THEME Text Maija Rauha Main photo Aleksandra Okolo-Kulak Circular Economy: Impact with profitable returns Tesi, through its Circular Economy programme, invests in companies and funds enhancing sustainable development. The Circular Economy is not a specific sector, but instead a mindset that any company can adopt. Launched in 2018, Tesi’s Circular Economy investment programme channels capital to companies enhancing sustainable development, but it also has other purposes. Tesi wants to make impact investment an established concept and to help change attitudes so that profit and responsible business are not perceived as mutually exclusive. The same transaction can be both responsible and profitable. A Circular Economy mindset should be a part of all business activities and a criterion in all investment. HELI KERMINEN / DIRECTOR, TESI “Sustainable operations can for example result in cost benefits for a company or improve its market position. A company can make savings in the cost of materials and simultaneously lower regulatory fees. Sustainable production can be a competitive edge, and on top of that an ethical company is a more favoured employer and a more attractive investment target,” Investment Director Petteri Laakso points out. As natural resources become depleted and problems with waste escalate, the traditional linear production model is no longer a viable option. Product lifecycles need to be prolonged and raw materials re-used as efficiently as possible. The last resort should be to produce energy from valuable raw materials. “The Circular Economy should be a part of all business activities and a criterion for all investments. We hope that in the future, Circular Economy will be so common that the term becomes redundant. Ideally, all companies will then be a part of the circular economy” Director Heli Kerminen says. Investment Director Mikael Niemi adds that it makes sense for an investor to develop a company in accordance with Circular Economy guidelines because it increases the value of the company. The next owner is likely to pay more for a company that is operating within a Circular Economy mindset. CIRCULAR ECONOMY IS A MINDSET. Circular Economy models can be financed under Tesi’s programme in different sectors. Tesi intends to avoid narrow-minded thinking: hardly any company will be able to completely implement the concept of Circular Economy. The main criterion is that the company wants to develop towards it. Circular Economy is not a new concept for us, but promoting it has become more important than ever. PETTERI LAAKSO/ INVESTMENT DIRECTOR, TESI Circular Economy is more than waste processing and recycling, and the concept also includes for example Product-as-a-Service business models. If light is sold as a service instead of a lamp, it motivates the vendor to select lamps with a long lifespan for the application. Also extending the product lifecycle, as Swappie does with mobile phones by refurbishing and reselling them, as well as enabling shared use of goods via a matchmaker platform, are typical Circular Economy operating models. Lifecycle thinking – meaning that a company is accepting the responsibility throughout the lifecycle of a product it manufactures – is also associated with the Circular Economy. That often calls for cooperation across corporate boundaries. MEASURING MORE THAN JUST PROFIT. Circular Economy challenges companies to analyse the changes they can implement to make their operations more sustainable. As part of its Circular Economy programme, Tesi is proposing and implementing alternative performance meters together with its portfolio companies to be able to measure change. “We want to collaborate with companies in identifying what else other than profit is worth measuring. We believe that both universal and company-specific meters will be needed. Reductions in companies’ energy usage or greenhouse gas emissions, for instance, can be monitored. In the case of the re-use of raw materials, we can measure the amount of new raw material saved,” Kerminen suggests. “Circular Economy often involves a chain of companies, in which case a measurable benefit can be produced in a downstream company. It’s important to grasp the big picture, and to consider an alternative to the method or procedure selected by taking the whole ecosystem into account,” continues Laakso. TWO DIRECT INVESTMENTS. Tesi’s Circular Economy programme will provide financing of altogether €75 million over the next few years to companies in the Circular Economy sphere. €50 million of the investment programme will go into direct investments and €25 million will be used to support funds investing in Finland’s circular economy. Tesi has made two direct investments from the programme: Uusioaines, nowadays Foamit Group, at the end of 2018, and Endev in 2019. We have made two direct investments from the programme: Foamit Group, at the end of 2018, and Endev in 2019. MIKAEL NIEMI/ INVESTMENT DIRECTOR, TESI “Alongside these, our portfolio includes a number of companies, where Circular Economy is part of their everyday routine. GRK, for instance – a pioneer in infrastructure construction – addresses environmental aspects immediately at the planning stage of its projects. Another example from our portfolio is Kotkamills, a manufacturer of paper and board products, that makes corporate responsibility and sustainable development an integral part of the product itself. Recyclability of the products is important to its customers. The Circular Economy is not a new concept for us, but promoting it has become more important than ever,” summarises Laakso. The Circular Economy programme made its first fund investment in the ETF3 fund. The Environmental Technologies Fund (ETF) creates value by supporting European companies striving for sustainable development through innovation. Its investment strategy centers around smart industry, smart cities and smart energy. The ETF’s portfolio in Finland includes Wirepas, which is also one of Tesi’s portfolio companies. When making the investment, Tesi was particularly impressed by ETF’s comprehensive approach to measuring impact. DATA ACQUISITION HAS STARTED. With the help of its newly built data model, Tesi is mapping Finnish companies working in Circular Economy in order to increase understanding and visibility of the topic. No ready data is available because the companies are spread across different sectors. At the first stage, Tesi has identified some 300 Finnish companies that, in one way or another, operate in the Circular Economy. Most of these companies are SMEs generating a combined turnover of €1 billion in 2018, working mostly in the recovery & recycling and energy & resource efficiency areas. The companies vary in size, but on average grow approximately 18% p.a. They have developed well in recent years, which is manifested by growing investment volumes and larger financing rounds raised by Circular Economy companies. “We will tell more about the development of these companies in 2020,” says Kerminen. PUTTING WASTE INTO PRODUCTIVE USE. Building on research conducted at Lappeenranta University of Technology (LUT), Endev Ltd has developed a process that enables the incineration of decomposed municipal sludge. The method extracts phosphorus and other nutrients from the sludge while eliminating contaminants such as microbes, drug residuals and microplastics. The process also produces thermal energy. Another product is nutrient-rich ash that can be safely used as a forest fertiliser. The definitive advantage of our method is the safe extraction of phosphorus. Our main markets will be outside Finland. ARTTU LAASONEN/ CFO, ENDEV “There’s a risk in current sludge treatment methods that harmful compounds will cycle back to the environment. Our method eliminates this risk. Incineration near the wastewater treatment plant also avoids incessant traffic transporting sludge, because the volume transported onwards drops to one-tenth of its former amount,” says Endev’s CFO Arttu Laasonen in explaining the benefits of the method. Endev sees waste sludge as a renewable resource containing nutrients and energy that should be exploited. The facility is compact and of a size small enough to be built next to cities’ wastewater plants. Surplus energy can be utilised as, for instance, district heat, as in the start-up phase of the Rovaniemi facility. “Developing the technology and obtaining the environmental permits took years, but during that time market prospects improved. Many countries are making it compulsory to incinerate sludge. Globally, the definitive advantage of the method is the safe extraction of phosphorus. Our main markets will be outside Finland. We have a constant queue comprising dozens of international parties interested in our solution,” Laasonen says. Read more about Endev on Tesi’s Dare to Grow website.