The Closed Loop Partners’ fund strategies, research and partnerships on the circular economy. Tazia Smith, COO & Managing Director at Closed Loop Partners joins Dominique Barker for the final episode of the three-part series on the circular economy, ahead of the CIBC Circular Economy Roundtable on Wednesday, April 13.
Dominique Barker: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape with a view on addressing current issues in a concise format to help you navigate and take action. I'm your host, Dominique Barker. Please join me as we explore today's most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters.
Tazia Smith: So our goal at Closed Loop Partners is to stop talking about impact investing and just talk about investing. Once we've priced in externalities and we've seen the benefits, the cost savings, the revenue generation, the margin uplift, the resiliency, the policy compliance of the circular economy, we hope that we'll just be talking about investing and not a subset of investing.
Dominique Barker: We're pleased to welcome you to our Circular Economy podcast series, where we're going to be speaking to leaders and experts from different industries that will provide insights on the circular economy. This is all leading up to our very exciting roundtable, our Circular Economy Roundtable, which will be taking place April 13th, 2022. If you're interested in attending, please reach out to your CIBC representative. So on today's episode, we're going to be focusing on the investor and the circular economy. Today, I'm very pleased to be speaking with Tazia Smith. She's COO and Managing Director at Closed Loop Partners. Closed Loop is a New York based investment firm that provides equity in project finance to scale products, services and infrastructure and is really at the forefront of the development of the circular economy. So we're very pleased to welcome her to today's episode of The Sustainability Agenda. Good morning, Tazia. How are you today?
Tazia Smith: I'm doing great. Thanks so much, Dominique. Happy to be here.
Dominique Barker: So let's start with setting the stage, which is always where we want to start. Could you tell us a little bit about Closed Loop Partners and how you invest in the circular economy?
Tazia Smith: Absolutely. So Closed Loop Partners is both an innovation centre and an asset management business dedicated to building the circular economy. Everything we do is related to natural resource efficiency and supply chain optimization. Our focus areas within the circular economy are plastics and packaging, food and ag, fashion and beauty and supply chain technology. It's important to note that for us, the circular economy is truly an economic system. So when we invest, we're working to shift from a traditional linear system, one where you're dependent on extracting, then consuming and using and then throwing away. We want to get rid of that extraction, get rid of that throwaway and keep materials in play. So everything we do is focused on transitioning from that linear model to a circular system that self incentivizes net positive environmental and net positive social outcomes. Our platform on the asset management side is currently over 400 million in AUM today, well on our way to half a billion US. We presently manage funds that span from early stage venture capital seed and pre-seed investments to growth equity series B through sort of pre IPO. We're just about to launch that strategy this summer. We have a buyout special situation strategy acquiring companies in the lower middle market space and we have a catalytic vertical which is focused on impact first investments that accelerate recycling infrastructure throughout North America. Important to note is our innovation centre where we work with Fortune 500 companies on a project level basis to advance their supply chains towards circularity. And just a quick example of that is a recently launched Beyond the Bag strategy, which is anchored by Walmart, Target, CVS and 15 other retailers joined that. And that's a project to rethink, reimagine around the single use plastic bag. So we're very proud of the thought leadership and the research that is driven by our Centre for the Circular Economy as well. That's Closed Loop Partners.
Dominique Barker: Great, and thank you for that. And just for our audience, I just want everyone to know that Closed Loop Partners is really regarded as a leader. And Ron Gonen, who's with Closed Loop Partners, wrote a great book called The Waste Free World last year. So would point our listeners to pick that one up. So as an investor, what are some of the trends and exciting innovations that you'd like to share with our listeners?
Tazia Smith: Sure. So several things that we would point to when you think about supply chain technology and you think about integrating circularity into supply chains that spans all sectors and things that you, these technologies that you're seeing being integrated span everything from sort of AR VR technology, IOT technology, traceability technology, reverse logistics technologies that actually help businesses increase their efficiency, increase their resiliency, innovate into new top line sources of revenue and actually enhance margins. All of this comes in line with also the kind of push from regulatory pressure. What are some examples of innovative technologies that we're seeing out there? Within our venture funds, we have a company called Partsimony. What Partsimony is doing is looking way upstream. When you are designing a product and is a technology that you can use, it's an AI technology that continues to learn where as you design a cad or for equipment or a product, you're able to figure out how to optimize the materials that you're using from a type of material, from a cost perspective of where the cheapest ones come from, from a transport perspective. And ultimately, you can imagine dramatically reducing your carbon footprint and actually keeping your supply chain more resilient. This should be very, very front and centre to all of us that are battling with supply chain issues right now. If you've been trying to order something like a dishwasher, I bet you haven't gotten it for the last several months. So these are ways that you could imagine one might be able to source post-consumer inputs and be able to use recycled materials as an input into your product because you're able to find them and create those markets more efficiently and track those and how your product comes back to you more effectively.
Dominique Barker: Very great. Very interesting company. That sounds interesting. So as you said in your opening remarks, you do have a number of partnerships with Fortune 500 companies, policy makers and NGOs. Maybe you could share some of the insights that you've had with these firms from engagements that you've had. I know you've released a series of research pieces around the transition to a circular system for plastics, maybe insights on engagements, and why creating a circular ecosystem is so important for the plastics industry and how it could be applied to other industries.
