Pensioenfonds Detailhandel is investing €100m in the new fund, which will provide loans to Dutch circular projects with potential to create significant impact in the areas of carbon emissions, waste reduction and the replacement of fossil fuels
Hilversum-based Polestar Capital is today launching what it describes as the biggest circular economy fund in Europe, primed with a €100 million investment by Dutch pension fund Pensioenfonds Detailhandel.
The Polestar Capital Circular Debt Fund (PCDF) aims to provide loans to around 30 innovative Dutch circular economy projects it believes make a significant ecological impact in terms of carbon emissions and waste reduction, and through replacement of fossil fuels.
Polestar Capital is targeting expansion of the fund to €400 million within a year, driven, it hopes, by the Netherlands reputation as a leader in recycling and product re-use.
Financing for such projects still remains hard to obtain from other sources, because banks usually find such projects too innovative, while venture capital firms generally find them too capital intensive to finance in full, according to Philip Tan, a managing partner at Polestar.
“We want to finance those kinds of innovative projects that are not getting loans from banks right now to see if we can kickstart a game changer in the industry,” he told Impact Investor.
The aim is to allow circular production companies to prove their technologies and business models on a commercial scale, giving them a better chance of contributing to the Dutch government’s ambition to have “completely circular economy” by 2050.
That pledge is designed to add momentum to a push towards developing a waste-free economy by using sustainable and renewable raw materials, and reusing products and raw materials.
“We want to finance those kinds of innovative projects that are not getting loans from banks right now to see if we can kickstart a game changer in the industry.”Philip Tan, Polestar Capital
Tan noted that while the Netherlands is regarded as a global leader in this respect, there is still a long way to go.
He said that Polestar Capital research showed that the Netherlands recycled or reused only 13% of its resources. “While this is better than the global average, it’s not much better,” he said. The UN-backed Platform for Accelerating the Circular Economy estimated in a 2020 report that reuse of resources stood at 8.6% globally.
Tan points to past investments by Polestar Capital as illustrations of the type of project the fund will be targeting. The firm was an early investor in Limburg-based Quality Circular Polymers (QCP), which provides industry with polymers based on used plastics, and which became a joint venture of LyondellBasell and Suez in 2018.
Other projects include one for the conversion of manure to fertilisers equivalent to those made using fossil fuels, and another using grasses to create a durable building material that can be used to make furniture among other things.
The new fund is classified as an Article 9 fund under the European Union’s Sustainable Finance Disclosure Regulation, currently being developed to promote sustainable investments.
That means Polestar will be required to provide transparent and detailed information on the social and environmental impacts of the projects it funds. Tan said the company is well versed in how to measure benchmarks such as the amount of carbon dioxide per euro of total investment saved by one of its projects, compared to fossil-fuel based alternatives.
Polestar Capital says the combined amount of capital entrusted to the firm is now approaching €1 billion after the first close of the PCDF.
Detailhandel values experienced partner
Pensioenfonds Detailhandel – the Dutch pension fund for the retail sector – has more than 1.2 million participants and has assets of around €36 billion.
“We are a pension fund, so we need to invest prudently for our beneficiaries, so it’s always a balance between seeking attractive returns on one hand and our aim to make a positive impact. But this is possible if the risks are managed in the right way, and I think Polestar’s proposition perfectly aligns with long-term value creation,” said Henk Groot, CIO of the pension fund.
The PCDF aligns with two of the four UN-backed sustainable development goals (SDGs) incorporated in Pensioenfonds Detailhandel’s ESG policy – SDG 12, targeting sustainable consumption and production, and SDG 13, on climate action.
The PCDF’s focus on private debt was also attractive to Detailhandel, as was the ability of the PCDF to make a direct economic impact with investments in innovative projects in the pension fund’s home market.
In addition to the PCDF investment, Pensioenfonds Detailhandel is also planning to announce investments in two further impact-related funds in coming weeks – one providing mid-term finance to emerging market SMEs and one lending to European SMEs.
“We can’t disclose the names yet, but like the Polestar investment, they will have a very strong focus on impact,” said Groot.