Circular models have growing appeal for investors

Investment in circular economy business models in the UK has tripled in volume over the past three years with over £1 billion (EUR 1.8 billion) of capital deployed in SMEs by private investors, according to accountants BDO.

The latest publication from the company’s series on the circular economy (CE), Investment into the UK Circular Economy, notes a changing attitude of private equity, venture capital investors and debt funders towards CE businesses. Annual investment in UK Circular Economy businesses has tripled in volume from 42 deals in 2018 to 119 in 2021 and BDO expects this momentum to continue.

The most prominent sector is industrials and manufacturing with 37% of deal volumes in 2021 with the waste management and recycling sub-sector attracting 43% of this volume in 2021. A further 26% of investments last year were in technology-led businesses.

‘In 2021, 44 of the 118 Circular Economy UK transactions we have reviewed fall into the sector, attracting disclosed investment of £249 million at an average of £3.6 million per disclosed transaction,’ the report says.

‘Circular innovation in the sector is focused on the supply side with 66% (material recovery 43%, circular inputs 23%) of 2021 investments made into businesses focusing on producing or manufacturing with sustainable materials.’

Examples of significant investments in the waste management and recycling sub-sector are PAR Equity led investment in Nova Pangaea Technologies, which develops a process to convert non-food biomass into liquid fuels and a range of useful chemicals, and Bio-Bean led by Turquoise, through its Low Carbon Innovation Fund II. Bio-Bean manufactures a range of biofuels and biochemicals from recycled spent coffee grounds.

An example of products with circular input is the Scottish National Investment Bank support for IndiNature, a provider of natural fibre construction insulation products.

‘Despite the concentration of investment towards the supply side, there were still a number of notable investments made into manufacturing circular products with functionality designed to positively contribute towards a CE,’ the report adds.

‘The most interesting of these investments are technology led, like Circularity Capital’s investment into P2i, whose liquid repellent nanotechnology increases the life span of electronic devices by enabling them to survive liquid exposure from everyday accidents and conditions.’

Todd Mills, BDO assistant director, says: ‘There is growing recognition from investors that CE principles can deliver both environmental and economic benefits. With levels of available private equity capital in the UK at an all-time high, more and more investors are turning to the CE and we expect 2022 to be another record year.’