ESG Club


CAN WE REVERSE THE ‘TAKE- MAKE-DISPOSE’ CULTURE TO REACH NET-ZERO GOALS?


Global recycling day in March was a timely reminder of how Covid 19 exposed the many failures of a linear ‘take-make-dispose’ use of resources and highlighted the need for a more cir- cular ‘reduce-redesign-reuse’ approach for many stakeholders including investors.


Recent research from the University of Warwick concluded that a circular economy could help the world recover from the pandemic, while also helping nations reach net-zero carbon emissions goals.


As things stand today, it would take 1.6 Earths to produce all the renewable resources used by humans, and this is set to rise to the equivalent of two Earths- worth of renewable resources a year by 2050. Simply put, this is not a sustainable path for the planet’s future.


If there is one upside of any kind that has arisen from the pandemic, it is that it motivates the world to fundamentally re- think societal, business and economic growth models: to avoid waste and seek innovative, less wasteful opportunities. The linear economic model is just no longer viable. A circular model of produc- tion and consumption is needed, one that focuses on extending the life of products, reducing and reusing waste, and leasing and sharing goods and services. At the 2020 World Economic Forum, it was estimated that there is some $4.5trn (£3.4trn) of value potential in the circular economy. The Ellen MacArthur Founda- tion, which works to speed up the transi- tion to a circular economy, believes that,


post-Covid, “the circular economy, as an instrument to decouple economic growth from resource use and environmental impact, opens up the way for a resilient recovery”.


The foundation recently set out 10 circu- lar investment opportunities across five key sectors: – The built environment: Renovation and upgrade of buildings; building materials reuse and recycling infrastructure


– Food: Tools enabling farmers to shift to regenerative agricultural production; food surplus and by-product redistri- bution and valorisation infrastructure


– Plastic packaging: Innovative reuse business models; plastic recycling infrastructure


– Fashion: Rental and resale clothing business model; clothing recycling infrastructure


– Mobility: Shared vehicle systems; low- carbon and resilient transport infrastructure


Companies can also boost their resilience against future pandemics by using dis- ruptive digital technologies or smart man- ufacturing tools. Big data, for example, can help streamline supplier selection processes. Cloud computing can be used to facilitate and manage supplier relation- ships. Logistics and shipping processes can be improved through automation and the internet of things. Circular economy – Ways to close the gap There are numerous ways for investors to play a role, for example, by: – Supporting circular economy pure players,


– Considering green bonds and sustain- ability-linked loans integrating circular economy performance indicators and targets


PI Partnership – BNP Paribas Asset Management


– Supporting product-as-a-service approaches and ways to optimise prod- uct end-of-life, for example, for infor- mation technology equipment.


Companies themselves have begun think- ing circular, too. – A leading US sporting goods maker has committed to doubling its busi- ness with half the impact. It fights waste through more efficient design and manufacturing technologies.


– Another has an IT equipment recovery unit


that processes nearly 30,000


devices a week. More than 99% of the end-of-life equipment and product waste returned is reused or recycled.


– A large earthmover maker operates remanufacturing and rebuild pro- grammes, reducing waste and mini- mising the need for raw materials for new parts.


Diversification potential for investors Such companies would qualify for a circu- lar economy index. The ECPI Circular Economy Leaders Equity index, a euro-de- nominated gauge of 50 major companies, is one point of access for investors inter- ested in this approach.


A tracker on the index includes compa- nies in five categories – circular supplies, resource recovery, product life extension, sharing platforms and product as a ser- vice. The variety of sectors covered allows for portfolio diversification benefits and participation


in a broad future-proof


growth trend. The circular economy is about ways of producing and consuming that concern all stakeholders in society. Companies that understand these challenges and implemented the necessary changes should have a sustainable competitive advantage, making them worth investors’ consideration.


BNP PARIBAS ASSET MANAGEMENT UK Limited, “the investment company”, is authorised and regulated by the Financial Conduct Authority. Registered in England No: 02474627, registered office: 5 Aldermanbury Square, London, England, EC2V 7BP, United King- dom. www.bnpparibas-am.co.uk This article is issued by the investment company. Investors considering subscribing for the financial instruments should read the most recent prospectus or Key Investor Information Document (KIID) available on the website. Opinions included in this article constitute the judgement of the investment company at the time specified and may be subject to change without notice. This article does not constitute or form part of an offer or invitation to subscribe for, underwrite or purchase an interest in any strategy. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial investment. Past performance is not a guide to future performance.


30 | portfolio institutional | May 2022 | issue 113


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