How a €1 billion investment ambition is helping circular businesses grow

Turning circular ideas into circular businesses

From plastics and mattresses to food waste, Ingka Investments focuses on businesses that can help keep valuable end-of-life materials in use for longer.

For Visser, success starts with finding companies that combine strong leadership, proven business models and the ambition to grow.

“Good ideas are important, but so is the ability to scale them,” he says.

Growth and impact can go hand in hand

Since starting its Circular Investments portfolio in 2017, Ingka Investments has supported companies that are helping transform waste into valuable resources.

The portfolio includes a variety of businesses, from recovering discarded plastics and AI-enabled technology preventing food waste to recovering materials from end-of-life mattresses in Europe.

Why the circular transition needs teamwork

Businesses, policymakers, investors and consumers all have a role to play in creating the conditions needed for recycled materials to become a natural part of everyday products.

While challenges remain, Visser is encouraged by growing momentum across industries and markets. “We need to continue building businesses that can deliver both environmental impact and commercial success,” he says.

The future is already here but it’s not at scale yet.

For Visser, one of the strongest reasons for optimism is his children.

“My children are already more conscious about waste than previous generations,” he says.

The challenge now is making circular solutions available to more people.

When circular materials become an easy choice in everyday life, we’ve made real progress.

“I hope that in ten years’ time, it’s not a question of whether a product contains recycled content,” says Visser. “It simply does.”

Listen to the latest episode of Screw It to hear how Circular Investments is helping scale the infrastructure, technologies and ideas that will support the transition towards a circular future:

Screw It – Episode 17 – Full Conversation Transcript

Katarina: Hey, and welcome to Screw It. Imagine if you had €1 billion to invest in a more circular society. That’s what we’re talking about today with Lukas Visser, Head of Circular Investments at Ingka Investments. Enjoy. Thank you for joining me today. Great to see you. Before we dive into anything, let’s just start with the number. You’re responsible for roughly €1 billion. What does that feel like? 

Lukas: It feels like quite a responsibility, but an opportunity at the same time. We started some years ago and have made some progress. One billion is a big, big number. It comes with a big responsibility, but it gives a great opportunity to make a difference in the field of sustainability and circularity for the coming years. Why circular? Circularity has one of the best impacts on a more sustainable environment. What I mean by that is that a lot of the footprint, and the increased footprint we face, can be avoided by reusing materials for new products. Investing in recycling can be super impactful on the footprint side of things, and it can be an attractive financial business as well. Bearing both the environmental impact and the financial impact is what makes the difference. 

Katarina: That’s something you are quite forward with, the fact that these are investments. There needs to be a return on investment. What does that look like when you’re looking at your portfolio of circular investments? Are they profitable? 

Lukas: Yes. We invest in profitable businesses, and we invest in growing companies. We prefer to invest in leading companies in the field with a good track record. They have proven they can operate good businesses, and good businesses for us are profitable, because that gives us the opportunity to accelerate their growth and to provide the resources they need. We are there to help and to partner in the future to accelerate the growth of the recycling business. 

Katarina: When you come across a company in this industry, what are the things you’re looking at in terms of whether or not it’s worth pursuing? 

Lukas: After market research, and having defined the market, we look more specifically at the leadership team of the company, at its position in the market and at its ambition for growth. That’s what’s most important to us. The leadership team should have a proven way of leading and building a company with the right values. The company should have an established position in the market that shows they can lead the market in the future as well. And the third aspect is growth. We are all about growth and supporting growth, so they should have, or we should together develop, an ambition that is aligned on growth. So: leadership, position in the market, and ambition for growth. 

Katarina: You talk about leadership. What do you mean by that? Do they have to have a proven track record in terms of launching a company within that industry, or what does that look like? 

Lukas: It boils down to knowledge and expertise. Know what you do. This is a rather challenging environment to operate in, especially over the last few years, where the competition from the alternatives has been strong, whether or not it was a level playing field. The fact is that you need to be really good: super-efficient, low cost, while producing a quality that the good brands would like to use. So, leadership is truly understanding what you do and knowing how to address the market. And apart from that, it should fit the right values, at least the values we appreciate and stand for. 

