European Circular Bioeconomy Fund: Investing in the bioeconomy

Organisation details: 

Name: European Circular Bioeconomy Fund (ECBF)
Signatory type:  Investment manager 
HQ country:  Luxembourg 
AUM: €300 million  

Covered in this case study: 

Asset class(es): Private equity and venture capital 
Geography:  Europe 

The European Circular Bioeconomy Fund (ECBF) is the first venture capital fund in Europe exclusively dedicated to the bioeconomy, offering flexible financing tools from equity to mezzanine. We aim to catalyse the transition towards a sustainable future by investing in bio-based, growth-stage companies with high potential for innovation, favourable returns, and positive impact.  

Why do we focus on the circular bioeconomy? 

As a responsible venture capital investor, we aim to meet our clients’ objectives of achieving risk-adequate financial returns from sustainable solutions that allow us to step away from a fossil-based economy. Instead, we invest in European companies in bio-based industries (i.e., production is based on renewable biological resources) and the circular bioeconomy (i.e., companies that convert byproducts and waste streams into value-added products).  

The industrial promises offered by the biotechnology revolution (including biochemistry, biomaterials, and biorefineries) and the bio-based decarbonised economy (biomass production, sustainable alternatives) create attractive business and investment opportunities. These opportunities have been boosted by digitalisation, such as AI, remote sensing, and bioinformatics. The value creation by bio-based solutions is growing in sectors such as consumer-packaged goods, food and nutrition, agro-farming, forestry, aquaculture, cosmetics and personal care, as well as packaging, construction, and textiles.  

Why do we integrate a responsible ESG framework? 

Not all ‘bio’ is necessarily ‘sustainable’, and not all investments in the industry represent a form of responsible capital, as is often claimed. Unmanaged potential adverse impacts may expose our investees to significant legal, regulatory, operational, and reputational risks. Therefore, throughout the entire investment process, from screening to post-investing, it is critical to distinguish, measure and monitor an innovation’s true contribution to sustainability, as well as assess the ESG-related risk and opportunity. 

How do we integrate a responsible ESG framework?  

We split our sustainability approach into three parts, as outlined below. 

A. Identifying sustainable investments  

As a general rule, a measurable and evidence-based contribution to climate change mitigation is a prerequisite for all of our investments. All investment targets and portfolio companies must therefore demonstrate that their carbon balance reduces or saves GHG emissions compared to a relevant baseline.   

Our sustainable investment guidelines initially included all the relevant environmental and social standards from the EU industry regulation and the European Investment Bank (EIB), including the EIB Carbon Footprint Methodologies. They have since been adapted to the higher standards introduced by the Sustainable Finance Disclosure Regulation (SFDR) and its two sets of disclosure requirements (SFDR level I and SFDR level II - Regulatory Technical Standards).  

B. Investing responsibly and active ownership 

Our operational approach to responsible investment, set out below, captures how we incorporate ESG factors into investment decisions, as well as our active ownership during the holding period.  

Alignment	Full assessment	Legal commitment	ESG KPIs	Impact creation
Thematic screening (bioeconomy)  Exclusionary screening   Positive screening for GHG saving or avoidance   Preliminary assessment of impact thesis and ESG risk and opportunities assumptions	Confirmation of GHG assessment  Collection and assessment of ESG KPIs, incl. SFDR KPIs  Confirmatory materiality assessment of ESG risks and opportunities  Integrity check of management and co-investors	ESG commitments in the side letter of investment agreement  ESG onboarding of investees (basic ECBF ESG KPIs)	Active ownership (engagement with investee)  Annual ESG monitoring and reporting  Follow-up on ESG corrective plan (individually agreed at time of investment)  ESG discussion at board meetings	Support with ESG DD of prospective investors    Describe and quantify ESG improvements throughout investment lifecycle

 

We consider ESG factors when building a portfolio by applying an ESG due diligence checklist, focusing on companies that already create a positive environmental impact. During the holding period, we execute active ownership by monitoring binding ESG-related KPIs and engaging with portfolio companies, committing time and expertise to guide and develop companies on their management of ESG factors. 

C. ESG accountability  

We defined our set of ESG KPIs based on limited partner (LP) requirements, industry standards, and further EU regulations and standards applicable to the bioeconomy. These relate to, for instance, the strategic management of raw materials, provisions related to animal welfare, regulations on the marketing of pesticides and fertilisers, and EU food hygiene legislation, among others. Regulations on human and labour rights are also considered.  