Tazia Smith: Sure. So one thing to underscore is that the investors and the partners within the Closed Loop Partners ecosystem, our investors include some of the world's largest companies in the world. So multinational companies cross sectors, traditional institutional allocators, and then private investors, family offices, RIs, etc. These multinational companies are wonderful partners from the standpoint of really taking action to shift their business model towards that that will succeed in a circular economy. So let's bring that to life. How do we engage? How do we activate these corporate partners? How do we create precompetitive collaboration so that what would be thought of as competitors come together to find industry wide solutions that will let all boats rise or all boats shift from linear to circular? A good example of this is within our catalytic vertical. We have a fund called the Circular Plastics Fund, the Closed Loop Circular Plastics Fund. This fund is particularly targeted to address the really hard to recycle plastics, those that are ending up in our landfills and in our natural environment more frequently than some of the other types of plastic. And this fund was anchored by Dow Chemical, Lyondellbasell, Nova Chemical, Sealed Air and SK Geo Centric. That all came together and said, let's try to figure out solutions so that our materials that we produce actually get recovered and don't end up in landfill, don't end up in the natural environment, and that we can find innovations to accelerate the quality and quantity of these recycled materials that we use. So we don't need to use virgin materials and also find innovations where we can find new materials that help us grow and scale our businesses. So really interesting to have a group of what would otherwise be competitors come together and say, let's find solutions where we can collect more. That's a really big bottleneck in the system and not a very sexy one to invest in. Let's find technological innovations, ways to upgrade infrastructure throughout material recovery facilities, what are known as MRFs today. Let's find new innovations, new materials that may allow us to create something that is all the easier to reincorporate into new product. And I have to say, these companies have really taken a proactive step. They're pushing their financial institutions like CIBC to join them in this effort to find solutions, because that's going to help them increase their profitability and resiliency and grow their businesses in a circular way over time.
Dominique Barker: So you mentioned financial institutions like CIBC. So what is the role that banks can play in your vision on scaling up circularity?
Tazia Smith: Yeah, absolutely. So our goal in Closed Loop Partners is to stop talking about impact investing and just talk about investing. Once we've priced in externalities and we've seen the benefits of the cost savings, the revenue generation, the margin uplift, the resiliency, the policy compliance of the circular economy, we hope that we'll just be talking about investing and not a subset of investing. So in that way, banks being the capital market providers and liquidity providers should be actively investing in the circular economy. As we move through the shift, banks have an amazing role to be on the forefront of partnership. And let's stick with that circular plastics fund. The Circular Plastics Fund, again anchored by Dow, Lyondell, Nova Chem, Sealed Air and SK Geo Centric. They're really investing in a catalytic way. That capital within the Circular Plastics Fund can make investments anywhere from equity all the way through senior secured debt. And part of the mandate or the KPIs for that fund to be truly successful is our attraction of additional mainstream capital. So if that fund finds a piece of or a solution, an innovative technology that could be incorporated into a material recovery facility to enhance the recycling of flexible films or polypropylene and polyethylene, these harder to recycle plastics. And the fund actually invests, let's say, $5 million at a below market rate loan in order to enhance this equipment. But this allows perhaps then a bank to come in alongside and do something that would be traditional, regular way financing that now works because that catalytic fund is in there and because it's a market signal to the market that says these are the actual customers, this is the value chain that is going to have uptake in this solution. So it's got that buy in from the market, which gives the financial providers more confidence in terms of coming in as well in their regular way business. So the goal is to attract co investors is the bottom line and the bank has the opportunity to do that via regular way, traditional financing, via coming in through potentially equity partnership and then just really helping these companies succeed in their traditional regular way business. You can think about that across CIBC's business lines, whether that be lending, investment, banking, equity, et cetera.
Dominique Barker: Great. Okay. And last question. Let's look to the future. What do you see as the remaining gaps in this transition?
Tazia Smith: Well, some of the aspect in how the circular economy is so inextricable from climate change mitigation is how we need to move a bit faster. So we're seeing this transition. You've seen a huge uptake over the last call it 9 to 15 months in terms of interest in the circular economy and momentum behind these solutions. All of this was really accelerated by COVID and the supply chain disruptions that we saw and the need for true natural resource efficiency. But we need to move faster if we're going to hit our 2030 goals. So that's where these catalytic solutions come in and that's where efforts like Dow, Lyondell and Nova Chem's efforts come into play. They're really putting catalytic capital. They're trying to spur and accelerate these solutions that may have otherwise come. So really, it's mainstream investors coming in and markets pricing externalities and realizing that the circular economy is more profitable than the linear one over time. That's a main thing is just moving a bit faster and accelerating that. The evidence of that is in sort of the supply demand imbalance that you have for recycled commodities. And if you look at the demand that's there, this pull between consumers saying we want more of this recycled commodity and companies making these commitments to make their products with recycled materials and to reincorporate the materials that they produce into their products, be that bottle to bottle recycling or solutions that really reduce the need to extract natural resources and reduce the need to incinerate or to landfill materials. Well, right now, ironically, despite all of that waste piling up or being burned around the world or sitting in our ocean in the form of ocean plastics, right now there's actually an imbalance between how much recycled material that these companies want and how much we actually produce, particularly in North America. So that imbalance and making those markets, those recycled commodity markets deeper, more fluid, more transparent, more financeable is a really important shift right now to go from linear to circular.
Dominique Barker: Great. What occurs to me listening to you is, in all things sustainability, it takes a great deal of collaboration and you need a hub. And it feels like Closed Loop Partners is sort of the hub on the circular economy and all those LPs and all those stakeholders are, you know, you're able to make those connections and share information and share best practices. Thank you very much to your firm and to you for your leadership in this area. And we really appreciate your time this morning, Tazia.
Tazia Smith: Oh, I thank you so much. And I couldn't say it better. We do strive to be that hub, that ecosystem that actually activates and brings together multifaceted stakeholders across capital markets, NGOs, academia and impact partners. So we look forward to partnering with you and CIBC in advancing the circular economy.
Dominique Barker: Thank you.
Dominique Barker: Please join us next time as we tackle some of sustainability's biggest questions providing different perspectives to help you move forward. I'm your host, Dominique Barker, and this is The Sustainability Agenda.
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