Katarina: It’s a highly competitive industry. It’s also one that’s very impacted by legislation. How much are you looking into the legislative side of things when you’re deciding whether or not to invest? 

Lukas: It is an important part of the future. The good thing is that legislation is ramping up. The understanding of the value of recycling to society is growing, also among policymakers. In that sense, there is good momentum. But it’s fair to say that we do not bank on it. The business should be able to operate positively in an environment where regulation comes in later or changes. So, it is a driving force behind what we think the future brings, and the positive future brings, but it’s not something we count on or bank on when stepping into a company. 

Katarina: In terms of the different materials you’re looking at, you’ve classed them under five categories. Is that correct? 

Lukas: That’s correct. 

Katarina: You’re going to have to help me out here. You’ve got plastics, wood, textiles, mattresses, and food. Do you have a favourite? 

Lukas: Not per se. They all have their own dynamics. What they have in common is that they all contribute to a lower climate footprint. But the markets are so different. Different in material, different in maturity. Plastics is already somewhat further along in maturity than textiles, for example. And food is a different species. You cannot recycle food to the extent you can recycle the other materials, but you can treat food waste better than the average treatment is today. 

Katarina: Just to paint the picture of what this actually looks like in reality, do you have any good examples from one of these categories? I believe you’ve not yet invested in wood recycling, but you have invested in mattress recycling and plastics. Do you have any examples you can bring to the table? 

Lukas: Yes, for sure. We have an interest in five areas, as you said: plastics, mattresses, food, wood, and textiles. Today we have exposure to plastics, food waste, and mattresses. 

A good example is Morssinkhof Rymoplast, one of the leading companies in recycled plastics: high quality, big volumes. Since we invested, the company has doubled its output, and it has created products and grades that were true innovations, converting household plastic waste into, for example, an IKEA product. So, they have been very meaningful to the industry, but also to IKEA, developing new materials for use in, in this case, HÅLLBAR. 

Another example is mattress recycling. Mattresses are a product that is somewhat hard to recycle. With us, the company has increased its volumes about fivefold since we invested. But we also learned that if we want valuable outlets for the increase in recovered materials, we need to add value to them. So, we have built the first big-scale recycling facility that recycles the foam of a mattress into the main building block of new foam, replacing a percentage of virgin foam with foam from disposed mattresses. Both are examples where growth and innovation have gone hand in hand, and that is the journey we would like to continue as investors. 

Katarina: What’s your part in all of this? These are complex markets relying on, as we said earlier, legislation. What’s the part you play in making sure there’s a level playing field? 

Lukas: What we can do is try to educate and explain how we see things. The level playing field is not there yet, as simple as that. The externalities of recycling in general are not priced yet. What I mean by that is that one of the big contributions of recycled materials is avoiding CO2 equivalent emissions, and they are significant. On average, one kilogram of recycled plastics avoids three kilograms of CO2 equivalent emissions. The challenge is that most of this cannot be priced into the material yet, and so there is no level playing field for recycled materials versus the virgin alternative. What we do is try to explain and to educate and to tell what the impact is. 

Katarina: To the consumer, or to governments, peers, all of that? 

Lukas: All of the above, including recycling companies as well. It’s about trying to valorise the value you create. Recycled materials are not in the same position yet in terms of regulation as energy is, so it’s about making the road a bit more equal, creating a more level playing field for the recycling industry. Having said that, the promising thing is that there are a lot of good developments in regulation. Certain countries in Europe are ahead of others, and there is an overarching European directive as well. So, I’m hopeful that all of this will contribute to a more level playing field, so that in a few years from now recycled materials are an established part of all the products we purchase. 

Katarina: Are there any indications that it’s going in the right direction that you’re seeing right now? 

Lukas: In terms of regulation, yes. Europe is introducing a lot of new regulations, directives and acts that, if all things go well, will definitely support the recycling industry. What we see as well is that in Asia there are certain countries looking at the learnings and the systems, we have here in Europe, taking the benefit of that, and implementing similar or even better measures to support the transition from a linear to a circular economy and to support the recycling industry. So yes, I’m hopeful. The foundation and the fundamentals, I have to say, are getting better and better. 

Katarina: What’s the biggest challenge in going from a linear to a circular society, do you think? 

