ESG Club
Randeep Somel manages M&G’s Climate Solutions strategy
THE CIRCULAR ECONOMY: BETTER IN THAN OUT
The pathways to reaching net zero are many, and while slashing fossil fuel based energy-related emissions remains the largest addressable area, moving towards a circular economy is inextricably intertwined with this endeavour and has a pivotal role to play in reducing global emissions.
“The earth that we live on does not have inexhaustible resources that are going to be available forever – we are depleting our natural resources and fast,” reflects Ran- deep Somel, manager of the M&G Cli- mate Solutions strategy. “We are using up our resources of arable land, fresh water and vital minerals – including those that are needed for green infrastructure, such as nickel and cobalt. Therefore, it is in everyone’s interest to keep these systems going through a closed loop system, which means we design out waste as much as we can by constantly re-using the resources we have already extracted. We need to do this before scarcity and emissions become even bigger issues.” Currently, circularity on the vast sphere that we call our planet stands at 8.6%, according to the Circularity Gap Report 2022¹, and doubling this globally could reduce global emissions by 39% as well as slashing total material footprint by 28% by 2032. So, without the need to ostensibly create anything new, how can investors ensure that everything in the system stays for as long as it can and be used more efficiently? Here are three ways to help de-couple eco- nomic growth and natural resource con- sumption while driving greater competi- tiveness in what is a limited window of opportunity to move towards and operate within a 1.5-degree heated world by the year 2100.
1. Incentivising behavioural change through regulation Regulation, education and incentivisation go hand-in-hand to foster wholesale change in the right direction – particularly amongst individuals who will need to change their daily patterns of behaviour and consumption to help reduce waste and emissions.
In 2015, the UK government introduced a 5p charge on plastic carrier bags in Eng- land in order to tackle plastic pollution. “Lo and behold the purchase of those
40 | portfolio institutional | June 2022 | issue 114
PI Partnership – M&G Investment
bags fell by 95% – now that’s incentivisa- tion,” Somel says. When contextualised at an individual level, the average household has slashed its consumption of single-use plastic bags from 140 per year pre-2015 to just four today². Going a step further, last year the UK gov- ernment increased the charge on plastic bags in England to 10p, extended it to all retailers and anticipates the use of single- use plastic bags to decrease by 70% to 80% among small and medium-sized businesses. “We need to reduce the amount of waste that an organisation, country or individual produces and say: ‘This is neither accept- able or necessary, and lets find a way to price for all the externalities caused.’ So, you have a disincentive, effectively, and at the same time you need to incentivise the companies that do use that closed-loop method over that linear method,” Somel adds.
2. New technologies closing the loop New technologies bring the opportunity to take a previously linear – and therefore, wasteful – model and close the loop, boosted by incentivisation and regulation. For example, in 2020 the UK government announced³ that the sale of new internal combustion engine vehicles will be illegal from 2030 and hybrids from 2035 (regu- lation) with grants available for home- owners, businesses and local authorities to install charging points (incentivisa- tion). But in addition to incentivisation and regulation, how is the manufacturing
Regulation, education and incentivisation go hand-in-hand to foster wholesale change in the right direction
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