The Brief

The Brief: Meeting the demand for recycled plastics in Latin America

ImpactAlpha · July 24, 2024
Image credit: Community Solutions

Greetings Agents of Impact!

The latest edition of our specialty newsletter, ImpactAlpha Latin America, is out later today. As an ImpactAlpha subscriber, you get the top stories first. For the full LatAm experience, opt-in to the new feature at no additional cost. ¡Disfruta! – David Bank

In today’s Brief:

  • Circulate Capital brings its recycling strategy to Latin America
  • Private capital to transition veterans out of homelessness
  • Boosting small business lending in Africa
  • Optimizing solar installations in Mexico

With investment in Colombia, Circulate Capital brings growth capital to plastics recycling in Latin America. More than two dozen countries in Latin America have passed laws to reduce or eliminate single-use plastics. The surge in demand for recycled plastic has outpaced the capacity of recycling businesses to meet the new mandates, creating a dynamic market for recycling investments and acquisitions to scale up operations. “There’s a point where the current installed capacity to produce that volume is not there,” says Christian Urazan, a former plastics executive tapped by fund manager Circulate Capital to run its Latin America investment strategy from Cali, Colombia. “You have a demand that will come and you have to be ready for it.” Circulate has raised a quarter-billion dollars from some of the world’s largest plastic producers and users for the global recycling opportunity, including $66 million for Latin America. The firm’s first swing in Latin America, shared exclusively with ImpactAlpha, is an investment in Polyrec SAS, a Barranquilla, Colombia-based recycler of flexible plastics, such as bags and wraps. Colombian legislation requires producers to use at least 30% recycled content in packaging by 2030.

  • Policy tailwinds. Companies are responding to aggressive Latin American plastics regulations, especially in the largest markets with the most advanced laws. Circulate will focus on Brazil, Mexico and Chile, along with Colombia. “There’s a high correlation between the laws that are being issued and implemented and the dynamism of the sector,” Urazan tells ImpactAlpha. The investment in Polyrec aims to prevent 100,000 tons of plastic from reaching the oceans “and capitalize on the growing market opportunity for recycled plastics worldwide,” says Circulate’s Rob Kaplan.
  • Recycling pipeline. Circulate has identified more than 100 recycling companies in Latin America that require at least $240 million in growth capital. Earlier this year, Brazilian petrochemical company Braskem took a stake in advanced recycling company Nexus Circular. In Peru, Impaqto Capital backed recycling services company Sinba, which also attracted an equity investment from IDB Lab, the venture capital arm of the Inter-American Development Bank. In 2022, Peruvian fund manager Nexus Group acquired Bogotá-based recycling company Apropet. Outside of the region, Closed Loop Partners this week provided ‘catalytic credit’ for Eureka Recycling in Minneapolis. The US Department of Energy’s Loans Program Office announced a loan guarantee of up to $183 million to IRG Erie to finance a plastics recycling facility in Erie, Penn.
  • Catalytic capital. Circulate’s funds earmarked for Latin America came from IDB Lab, family offices Builders Vision and Luna Capital, and corporate backers of the firm’s Asia strategy, including Chevron Phillips Chemical, Danone, Dow, Mondelez International and Unilever. In its annual report, Circulate says the $96 million it has invested in 16 companies in Asia has attracted another $250 million in co-investments. “This catalytic capital helps close the financing gap and helps make this sector interesting for traditional capital,” says Urazan. More than half of the companies in Circulate’s portfolio are led or founded by women; women also make up more than 30% of the companies’ workforces, an indication of “the kind of dynamism” of the sector, Urazan says.

Dealflow: Inclusive Communities

Community Solutions raises $135 million to provide permanent housing for homeless populations in 16 cities. The number of people in the US who are unsheltered or lack a permanent place to live has increased steadily since the Covid-19 pandemic, topping 650,000 last year. Community Solutions, a New York-based nonprofit, buys multifamily properties through its CS Large Cities Housing Fund and converts half of the units into housing for homeless individuals. The other half are preserved as affordable workforce housing. “Two of the biggest challenges communities face in solving homelessness are the lack of affordable housing dedicated to people exiting homelessness, and the complexity of housing systems that delay the placement of people into available homes,” said Community Solutions’ Nadine Maleh. Using private capital rather than publicly-funded housing models “provides units in a fraction of the time and at a much lower cost” (for additional context, see, “SDS Capital deploys private equity to finance permanent housing for homeless Californians”). 

