Boosting Investment in the Circular Bioeconomy
Photo: LIPOR
Building knowledge and capacities is key to unlocking the potential of circular bioeconomy.
When it comes to investment opportunities, investors – in particular banks – look for projects with strong financial forecasts and comprehensive risk assessments to analyse profitability. Circular businesses, particularly start-ups, are perceived as high-risk and lacking the track record of profitable enterprises. Investor confidence is further dwindled if these small start-ups are still in nascent stages, with little experience in the private sector, and lacking all the economic, financial, and legal expertise that entails.
Ensuring the development of a competitive circular bioeconomy sector requires aligning expectations and bridging the knowledge gap between investors and project developers (i.e. companies, public entities, and start-ups proposing circular bioeconomy projects). As part of these efforts, RdA Climate Solutions has developed a series of financial tools specifically to support circular bioeconomy investment projects as part of the EU-funded HOOP project. HOOP, launched in 2020 with the aim of unlocking bio-based investments and deploy local bioeconomies in Europe, created the opportunity to test and validate these financial tools in eight case studies (called “Lighthouses”). Though these resources were targeted towards valorisation projects of urban biowaste and wastewater sludge, they can be applied to projects from other organic waste sources and bioproducts.
These financial tools and guidelines are aimed at investors and project developers, albeit for slightly different uses: For investors, the tools provide the necessary information to navigate the intricacies of the circular bioeconomy sector better, ensuring the alignment of projects with investor expectations, broader sustainable development goals, and environmental, social, and governance criteria (ESG). For project developers, these tools offer insight into how their projects are being assessed and which of their project portfolio are investment-ready and which need further development.
Boosting knowledge and action via the HOOP Hub and Virtual Academy
Over the course of the project, partners developed the HOOP Hub to improve the knowledge and valorisation of biowaste, wastewater, and other organic waste streams among public administrations, companies, and start-ups. The Hub provides free access to:
- A network of companies and municipalities as a forum to exchange lessons learned and ideas for implementing bioeconomy projects, as well as the opportunity to interact among members and circular experts.
- Tools to evaluate the circular performance and financial attractiveness and maturity of bioeconomy projects, such as the Circular Valuation Method, Project Maturity Level (PML) assessment and calculator, and Bio-circularity Label (this is only applicable to cities and regions, to understand their current performance regarding the implementation of bio-circular measures).
- A library with a repository of state-of-the-art technologies, strategies and best practices, regulations and policies, handbooks, manuals, factsheets, and videos on technologies and financial engineering for circular bioeconomy projects. The Virtual Academy includes these resources and training materials (such as webinars and presentations), events, forums, and other channels for networking and knowledge sharing.
- Requesting matchmaking and Project Development Assistance for technical, financial, and procurement support. The technical service consists of a targeted service to get one-to-one support from technical partners; the financial service consists of a matchmaking tool for both project developers and investors to get in touch with and mobilise green financing and funding for the implementation of circular bioeconomy projects. Finally, the procurement service assists in preparing public procurement processes and instruments for launching tendering processes that trigger investments in circular bioeconomy projects.
Funding for circular bioeconomy projects
To support companies, public entities, and start-ups with knowledge, funding, and financing opportunities on their circular bioeconomy journey, HOOP partners developed the Investment Package Manual, available via the HOOP Hub’s Virtual Academy. The manual has demonstrated practical utility over time, being an extensible and valuable resource for other EU Member States and their cities and regions. For this reason, the authors developed a public version to be disseminated across Europe, offering an overview of funding and financing schemes and opportunities at European, national, and regional levels. The Investment Package Manual was developed using a three-step approach, and the public version is distributed through three respective volumes.
Volume I describes the EU Taxonomy concepts, methodology, objectives, technical screening criteria, and “do no significant harm” principle, applied to economic activities linked to circular bioeconomy technologies, processes, activities, bioproducts from organic waste feedstocks, and respective regulation packages.
Volume II guides the reader through the selection and inventory of funding and financing schemes, programmes, instruments, and tools for bioeconomy and bioenergy investment projects at the European level.
