-type lean start-up models in the software space. Yet this view ignores the rapid scale-up opportunities for companies that benefit from the UK’s highly developed entrepreneurial ecosystem. Access to grant schemes under Innovate UK and the EU’s Horizon 2020 programme provide important financial support for R&D activities, whilst the project finance capability in the City provides UK start-ups with significant access to expansion and scale-up capital. Finally, success in the UK waste industry is frequently used as a basis from which to expand into other EU, US and emerging markets.

 

It is high time that the UK waste industry challenge the perception that it is stagnant by leveraging these advantages and adopting new technologies whilst building circular business models. Investors will support such a shift, and the clear logic behind the circular economy is simply an added bonus.