E573 | Enrique Hablutzel, Chi Impact Capital & Marvin Nusseck, Circle Economy: Financing the Circular Economy

0:00What if the biggest barrier to saving our planet isn't technology, but how we wire money. The world is only 7.2 circular. More than 90 % of materials extracted and used are not cycled back to the economy. It's just weight. So if that's our baseline, what's really blocking progress? The challenge is not on the technological aspect, it is on the financial aspect. We need to rewire the flow of money. Here's where the money actually goes. We found that half of the investment is actually flowing to the recovery phase, while it has the least impact potential. And because we model the wrong risks, we miss the real exposure.

0:36A lot of these risk models are just outdated. They don't really take into account the linear risks, as we call them, and that can be risks, as I mentioned earlier, you know, resource security and so on. The financial sector really has to wake up. Even prices push us backward. Resources are not priced correctly. Recycled materials are more expensive than virgin materials. So the question shifts. The key question here will be to stop asking if it will scale and start asking, will it regenerate? How do we rewire capital to heal our planet instead of destroying it? Join us for this episode of EUVC with Enrique from Chi Impact and Marvin from Circle Economy, where we unpack why finance holds the key to our circular future.

1:23Before we start the show, a quick note. If you're building or running a fund, you know it takes the right partners. At EUVC, we only work with sponsors we truly believe should be part of your tech stack. Please do take a moment to hear about them. And if you do, reach out, mention EUVC. It's the best way you can support what we do. Thank you so much. First up, Ace Alternatives. Every fund manager needs clean operations behind the scenes. From fund admin to tax and compliance, Ace handles it all across VC, PE, private debt, and real assets. They're trusted by some of the best investors in the world.

1:57And if you want peace of mind and a scale ready back office, Ace should be part of your stack. Finding deals and managing your portfolio is at the heart of running a fund. Synaptic helps you discover startups before others do. And Portfolio IQ keeps your portfolio data sharp and ready for LPs. Together, they're essential tools for modern fund managers. When it comes to legal, you need a team that truly knows venture. Hainspoon supports LPs, GP, startups and scale-ups across the full fund lifecycle. Smart managers make Hainspoon part of their stack. We have two at EUVC. Tech BBQ. Oh my God, who doesn't love BBQ?

2:32Europe's startup scene meets the loudest, friendliest family reunion ever at Tech BBQ. From Nordic founders to global VCs, this is where ideas catch fire and relationships get real. If you're building or backing in Europe, Tech BBQ is where you want to show up. And hey, if you've got a big fun announcement coming up, want to hit the headlines or just want to tell you a story about, do reach out to us because we'd love to help. And we've got some pillar partners to help you get in the right media places. They've held us land Bloomberg, CNBC, Financial Times, Forbes and many more for the EUVC Summit.

3:03And we'd love to do the same for you.

3:08Tear down this wall. It's more than just an alliance. This is a union of values. Let's start acting. This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. Welcome back everyone to another EUVC episode. Today I'm excited to introduce our guest Enrique Alvaro and I always fall over your surname, Hablutzel, driving impact at Qi Impact and Marvin Nusak, finance lead at Circle Economy. The team behind the landmark circularity gap report, which is a vital beacon for tracking and elevating capital flows into the circular economy. Enrique, I think by now many know that you're all about circularity, but tell us why should we have Marvin on the pod today?

3:56Thank you very much, Andres. It's always a nice pleasure to be with you and discuss with our fellows and community about circularity. Well, Marvin is one of those people that I consider a leader in their field, in voice about research, understanding and finding the gaps around circularity all over the world. especially Circular Economy has these maps of where circularity is growing, how it is growing and what are the challenges we are facing. Malvin has been also organizing the World Economic Forum for Circularity and I've been invited a couple of times, unfortunately I haven't been there. So I think it's going to be a very rich conversation about his example and how Circular Economy is actually helping us to understand where we're going around to gliding the world.

