“Circular startups are willing, but the system works against them”
With the forthcoming European Circular Economy Act, circular policy is once again high on the European agenda. The European Commission is currently developing a proposal, expected to be presented in the course of 2026, which aims to provide clearer and better‑aligned framework conditions for the reuse of raw materials. This policy development highlights a broader challenge: circular innovation can only scale if the system evolves alongside it.
How challenging this is became evident during the United Nations plastic summit last summer. Expectations were high, but the summit ultimately proved a disappointment. The 184 participating countries failed to reach an agreement covering the full lifecycle of plastics, from production to recycling. A key point of contention was the introduction of a cap on the production of new (and inexpensive) plastic — an idea strongly opposed by oil‑producing countries.
Lobbying by the plastics industry
“Due to strong lobbying by the plastics industry, no agreement was reached and new regulations have failed to materialise,” says Steven Hendriks, investment analyst at the Brabant Development Agency (BOM). “That is extremely disappointing, a significant step backwards in the transition, and emblematic of how not to approach this.”
Hendriks speaks from experience. He conducted research into the potential of circular companies that valorise residual waste streams. The transition to a circular economy is essential to tackle climate change, safeguard raw materials and build economic resilience. Yet many circular startups struggle to scale into mature, profitable businesses.
Better policy as a game changer
Hendriks authored a white paper showing that these companies face a wide range of complexities, and how these can be overcome. “Startups that valorise residual waste streams are confronted with multiple challenges at the same time,” Hendriks explains. “Complex regulation, hard‑to‑predict waste streams, high capital requirements and dependence on numerous value‑chain partners. Support from the wider ecosystem is crucial for these businesses.”
One of the most important actors within that ecosystem is government. For example, regulations around true pricing could give the business case for circular startups a significant boost. The principle behind true pricing is that factors such as environmental damage are reflected in the price of a product. At present, this is not the case, which means that newly produced plastic, for instance, is far cheaper than recycled plastic.
Startups willing, but not permitted
But there is much more that government could do. Hendriks points to the Rotterdam‑based company Umicorp as a sobering example. “They went bankrupt, partly as a result of European regulations. They wanted to process recycled plastic for food packaging and already had customers lined up,” he explains. “However, new European rules placed restrictions on the use of recycled plastic in food packaging.”
Investment firms, Hendriks argues, also need to step up. “They can place greater emphasis on circular values in their investment decisions. You need to look further ahead, with a longer-term perspective. But many parties are still not doing so. At BOM, I believe we are ahead of the curve in this respect. For example, we have invested in companies such as Protix and Torwash. But even we can do more.”
If governments and investors, in particular, need to do more, what message does he have for startups currently developing circular propositions? “I would say: yes, it is indeed very difficult to grow in this market at the moment. The conditions are challenging. But from experience, we also know that it is possible to make an enormous impact.”
Torwash shows what becomes possible when the system evolves
Hendriks points to Torwash as a case in point. The treatment of wastewater produces sewage sludge, a residual product that consists largely of water and is currently treated primarily as a cost item. Torwash aims to change this. Using an innovative technology, the company recovers valuable raw materials and energy from sewage sludge, thereby contributing to a circular water chain.
This places Torwash at a stage where many circular startups tend to stall: the transition from a proven pilot to large‑scale deployment. The investment in Torwash by BOM and Oost NL demonstrates how regional development agencies can make a real difference by deploying targeted capital, expertise and networks.
“Thanks to the collaboration with and investment from BOM and Oost NL, Torwash can take a major step forward in the development of this unique technology and bridge the notorious ‘valley of death’,” says Levien de Legé, co‑founder and managing director of Torwash.
The Torwash example underscores the core message of Hendriks’ white paper: circular innovation is often technically feasible already, but becomes stuck due to existing market structures, regulations and pricing mechanisms. Without investors and governments that adapt alongside these innovations, solutions remain trapped at the pilot stage.
The research outlines which stakeholders within the ecosystem can contribute to overcoming these barriers. In addition, it identifies four essential factors that are critical for making the leap from pilot projects to large‑scale production.
The EU Circular Economy Act as a pivotal moment
According to Hendriks, the greatest leverage lies in European policy. The forthcoming EU Circular Economy Act presents a unique opportunity to provide circular startups with long‑term structural prospects. By better harmonising regulations, internalising externalities and placing circularity at the heart of raw materials policy, the playing field can be fundamentally reshaped. This would create the space for circular startups to grow from promising pilot projects into large‑scale, real‑world solutions.