Volume III presents a selection and inventory of funding and financing schemes, programmes, instruments, and tools for circular bioeconomy and bioenergy investment projects, at national and regional levels from eight Lighthouse countries.
Financial tools for the circular bioeconomy
In addition to identifying funding opportunities, several financial and compliance tools deserve highlighting, directed at both investors and project developers:
Due Diligence Standard
Due diligence is an important technique to consider before entering into any agreement, such as the implementation of the project, contract with other enterprises/parties, or financing. This process involves risk and compliance checks, investigation, review, or audit to verify facts and information about a particular project.
Until now, no standardised due diligence process has existed for circular bioeconomy projects. Most such due diligence endeavours have been confidential and conducted by large corporations, banks, investors, and consultants. In addressing this gap, a due diligence procedure was standardised specifically for investment projects in this field. Thus, this standard procedure is characterised as ongoing, multidisciplinary, and proactive, ensuring that the involved project parties – promoter, public entity, contractor, and public-private partnership – cover several risk areas to deliver responsible and successful project implementation.
Comprehensive in its scope, the Due Diligence Standard encompasses 22 distinct risk areas (below), and three key transversal risk areas – human resources, force majeure events, compliance with regulations and standards.
Notably, this standard serves as a foundational guide, adaptable to the unique needs and challenges of individual bio-based projects.
By embracing this guidance, project promoters can effectively de-risk their endeavours, enhancing their bankability and bolstering stakeholder confidence. With entities and entrepreneurs better equipped to navigate and mitigate risks, the path to a low-carbon, resilient, and resource-efficient economy becomes clearer. Ultimately, implementing the Due Diligence Standard propels European cities and regions towards fulfilling the ambitious goals of circularity and carbon neutrality by 2050.
Circular Valuation Method
The Circular Valuation Method is clear and simple for companies and public bodies to assess whether circular projects are financially attractive. The tool comprises a measuring template with a set of indicators covering five domains:
- Financial (NPV, cost of production, CAC, TCO, EBITDA)
- Circularity (input, materials used, output)
- Environment (resources, greenhouse gas – GHG – emissions)
- Social (community and society, employee relationship and labour standards, human rights, competitiveness)
- Progress – a comparison to the previous situation (resources, GHG emissions, employment, waste hierarchy)
The financial domain will be composed of a written report. The remaining four domains will be awarded a score based on the input and calculation from the indicators. The results can be automatically downloaded as a report, showcasing the circular potential of the project.
Project Maturity Level guidelines and calculator
The PML self-assessment tool is a standard guidance, questionnaire, and ranking system that evaluates the maturity level of circular bioeconomy projects. It uses a grading scale where each level has several criteria to accomplish and reach, to improve their maturity and bankability to mobilise green financing and funding for project implementation.
The PML approach supports project developers, promoters, and investors in evaluating which parts of their project portfolio are investment-ready and which need further development and compliance. At the same time, this tool will also contribute to matchmaking between project developers/promoters and investors.
The online PML tool consists of a ranking of six maturity levels (below) with specific criteria for each level, reaching a total of 43 qualitative indicators. Once all criteria have been fulfilled, the questionnaire, answers, and the dashboard with graph and table can be downloaded and/or printed as a report.
All users can self-assess their projects and respective portfolios and fill in the online PML tool with the support of a publicly available guidance manual.
Building knowledge and skills for the circular bioeconomy
Together these tools and resources aim to create an investor pool that better understands the challenges, barriers, and opportunities offered by the circular bioeconomy sector, and provide innovators and project developers with the knowledge and skills they need to navigate the private sector. By addressing gaps in knowledge on both sides of the equation, the HOOP project is supporting the investment in and development of a strong European circular bioeconomy.
Acknowledgements
The HOOP project, “Hub of circular cities boosting platform to foster investments for the valorisation of urban biowaste and wastewater,” has received funding from the European Union’s Horizon 2020, Research and Innovation Programme, under grant agreement N.° 101000836.