4:51Marvin, did we do an okay job introducing you? Yes, I think so. Thank you. Let's talk about the recent data that you've just published. First and foremost, tell me what's the most surprising trend to you in how capital is being poured into the circular economy and what does that tell us? I mean, maybe it's not surprising, but it's just a little, you know, that's the first takeaway. And that there's just very little understanding in general how much capital is flowing into a circular economy because we also lack often a clear understanding what the circular economy means. So that's why we did this report.

5:22You know, it's quite shocking, to be honest, because a lot of the money that is flowing is also going to very conventional business models, not really innovative circular economy business models. If we highlight some numbers, it climbed to 10 billion in 2018, then to 28 billion in 2023, and peaked at 42 billion in 2021. So it's fair to say that it's lost some momentum. Could you tell us a bit about what we should deduct from that? I mean, overall, that's what we also figured is that in that time from 2018 to 2023, we see an uprising trend, which is good. We see that there is more investment going to the circular economy.

6:05But there was also this peak indeed in 2021. And after it slowed down a bit, I mean, there's probably many reasons for that, also corona related and so on. But we do see that there is a slow but upward trend. That's why we also work on the circular economy, of course, because we are very convinced that the circular economy can be the solution. It's a triple planetary crisis. Enrique, you're raising a fund in this space and investing actively. How does it feel on the ground? It feels that we can do much more. In terms of venture capital and especially in technology, when you invest in technology, we see that the capital, it is right now attracting still linear models, right?

6:51Like it is not, the challenge is not on the technological aspect. It is in the financial aspect. We need to rewire the flow of money. And this is basically how circular economy can help us do. Yeah, I mean, that's the feeling, right? that people are still thinking on the linear base, not in the long-term circular base. I also think that too many people just don't really understand yet how important the role of materials and resources is. Maybe not even tagged as circular economy yet, while everybody is kind of, of course, engaging already in the circular economy in some way. So there's also just a lot of education still needed.

7:32What I can say is where the money isn't going yet. by some places. We have this circular solution that often fail into funding, especially business models that doesn't scale traditionally, right? Like the reuse, the repair, the service models, infrastructure, heavy systems, material recovery, logistics, long-term impact innovations. Like that's what investors often want software margins with kind of hardware impact timelines. that is not how system change work. No. I mean, it's also just, yeah, let me just pull one kind of figure from the report we did because we also analyzed, of course, all the flows in general, but we analyzed also whether the money focuses on the design phase.

8:21So at the very beginning, when you make a product, if you make the product more modular or you use bio-based materials, for example, then we looked whether the money is focusing on the use phase, so really more product as a service, like leasing models and so on, or the recovery phase, like you just mentioned, which is really kind of just end of pipe, not really where you have the most impact potential. And we found that half of the investment and capital is actually flowing to the recovery phase still, while it has the least impact potential, which doesn't mean that it's unneeded, but it just shows that it's not as innovative yet as we would wish.

9:00A couple of weeks ago, we had a big meeting of policymakers in the plastic space where they were discussing and trying to come to terms. And it ended up with a very bad outcome for circularity, I think, because exactly what you just said, Marvin. And the focus from the US and China was purely on how do we get rid of it afterwards and reuse it and nothing at all on how do we create and use and so on from the beginning. Could you talk a bit about the geopolitical world context of the space? First of all, I think we have to understand in terms of resources and materials. We're not living in one country or just materials or resources just take place in one city or wherever you live.

9:49It's always global value chains. You know, if you think about how many materials are in your phone that is laying in front of you and where they're all coming from, it's always very complex global value chains. That also means that you have to, you know, take into account all the geopolitics around it. What happens if China suddenly stops exporting any critical raw materials? then suddenly the production of quite some crucial products will not be possible anymore. That's also why the signal economy really helps you to understand more of this whole systemic level and also makes you realize that you're very dependent on some value chains in other countries and so on.