Lukas: I think that refers to the level playing field. When recycled materials can operate on a level playing field, they are more competitive. 

Katarina: Everything going on around us impacts the portfolio. How do you make sure that you have a resilient portfolio on hand? The world around us is not stable. 

Lukas: We act in that world. I think it comes back, at all times, to having a company that is super good at what they do. In good markets or in more challenging markets, the resilience to survive comes with a focus on efficiencies and a focus on being relevant: making sure that we produce, and continue to produce, value-adding products while being super-efficient in how we do so. We do not have the luxury of allowing inefficiencies. I think that’s the main driver. On top of that, we need to stay curious about innovation, because recycled materials are going to grow, and with that you need to continue to add value to the quality of the materials you sell, to open up an even wider base of clients. So, efficiency and innovation, I would say, are the core of what we focus on. 

Katarina: When it comes to innovation, what are the most exciting trends you’re seeing right now? 

Lukas: There are trends, and this is a bit unfortunate: we have seen a lot of ideas and startups that didn’t make it. On the other hand, that’s part of the test to see whether a certain business can survive. We have seen a lot of players in the market that unfortunately are not around any longer. But that gave us a lot of insights as well. 

Katarina: What are some of those insights? That’s interesting. Why are these companies not making it? 

Lukas: Since the market and the industry are rather volatile, I prefer to focus on businesses that are in business, that work from day one, and then you scale up, rather than building a super big business that is modelled for success, if you see what I mean. Because you need to have resilience at any time in the future, and there’s a limit to how long you can fund a loss-making operation. I think great ideas can start small. It is better to make a good idea to work on a small scale than to build a big, big business that is modelled for success but is not a good business today. 

Katarina: Does that mean you come into contact with a lot of smaller businesses who have been working for a while and are showing success, and then you monitor them for a while? How does that work? 

Lukas: Yes, for sure. If we see promising ideas and startups, we do follow them. They won’t always fit our scope of investment, as we invest in companies for growth. They need to have an established business, and they should be at least operationally profitable. But for sure we maintain a lot of relationships with companies that are maturing into the phase where we can be of support to grow the business further and quicker. That’s part of our pipeline development, to be engaged in dialogue with some earlier-stage companies as well. 

Katarina: Back to the innovation part you were talking about. What are some of the exciting things you’re seeing right now? 

Lukas: Apart from the mechanical part of recycling, and this applies mainly to polymers, so to plastics and to PU foam or polyurethane, there is the mechanical way of recycling and there is the chemical, or more advanced, way of recycling. 

Katarina: Can you break those down for me a little bit? 

Lukas: Sure. Let’s take the example of mechanical plastic recycling. There, the process is to re-melt, clean, and purify the plastic in a melt flow, so that it is of a good quality for reuse again. The alternative is chemical recycling, where you further break down the polymers into oligomers or monomers. If you start breaking the chains of polymers, you need to add more energy to the process, more energy than just melting a rigid plastic into a melt, which is the state where you can purify, clean up and create a new plastic pellet out of it. 

What we see is a lot of different approaches and initiatives in chemical recycling of plastics. It comes at a higher cost, because you need more energy to get to the oligomers and monomers. But on the other hand, it gives you the opportunity to break down the chain even further and to rebuild a polymer the way the virgin industry does. 

Katarina: Wow. Okay. 

Lukas: In my view, both are needed. My belief in plastics is that the majority can still be recycled mechanically. But if we want to get to the highest content of recycled materials in our products, then you definitely need to address the part which is hard to recycle in a mechanical way. Therefore, chemical recycling has a role to play in the future of plastic recycling, and we keep a sharp eye on all the developments there. They are making good progress, but it’s not yet an established market like mechanical recycling. To summarise: mechanical recycling is there; it is good, and it will be able to cover most plastics. But to get to a higher level of circularity we need to address the more difficult-to-recycle plastics, and for that, chemical recycling is the way to reach the highest content of recycled materials at the end of the day. 

Katarina: When you think of IKEA, you think of wood, you think of textiles. What are some of the things you’re seeing in those areas? 

