Key takeaways

• Funding 
  • Battery recycling dominated another weak quarter: Circular Materials funding increased marginally (+22% QoQ) from a disappointing Q4 2023, which was the industry’s lowest funded quarter in three years. Large rounds from battery recycling startups continued, such as Ascend Element (~USD 162 million) and Li-Cycle (USD 75 million). Bio-based materials funding picked up (+123% QoQ), led by notable rounds from Natural Fiber Welding (USD 24 million) and Danimer Scientific (USD 15 million), but remained significantly below the levels observed in preceding quarters (USD 109 million vs. a three-year average of USD 299 million). 
  • Battery manufacturer Northvolt raised USD 5 billion in debt funding during the quarter, which was reported as the largest green loan raised in Europe to date. The majority of this funding is likely to be used to expand the capacity of the company’s Northvolt Ett battery manufacturing facility, while a smaller portion would be used to expand the adjacent Revolt Ett battery recycling facility.

• Product updates
  • Recycling and upcycling of plastic, textile, and other waste took center stage: The quarter saw several product launches using recycled materials across various sectors, including packaging, apparel, and construction. Established manufacturers and brands such as Coca-Cola, IKEA, Holcim, Zara, and Dow showed a relatively higher level of involvement in product development than startups. 
  • Battery recycling updates were subdued: Fewer activities were observed in battery recycling. Most battery recyclers are making headlines for constructing new facilities in 2023,  which could drive battery recycling advancements in the latter quarters of this year.

• Partnerships
  • Plastic recycling partnerships surged: We observed 47 circular material partnerships across 36 startups in Q1 2024 (+38% YoY). Nearly 30% of such partnerships focused on the recycled plastic segment, as startups such as Carbios and New Hope Energy, as well as incumbents like Amcor, P&G, and Eastman, partnered with popular brands and manufacturers to convert plastic waste into near-virgin-quality plastic, primarily for packaging purposes. 
  • Battery recycling partnerships maintain pace: Startups such as Altilium and Tozero are continuously partnering to enhance the battery recycling process. In addition, automotive manufacturers such as Mercedes-Benz and incumbents in different industries like BASF are partnering to drive the incorporation of recycled materials into battery supply chains.
  • Joint efforts toward textile upcycling for apparel: Several startups and incumbents collaborated in developing apparel products utilizing recycled textiles, some of which are used across popular brands such as GAP and J.Crew.

• M&As
  • We observed one key acquisition during the quarter (vs. three in Q4 2024). Reconomy, which has been actively taking steps to expand its geographic footprint, marked its third acquisition by acquiring Sudamin Rohstoff for an undisclosed sum.

• Regulations
  • Having previously allocated funding to enhance recycling, the US passed two new bills to further streamline overall recycling efforts, aiming to achieve its 50% recycling target. Meanwhile, Europe seems to be emphasizing plastic recycling with its new standardization certification.

• Outlook
  • Scheduled capacity expansion and successful trials in battery recycling are key areas to watch out for in 2024: Battery recycling is undoubtedly a hotspot, given the sector’s ongoing activities and substantial funding, which is primarily directed toward expanding capacity and advancing new battery technologies. During 2023, several startups showcased successful trials and outlined plans for capacity expansion, with many gearing up for commercial operations in 2024 or 2025 and collaborating with major automotive firms to integrate materials into the supply chain. However, startups like Li-Cycle have faced setbacks and delays, highlighting challenges in execution. Thus, it will be crucial to monitor how key players such as Northvolt leverage their funding for capacity expansion and technology advancement, as industry growth depends on meeting rising demand through operational expansion. 
  • Upcycling plastic and textile waste has become a growing trend: Several startups and established companies are actively engaged in upcycling plastic waste for various applications extending beyond packaging. The transition of major brands like Coca-Cola and Cadbury to recycled packaging indicates promising growth prospects for startups in this sector. Additionally, there was growing interest in upcycled clothing, as renowned brands like GAP and Under Armour introduced collections made from upcycled textiles. The successful launches of these collections suggest increasing adoption of these materials, positioning the industry in a favorable spot. 
  • Bio-based materials adoption spans various industries: The outlook for bio-based materials remains positive. Popular and luxury brands across various industries continue to actively co-develop or collaborate to integrate bio-based materials into their products. Startups in the sector are witnessing the fruition of their extensive R&D efforts. That said, established players are also initiating efforts within the sector, so startups must keep up with the competition. To ensure continued growth, fostering strategic partnerships and securing ongoing supply agreements appear to be crucial.