SFDR-related KPIs include minimum social safeguards, the 16 Principal Adverse Impact Indicators, good governance indicators, and a climate risk assessment. We monitor all of our SFDR and ESG-related KPIs to ensure our status as a sustainable fund (Art. 9 Fund), as well as our transparency and commitment in line with our fiduciary duty.¹  We would divest from a company if a negative impact were identified (through a Do No Significant Harm analysis), or if agreed milestones and action plans were not followed. 

Example: EFOS d.o.o. 

EFOS d.o.o., a Slovenian IT solutions company, has a flagship product called Trapview, an AI-based platform for pest insect monitoring and forecasting. Through its grid of automated insect traps and advanced AI-based processing, it offers real-time insights into pest population dynamics, forecasting future pest situations, and simulating different plant protection measure scenarios.  

Below, we outline how our investment process applied in practice to EFOS d.o.o.²

A. Sustainable investing: ensuring climate change mitigation and sustainable contributions 

We found that the smart pest monitoring solution improved crop outcomes through better risk management and accuracy in agricultural production, thereby positively impacting the bioeconomy. During initial engagements, we confirmed that Trapview not only abstained from excluded or restricted activities outlined in ESG guidance, but also recognised the multiple ESG benefits derived from the real-time pest insights.  

Trapview’s digital pest forecasting model enables targeted crop protection measures, avoiding spraying entire crops with pesticides. Targeted and timely crop control lead to CO2 emission reductions since it minimises field visits and fuel consumption, avoids unnecessary use of pesticides, and optimises land use. This results in higher crop yield and quality per hectare, enabling equivalent food production on smaller land areas and preventing emissions related to extensive crop production (including tilling, fertilising, etc).  

Beyond lowering the footprint of agricultural activities, our ESG due diligence confirmed that Trapview also enhances socio-economic welfare. The company avoids economic loss due to crop damage, empowers cooperatives, growers, and food processors to get more value using less agro-inputs, reduces harmful exposure to chemical pollution (via air, groundwater, and soil), and prevents food waste caused by infestation.   

B. Responsible investing: continuous engagement during due diligence and active ownership 

The objective of the dialogue has been to improve the company’s disclosures and support the company’s decisions to maintain its sustainable impact. During ESG due diligence, our deal team assessed the sustainability claims and verified the technology’s operationality through on-site visits and reference calls. We engaged with Trapview’s management team to help them: 1) onboard the metrics required for sustainability assessment; 2) provide thorough, credible answers to ESG information requests; 3) provide carbon calculations; and 4) align on next steps to maintain or improve ESG management practices. The results and expected commitments were documented in a side letter, an integral element of the investment agreement signed in 2022.  

During the following two years, we actively engaged with Trapview, resulting in our participation in board meetings and the nomination of Trapview’s COO as ESG officer, which signalled the C-level commitment to ESG topics. By fostering direct communication between ESG officers (from investor and investee side), we share knowledge on the latest sustainability requirements and practices in the EU while Trapview establishes routine ESG reporting and discloses progress on ESG KPIs. No material social, labour, health, safety, or environmental incidents have been evidenced so far.   

C. ESG Accountability: ESG monitoring, achievements, and prospects 

Through our ESG monitoring regime and portfolio manager activities, we are confident that Trapview’s ongoing business expansion and technological advances will amplify its positive ESG contributions.  

Figure 2: Trapview actively pursues additional ESG opportunities  

Achievements (2023)	21% of GHG emissions avoided compared to standard PPP protocols[3]	30.571 tn CO2eq emissions savings by product / process of portfolio company	Compliance in accordance with the UNGC principles or OECD guidelines	> 9,700,000 tn  food was produced with aid of Trapview
Opportunities	Enabling the use of novel biologicals whose efficacy is sensitive to time of application and pest stage of development	Expanding pest-forecasting portfolio	Venturing into plant disease management	Transitioning to more sustainable materials for trap manufacturing
Impact		Target 2.4 Ensuring sustainable food production systems and implementing resilient agricultural practices that increase productivity and production and help maintain ecosystems that strengthen capacity for adaptation to climate change.

Trapview’s case proves that innovation, favourable returns, and sustainable impact go hand in hand. Trapview combines digitisation and bioeconomy into a high-impact solution that contributes to food security, leads to more efficient operations, and lowers business risks and environmental footprint.