Lukas: Textiles, to start with, relate a bit to what I just discussed about chemical recycling of plastics. A lot of textiles are polyester based, and a lot of textiles are blends of organic materials like cotton and polyester. So, there is a lot of research and development ongoing to make textiles recyclable. On wood, I think wood waste has had a focus, I have to say on being used for energy. Wood is a lovely material. It captures CO2. It’s super sustainable. I like it. It’s just beautiful. But when using wood for energy, it causes a lot of emissions, and you step over the opportunity to reuse wood waste for new products. There I do see good opportunities now in this market, to see whether we can take a first step in wood waste recycling, knowing that the history of the last ten years of wood waste has mainly been focused on energy. I think now is the time that gives us the opportunity to direct a bit more of this wood waste into recycling, for the reuse of wood waste in good products again. 

Katarina: Interesting. In terms of what you’ve got going on right now, what are the next steps? What does the future look like? 

Lukas: Growth. I think we need an industry that is established, and that has a scale at which it can supply, in every market, a decent part of the materials needed to produce products. With scale, even more cost efficiencies come, and with that it becomes more affordable to consume recycled materials. So, I look forward to continuing to build and grow good businesses. I hope the industry as a whole will do so as well, to make sure that in ten years from now, it’s not a question of whether there is recycled content in any product. There simply is. 

Katarina: Does gut instinct ever play a part in the decisions you make? 

Lukas: You mean a certain good feeling? 

Katarina: Yes. Sometimes the numbers might be telling you one thing, but your gut is telling you something else. Maybe it’s pattern recognition or experience. What is the balance? 

Lukas: That’s what I like about being in this world of investing and dealing with companies. On the one hand, it is numbers, and on the other hand, it’s the people and the leadership. You can analyse a lot of numbers. You can analyse a lot about the markets the companies are in. But at the end of the day, and even more so in challenging markets, it’s the people, the leadership, who are the driving force in making sure a business is still around after a trough or a difficult market period. So yes, for sure, you need a bit of instinct in assessing the quality of the people and the leadership of a company. It’s very different from doing numbers. But that’s the interesting part of what we do: assessing both, making sure you team up and align on the goals you h 

Katarina: How involved are you as an investor in the companies you invest in? What does the collaboration look like? Or is there collaboration? It’s not purely financial, surely. 

Lukas: No, definitely not. There is financial support, but we try to support them with any help the company and the management think is valuable. Growing a company requires the growth of the organisation, for example. So, we are constantly in discussion with the company: are we ready for the next wave of growth? Is the organisation ready for it? That’s part of where we provide support. Another is market research. Most of the companies are so dedicated and focused on the operations of the business, while we have the opportunity to see what’s happening in the market and to share those learnings. So that’s what we bring in as well. It goes beyond financial support. We try to be actively involved in supporting the companies on the growth and value creation plan we have set together. 

Katarina: Another aspect that I think is quite interesting when it comes to Ingka Investments is the long-term horizon, the fact that you think of in generations. Does that set you apart as an investor, do you think? 

Lukas: Yes, definitely. That was actually one of the reasons IKEA and Ingka Investments. It’s in our DNA to be long-term focused, and that’s what we need in this industry. This industry has its ups and downs, and you need to have the stamina, the focus, the discipline, and the belief to continue to work on what you think is good. To a certain extent, you can call that patience. We have in our DNA the patience of investing in and growing certain businesses, even when every now and then that is interrupted by difficult market circumstances. That’s needed for this industry. And to your question: yes, it does set us apart from typical investors with a shorter-term investment horizon. We are there to invest in long-term success, and I think that gives us the opportunity to work with certain companies, because they have the same values and interest in going long and successful, rather than very small, incremental, short-term success. 

Katarina: And a final question for you on that note. What do you think future generations can expect in terms of a more circular society? 

Lukas: I think they already expect it. If I refer to my kids or their generation, not even teenagers yet, they are super conscious about the impact of waste, more so than the older generations are. So, they are more conscious of the choices they make. The only thing we have to do is deliver to their expectations to have more sustainable products. It’s more a matter of already fulfilling their expectations of today, to make sure that when they become customers in, say, ten years from now, they can consume sustainable goods. 

Katarina: Well, Lukas, it’s been great talking to you. Thank you so much for joining us. 

Lukas: Thank you, Katarina. 

Katarina: Thanks for joining us today.