Investing in the Circular Economy

The challenge

Since the industrial revolution, the prevailing economic model has been the Linear one: Take – Make – Waste. Resources were extracted, used, and disposed of as waste. This “take, do, dispose of” approach has its limitations, of course. Especially with the exponential growth of population and wealth, and therefore of consumption. Resources have become increasingly scarce and difficult to obtain, and their extraction for a single-use is too costly for the environment.

Since 2020, “year zero” we have begun to move towards a more sustainable economy, a “circular economy” to “close the loop”. The circular economy, in contrast to the linear one, is about redesigning products and processes in such a way that goods can be used longer, repurposed, or recycled more economically to reduce costs and waste. (2021, BlackRock)

The Fact

Every year, 2.1 billion tonnes of municipal solid waste (MSW) is created. Of this waste:

Only 16% is recycled

Over 85% of plastic packaging value is wasted

Over 8 million tonnes of plastic is dumped into the ocean

Fast Fashion Roughly 87% of clothing is thrown out or burned, costing more than US$ 100 billion annually.

Source: Ellen MacArthur Foundation (Dec 2017)

Great steps have already been taken towards this new economic model by some companies and sectors, to try to overcome the challenges of sustainability. A good example is in the packaging industry. The packaging we are used to is basically disposable. Sustainable practices. The sustainable practices adopted by one of the world’s largest manufacturers of corrugated cardboard boxes illustrate how innovation can turn a challenge into an opportunity.

Forecasting

A closed-loop economy, in addition to reducing unnecessary waste and mitigating the risks of resource scarcity, can help replace resource extraction with long-term growth. This step is important and is reflected in the United Nations’ Sustainable Development goals. Specifically, an objective is to guarantee sustainable consumption and production models. In addition, research by the Imperial College in London in 2015 predicted a successful transition to a circular economy that could add nearly £ 3 billion to the UK economy each year, and create new jobs. To make this transition, it is necessary to change not only the mentality of the company but also new processes, systems, and new business models.

Products must be designed in a way that they can have a long-term life. Supply chains must be adapted to allow for the closed cycle of production. This new sustainable circular system will bear fruit on an increasingly growing interest on the part of investors. Also because it will be the only solution to continue to have a production and an economy that grows over time. While companies can successfully transition into a circular economy today, investors and shareholders expect to benefit from this new model in a number of ways. The process of transforming waste into resources unlocks greater value for businesses, reduces production costs, and reduces the risks inherent in the business and supply chains. It may happen that the main companies can profit from favorable investments in which the activities of the companies follow the ESG (Environmental, Social, Governance) criteria and therefore are sustainable. So the first companies that take advantage of this favorable wind will have an advantage over their competitors in the future. The opportunity is that there can be a positive impact on both the environment and long-term sustainable financial returns. In fact, this change to a circular economy is leading more and more companies to follow ESG criteria and to choose sustainable investments. This rally for change is also impacting the financial market, as sustainable investments around the world are growing. Capital at risk. From $ 13.3T (2021) to $ 30.7 (2018), investors are catalyzing change through portfolios focused on the Sustainable Development Goals (SDGs). (2021, BlackRock)

Here are 10 circular investment opportunities for a resilient recovery

  1. Renovation and upgrade of buildings
  2. Building materials reuse and recycling infrastructure
  3. Multimodal mobility infrastructure
  4. Automotive refurbishment, remanufacturing, and repair infrastructure
  5. Innovative reuse business models for plastic packaging
  6. Plastic collection, sorting and recycling infrastructure
  7. Rental and resale business models for clothing
  8. Clothing collection, sorting, and recycling infrastructure
  9. Tools enabling farmers to shift to regenerative agricultural production
  10. Food Surplus and by-product collection, redistribution, and valorization infrastructure