  • Transitional housing. The Large Cities fund aims to acquire 2,500 units in 16 cities where the nonprofit works with local homelessness response teams. Once investors are repaid, ownership of the units will be refinanced and transferred to local nonprofits for transitional and affordable housing preservation. The CS Large Cities Housing Fund has reached almost half of its target, acquiring 1,155 apartment homes in Charlotte, Denver, Nashville, Phoenix, Baltimore and Jacksonville, Fla. The units have so far helped about 270 individuals transition out of homelessness.
  • Big bet. Community Solutions was a winner of $100 million in the second round of MacArthur Foundation’s 100&Change competition addressing critical global problems. Most of the 2021 grant was used for its Built for Zero initiative to “accelerate an end to homelessness in 75 US communities in five years.” Community Solutions used $10 million of the award to launch the Large Cities fund to invest in a subset of its Built for Zero communities. The 10-year fund is structured with a return-cap of 9% for investors, which include healthcare systems Kaiser Permanente and UnitedHealth Group, financial institutions Wells Fargo and Truist, family office IWP, and the Ford, Leon Levine and Frances and Benjamin Benenson foundations.
  • Community finance. Some of Community Solutions’ funders, including Trinity Health, Amazon Housing Equity Fund and Baltimore Community Foundation, provided $30 million in highly concessional capital for investments in specific communities. In Jacksonville, Fla., for example, the fund has acquired 175 units in three properties using designated funding from Northern Trust. More than a quarter of housing placements for Jacksonville’s homeless veterans were in Community Solutions’ units.
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European DFIs put up $20 million to boost lending to African enterprises. The Regional MSME Investment Fund for sub-Saharan Africa, a mouthful of a fund known as REGMIFA, aims to foster a diverse funding ecosystem to help small enterprises in Africa grow and thrive. Created by German Development Bank KfW in 2010 and managed by Symbiotics Asset Management, the blended finance vehicle provides debt to mid-sized banks, fintechs and microfinance institutions for on-lending to micro, small and medium-sized enterprises, as well as technical assistance to borrowers (see, “Emerging market debt investors debunk risk myths“). REGMIFA has secured $20 million from the Dutch and Austrian development finance institutions, FMO and Oesterreichische Entwicklungsbank. The commitment enables FMO “to reach smaller financial institutions and end-beneficiaries” in markets outside of its portfolio, with a focus on women, said FMO’s Juan Jose Dada Ortiz (see, “Laying bets on entrepreneurial households in industrious communities“).

  • Ecosystem building. Quasi-public development finance institutions are a key channel of capital for financing for Africa’s micro and small businesses, which often struggle to meet traditional lenders’ requirements for collateral or credit histories. FMO earlier this month extended €270 million ($295 million) to Nigeria’s Access Bank to lend to women and youth-led small businesses. The International Finance Corp. has supported banks within and outside Africa, including Bank of Africa, Stanbic Bank Zambia, Societe Generale Ghana and Kenya Commercial Bank to facilitate on-lending. The African Guarantee Fund in March offered a $50 million guarantee to help the United Bank for Africa disburse $100 million in loans to small and medium-sized enterprises in 20 African countries.
  • Dig in. 

Mexico’s Popular Power raises capital to help solar power developers optimize their systems. Solar energy in fossil-fuel dependent Mexico last year reached nine gigawatts of installed capacity, or 6% of total energy generation. More than 8,000 solar installers work in the country. Popular Power’s software helps residential, commercial and industrial solar companies optimize the performance of their solar hardware. The year-old company services projects totaling 36 megawatts of solar capacity serving 30,000 customers in Mexico, Colombia and other Latin American countries. Popular Power’s pre-seed equity round was backed by gender-lens investor Amplifica Capital, Dunn Family Impact Capital, Mercy Corps Ventures and other investors.

  • Streamlined solar. Popular Power’s founders developed the B2B software after finding that solar installers had to use specialized monitors for each type of hardware. “A typical solar company is relatively hardware agnostic, so may have five to six different hardware products they install,” said Popular Power’s Morgan Babbs. “This results in segmented data, alerts and analytics, leading to limited insights and a heavy reliance on manual processes.” Amplifica’s Anna Raptis said Popular Power’s technology “contributes to mitigating the effects of climate change.”
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Dealflow overflow. Investment news crossing our desks:

  • Software venture Splight raised $12 million to manage grid congestion and minimize waste of renewable energy sources feeding US and European electricity grids. (Splight)
  • Seven companies including Airbus, Air France-KLM Group, Mitsubishi HC Capital and Qantas Airways invested $200 million in a new fund managed by Burnham Sterling Asset Management to accelerate the development of sustainable aviation fuels. (Airbus)
  • Chicago-based 160 Driving Academy, which trains commercial drivers, raised $100 million from Lafayette Square and Upper90. “This investment supports economic mobility in the company’s home state of Illinois and 43 other states,” said Lafayette Square’s Damien Dwin (hear Dwin on ImpactAlpha’s Agents of Impact podcast). (Lafayette Square)
  • Oakland, Calif.-based SirenOpt raised $6.6 million from Voyager Ventures, Tomorrow, Climate Club, Climate Capital and others for its software that monitors and improves the manufacturing efficiency for advanced materials like batteries, semiconductors and electronics. (Manufacturing Tomorrow)

Agents of Impact: Follow the Talent

Maycomb Capital is hiring an investment analyst in Brooklyn… Also in Brooklyn, Blue Ridge Labs seeks a community engagement associate manager… Rockefeller Foundation is recruiting an energy transition manager in New York… Aspen Institute is looking for an impact director in Washington, DC… Upaya Social Ventures has an opening for a philanthropy director in Seattle. 

Elemental Excelerator is recruiting a compliance director, a media and content director, and an IT strategy and operations senior manager in the San Francisco Bay Area… W.K. Kellogg Foundation is on the hunt for a program officer for family economic security and expanding equity in Battle Creek, Mich.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– July 24, 2024