The €31bn pension fund for the Dutch retail industry, Pensioenfonds Detailhandel, is investing €100m in the Polestar Capital Circular Debt Fund, which will provide loans to innovative projects in the Netherlands that support the circular economy.
The impact investment fund, which was launched this month, plans to lend money to more than 30 scale-up projects to facilitate circular economy firms’ further growth. An example of an eligible project includes Quality Circular Polymers, a company that recycles plastics to use in new products, said Philip Tan, one of Polestar Capital’s three partners.
“This is an earlier investment of Polestar Capital,” Tan added. “The plastic they produce from waste must be clean and free of any contaminating substances. That’s different from simply remelting plastic to turn it into plastic street poles.”
Polestar Capital, not to be confused with the electric car producer, has some €1bn in total assets under management and will provide loans to early-stage circular economy firms.
Tan said: “The companies we invest in have typically already developed their technology and have found a way to commercialise this, but the next step is to build a factory for mass production. Banks often find it too risky to finance such projects. Private equity and venture capital investors are prepared to co-invest, but usually not the entire sum of €10-€20m. That’s where we come in.”
On average, investee companies pay an interest of about 8% on their loans. After accounting for costs and losses on unviable projects, the fund aims to make an annual return of at least 6%. Tan expects to gather another €300m for the fund with other pension funds and investors this year.
Pensioenfonds Detailhandel plans to invest 1%, or about €300m, of its assets in the real economy.
“This is one of the targets spelled out in our ESG-policy,” said Henk Groot, head of investments at the fund.
“The investment consultant Phenix Capital has helped us select three investment funds for this. We are still negotiating with the other two funds, so I can’t say anything more about those yet,” he noted.
Groot thinks the circular economy fund is a good fit with Detailhandel’s investment beliefs. “We do not want to invest in private equity or venture capital. If you want to make impact, this kind of debt investment is a logical alternative,” he said.
According to Tan, Quality Circular Polymers avoids almost two tonnes of CO2 emissions per tonne of end product than if the plastics had been virgin. The company produces some 35,000 to 50,000 tonnes of clean plastic every year, avoiding 70,000 to 100,000 tonnes of CO2 emissions in the process.
This makes the investment in the circular debt fund a good fit with two of the four Sustainable Development Goals Pensioenfonds Detailhandel has chosen to focus its investments on: Responsible Production and Consumption (SDG 12) and Climate Action (SDG 13).
Groot stressed the necessary balance between impact, risks and return. “If the investment has a lot of impact, but with a disappointing return, we have got to explain something to our members,” he said.