10:27And that actually more local closed loops, as we call it then, so that you really try to keep the materials and resources in the loop and ideally locally, can also be really a tool for more resource security. The critics of all of this, of course, always point to the fact that it is global and whatever we do in the West and or developed economies, however you want to put it, does not suffice. It doesn't have any impact as long as we have the major producers of the world's material not complying. what where do you land on this what do you say to people that have that very cynical view and that then allows them to be non-acting you know i think it's just a bit of an easy excuse right we we always have to push for the best that we can do and we should not underestimate also the kind of picture we leave or the kind of the tricking down effect that when we as a the western countries or western european countries really show how successful you can actually be with the circular economy on business level environmental on social level but this also has an effect and trickles down to other countries that maybe do not yet see it so i think we have to try and we have to push for it because we know that it is unavoidable we you know we have to be taking care of our resources better we have to lead this way i think i mean We see some examples already happening in Europe, especially in the Netherlands, public-private partnerships, mission-aligned capital, stuff that is more patient capital and tools to the risk innovation and circularity.

12:16The key question here will be to stop asking if it will scale and start asking, will it regenerate? Will it help the system change? How to make that business actually be part of a number? Unpack that a bit more, Enrique. In the sense of how we grow circularity as a business model and create more synergies and more businesses that grow around, the regenerative use of one technology and then other and bringing these loops is what I think we are missing, right? Like, and that there should be a bit more patient capital again and more ways on better ways to the risk that innovation in circularity. The more we unfold them, the better these loops will continue to grow.

13:12So, yeah, I mean, in my experience, also speaking to a lot of financial market participants, be it, you know, more early stage or just conventional commercial banks and so on, you know, it's always a risk question, you know, what, how likely is it that the money that you invest or that you lend and that you get it back. And what I just really see is that a lot of this risk models are just outdated. They don't really take into account the linear risks, as we call them. and that can be risks, as I mentioned earlier, resource security and so on. So as long as those risk models do not change, a lot of the financial market participants are not really forced to consider resources or materials more in their decision-making.

13:56And that is a real risk, which is underestimated. And we've seen it with climate, with CO2. If there's suddenly a CO2 tax, how much of a financial consequence that can also have. So I feel like the financial sector really has to wake up to this. And do you see anything coming sooner or awaking them in terms of climate, climate action, climate resilience, adaptability that we need to show to those financial big players? I mean, I think that on climate, there has been a lot of developments, but often it's a bit too much of a tunnel vision. It's too much focus just on carbon and CO2 because it's easy to measure.

14:44But I think then on the circular economy side, I see changes for sure. I see it more coming really from the impact investors, like the impact and so on. the conventional let's say bigger financial players they are later stage they are still struggling to really incorporate the circular economy angle into their you know risk models for example but we have in the Netherlands we have this Koprug Cirkule Financieren this is a working group of you know all kind of financial market participants and they have also started to make a new risk model which really takes into account other risk factors linear risk factors There's some innovation going on, but it takes time.

15:29What is, if we zero in on the capital markets, you call it a linear risk model. Could you talk a bit more about, first and foremost, explain what a linear risk model or a linear risk is, and then talk a bit about what is the path forward here? If you think about, of course, the economy in general is that you really have more grip on resources and materials. and in the end any industry is dependent less of the service industry but every manufacturing or design industry is basically dependent on materials. So if you do not have proper control of your resources then you run a risk and it's what we call a linear risk.

16:12If you remain in the linear model of like taking, making and then wasting you run risks. Attracting new talent can also be tricky because you are not, you see that younger people are more and more interested in or want to create a better world. And if you are not able to show that you are really more innovative or so, you will just miss out on this talent. So there's many risk elements to it. Tell me both of you in your view, what sectors or policy levers has the greatest potential for scaling circular investment? I honestly think that, you know, in my experience, everybody's convinced by the circular economy because you understand quite easily.

16:55It's very, you know, intuitive, you know, nobody likes waste. You don't like to walk through the forest and you see the plastic bags around, you know, like it makes sense. But why is it then not happening sufficiently? I, in my experience, think it's just because resources are not priced correctly. so as long as recycled materials are more expensive than virgin materials or materials that you actually got out of the earth then the entire economic system is focusing on buying basically virgin resources so we really have to tackle that and we could tackle that with you know making waste more expensive you know we We could tackle that by subsidizing recycled materials more.

