The need for action is exemplified by the growing generation of waste, the depletion of finite resources including energy, and pollution of land and water. A well-known measure of our impact on the planet’s resources is Earth Overshoot Day.
Created in 1971, it marks the date when humanity’s demand for ecological resources and services in a given year exceeds what the planet can regenerate in that year. This year, Earth Overshoot Day fell on 2 August, meaning that we need 1.7 planets to satisfy this year’s need for renewable resources.
With living standards forecast to rise more quickly in less developed regions, the pressure on Earth’s resources looks set to grow even further. Business as usual, i.e., the linear economy, is estimated to require almost double the resources – 184 Gigatonnes in 2050 – compared with 100 Gt in 2019.
A whole lot of room for improvement
The OECD’s Global Material Resources Outlook to 2060 report offers a glimmer of hope: it projects that structural and technology change could slow the growth in materials use. Indeed, efficiency gains will be crucial: Currently, over 90% of all materials is wasted. The percentage of secondary materials cycled back into the global economy has fallen from 9.1% in 2018 to 7.2% in 2023.
Where can gains be made? Here are some examples:
Moving to electric mobility solutions enhances the sustainability of the battery value chain
According to OECD, global plastic waste generation more than doubled between 2000 and 2019 to reach 353 million tonnes, but only 9% of it is being recycled
Less than 1% of all textiles worldwide are recycled into new textiles
In the EU, an estimated 20% of the total food produced is lost or wasted.
Geopolitical tensions such as between the US and China, but also over Russia’s war in Ukraine are harming global logistics. They are limiting access to resources and adding to supply chain strains.
One answer could be a greater focus on circularity and optimising the use of resources rather than local subsidies and incentives for local players, resource nationalism and protectionist onshoring.
Optimisation approaches could include fully renewable resources, working towards product life-extension, having products as a service and working with sharing platforms. Rethinking product life and recycling options means working on product concept, avoiding planned obsolescence and using technology to improve future circularity. These are all business opportunities.
Investing to promote the circular economy
Already, circularity agents – companies facilitating the shift to the circular economy – are emerging, looking to tap a $4.5trn potential global growth opportunity that could create millions of new jobs. Today, almost half of the world’s top 100 companies have already adopted a concept that aims to ensure that the materials they work with remain constantly in use.
We believe financial institutions and investment managers have a vital to play. We are doing so by building an efficient stewardship policy and investing directly in circular economy themes.
Our €1bn circular thematic exchange-traded fund replicates the ECPI Circular Economy Leaders index, a basket of 50 stocks in major companies selected using environmental, societal and governance (ESG) criteria. These are companies that either operate in sectors that are circular by nature or that are most likely to benefit from adopting practices and circular business models such as the ones mentioned below:
Circular supplies such as renewable energy, bio-based or fully recyclable input materials. Industrial sectors include renewable energy generation and equipment, biofuels, fuel cells.
Resource recovery from disposed products or by-products. Industrial sectors include waste management, environmental services and equipment.
Product life extension of products and components by repairing, upgrading and reselling. Industrial sectors include apparel and textiles, cars, chemicals, construction materials.
Sharing platforms making shared use, access and ownership possible. Industrial sectors include technology, ride sharing, house sharing.
Product as a service. Industrial sectors include cloud computing, leasing services.
We believe these are all worthwhile, investable business models that are part of a move in the right direction. The circular economy engenders virtuous industrial practices and can help reduce pressure on resources, the environment and supply chains, boost economic growth and create jobs. Circular solutions can be seen as opportunities for a wide range of stakeholders including investors.
For more insights on exchange-traded funds, visit the BNP Paribas Asset Management ETF page.
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