17:42We could tackle it by stopping to subsidize version of materials, like fossil fuels and so on. So there's many, many levers that you could take, but I think this is really at the core of the issue. Yeah, I'm going to share my opinion from a very personal level and also with the hat of investor, right? For me, what will really change and will help everyone to commit and to this will be circular bio-based chemicals to avoid extraction, reusability, examples like methanol, hydrogen, like stuff that we can really use in cargo, in transportation, you know, all those where we can really see a decrease or a real one on the CO2 and an advantage on what we need to still do, right?

18:33like transaction of materials and stuff. That is where I see a lot of investors to say like, ah, then it makes sense to keep investing, to put more money on that. So I don't comment because I have no idea, honestly. And I say that a bit, not as a condescending remark, but as in this is truly not a space that I think too much about. What I do... Why? Yeah, great question. Well, I'm a very single-minded guy. I try and work out in my garage. I try and get my calls done on my computer and be with my kids. I don't have that big capacity. What I do, however, think a lot about is the geopolitical imbalance that there seem to be between those that look at this as a problem that we really need to solve and those that that think that AI is an existential risk, meaning AI competition is an existential risk.

19:35And for that reason, everything is about winning that. This is, of course, very much what we're seeing in the U.S. ecosystem right now. And those that say, well, we are developing economy. It's all good first world countries, but this is not for us right now. Like, do it yourselves and then we'll come afterwards. Kind of see like that's how we have the three worlds right now. We have the US perspective, at least those that are dominant in power right now, focused on something completely else, which is world dominance. And then you have on the eastern side of the western oriented map, you have China that's focused on building and the growing economies that's focused on taking care of their own.

20:18And then I feel like we have Europe, which is still, to some extent at least, focusing on trying to create a world where everything seems sustainable and we actually take responsibility for the future. I honestly do not know where I fall on any of these spectrums because I can definitely see validity to all three of them. And I think it's a lot about which world do you see us living in right now? what are the most likely scenarios going forward? I can recognize that, but that's also something that we are often struggling with because it can feel to people that the circular economy is just another thing.

21:06They talked about biodiversity, they talked about climate, and now it's circular economy. And that's just what I would like to challenge because I think that many of the problems that you mentioned before, if you would try to create a system that is really looking through the circular economy lens, many of the problems would actually be solved. Saying that, you know, like just the resources are so much at the core, because in the end, resources are also about fossil fuels and so on, right? So the geopolitical dynamics that we have, potentially also some of the wars that we currently see, they are directly linked to resources.

21:41So I'm not saying that the circular economy is going to solve all these problems. But having this lens to look through can really help to tackle and prepare basically the issues and create a better world, a fairer, more just world. I think it was yesterday or a couple of days ago, I was speaking with Lee, Lee Howell. He's the executive director of the Villars Institute and is a very well-recognized mind because he was the managing director of the World Economic Forum. He has this vision about working in different stages of challenges and in an intergenerational kind of setup. So putting minds to work on big challenges, but also working as a group and try to find solutions for our big challenges.

22:39and for me, circularity, and I discussed it with him, he was telling me, is what brings a differentiator on the way of thinking in our generation with all these different gaps of way of thinking and puts together a systemic approach. How can we really think all together to find those solutions? If we, you know, like put together those minds that are really working towards like, scientific approach, way of thinking on that approach of holistic, we'll be all together saying that one of the biggest things that we can focus is circularity, despite all the other big challenges that we have. And that especially, and he was mentioning something very cool that they are building, which is an AI, touching your point that I know you love, Andres, that is actually based on that approach of systemic change and try to use this AI tool to actually feed it with the information that we need to be close to nature, to support new generations, to actually connect better between each other with the current and future challenges that we will have, adaptability, et cetera, et cetera, et cetera.

23:56So, you know, I think that the approach, and it's quite mentioned by Marvin, is not about having enough sexiness in the market about the circularity is really to think as a system change and see it as a solution that can put us all together to frame that. How do you solve circularity on the local level or on the national level without sacrificing competitiveness? I ask because it's clear that there's not a global agreement right now that this is a number one priority so what do we do us in the economies that still want to do this but we obviously are a bit in our own boat countries and also cities can really play a leading role in this and actually especially in the netherlands also the the city of amsterdam actually they are pretty innovative and that is also the circular economy So you have to approach it on a systemic level, of course.

25:00I mean, many, many, like I've said before, the resource prices that would work best on a global level. But at the same time, and that's the beauty of it, it can really also kind of grassroot movement. It can really be basically you making more choices and creating less waste in the end, right? Consuming less, consuming less products that are not repairable and so on. So you can actually do quite a lot for bottom up. And I think that's also the power of the circular economy. Well, I can say that anyone used to tuning into the UVC podcast will know that I own three T-shirts. So I am a big believer in circularity.

25:39Guys, tell me, is there anything that we should touch on? Is there anything from the report that you think are really important that we draw out and just bring up for discussion here before we close? I mean I still have I think one or maybe two things that I would really like to highlight especially because the crowd I think is coming more from the financial sector listening to this podcast and that is also the the misalignment between impact potential and capital flows you know so we see a lot of money going to for example transportation but the impact potential for in terms of circularity is actually relatively small.

26:25While, for example, in construction, we know that the impact of construction in the built environment and so on is huge in terms of circular economy, but there's very little money actually flowing to circular economy solutions in those sectors. So for me, that's just kind of a call to try to focus also more on where can the most impact potential be made when making investment decisions. I have another one in mind and it's about the extraction problem, right? Like, so in the world, I think the number, and we discussed before, it's only between 7.2 circular, right? Like all the rest is as we were always linear.

27:08That means that more than 90 % of materials extracted and used are not cycled back to the economy. It's just weight. I mean, for me, it blows my mind. If we just try to manage to reuse part of that, imagine how rich we could be as an economy, especially in terms of building societies that share more and develop opportunities in a social and link to the environment. The fact that less than 10 % is actually circular, is reused, is quite baffling. And I think let's leave the listeners with that because I think everyone will be able to take that with them, even if they are like me thinking, is this really the number one priority?

28:03I think that's a number that should make us all caution a little bit what we're doing. So, gentlemen, thank you so much for making me at least think about that. And thank you for joining me on the podcast today. It has been a great pleasure. Thank you very much, Andreas. Marvin, it's great to see also that you are in a fantastic place with all the boats on the back and especially sailing boats, which they don't... Well, there's one. That is not a sailing boat. The one we're looking at right now is not a sailing boat. We just saw a tow boat to anyone who didn't have their video on. We just saw a tow boat on Marvin's screen here and that was in no way a sailing boat.

28:43It had a massive chimney coming out in the middle of it. Gentlemen, thank you so much. I hope you'll have a great afternoon. You too, Marvin. Before we start the show, a quick note. If you're building or running a fund, you know it takes the right partners. At EUVC, we only work with sponsors we truly believe should be part of your tech stack. Please do take a moment to hear about them. And if you do, reach out, mention EUVC. It's the best way you can support what we do. Thank you so much. First up, Ace Alternatives. Every fund manager needs clean operations behind the scenes. From fund admin to tax and compliance, Ace handles it all across VC, PE, private debt, and real assets.

29:23They're trusted by some of the best investors in the world. And if you want peace of mind and a scale-ready back office, Ace should be part of your stack. Finding deals and managing your portfolio is at the heart of running a fund. Synaptic helps you discover startups before others do. And Portfolio IQ keeps your portfolio data sharp and ready for LPs. Together, they're essential tools for modern fund managers. When it comes to legal, you need a team that truly knows venture. Hainspoon supports LPs, GP, startups and scale-ups across the full fund lifecycle. Smart managers make Hainspoon part of their stack.

29:56We have two at EUVC. Tech BBQ. Oh my God, who doesn't love BBQ? Europe's startup scene meets the loudest, friendliest family reunion ever at Tech BBQ. From Nordic founders to global VCs, this is where ideas catch fire and relationships get real. If you're building or backing in Europe, Tech BBQ is where you want to show up. And hey, if you've got a big fun announcement coming up, want to hit the headlines or just want to tell you a story about, do reach out to us because we'd love to help. And we've got some pillar partners to help you get in the right media places. They've held us land Bloomberg, CNBC, Financial Times, Forbes and many more for the EUVC Summit.