Increasing resource use is the main driver of a triple planetary crisis: climate change, biodiversity loss and pollution. Unfortunately, we as humans have failed to manage our global portfolio of assets sustainably. Estimates show that between 1992 and 2014, produced capital per person doubled, and human capital per person increased by about 13% globally; but that the stock of natural capital per person declined by nearly 40%.¹ We have been taking Nature for granted, and while humanity has prospered immensely in recent decades, the ways in which we have achieved such prosperity means that it has come at a devastating cost to nature and the environment. The main reason for such destruction has been our consumption patterns which today are characterised by a ‘buy and discard’ mentality.
Between 2000 and 2022, increasing affluence became the single largest driver of the growth of global resource use, followed by population increase. While technology previously served to decrease resource use in all seven regions across the world, it has now driven increases in two regions. If historical trends continue, global resource use would grow by 60% from 2020 levels by 2060, contrary to the target of reducing global material resource consumption by more than half by 2050.
In today’s world, our society relies on non-renewable resources, yet yearly, we directly waste or mismanage much of it.
Estimates of our total impact on Nature suggest that we would require 1.6 Earths to maintain the world’s current living standards. Given the lack of resources, and the growing population, the only way forward is to start living sustainably and for the circular economy, with the concept of ‘reduce, reuse and recycle’ to become the global standard.
In addition to these principles, products and their materials must be kept in circulation at their highest value for as long as possible.
The solution – a circular economy
A circular economy is a system where materials never become waste and nature is regenerated. In a circular economy, products and materials are kept in circulation through processes like maintenance, reuse, refurbishment, remanufacture, recycling, and composting.
The circular economy is based on three key principles:
- Eliminate waste and pollution: Our economy currently works in a ‘take-make-waste’ system. To change from a linear supply chain to a circular one, we need to start with changing the design of products such that we can reduce waste in the production process and the products can be reused and recycled.
- Circulate products and materials by keeping materials in use for as long as possible: There are two cycles to keep products in use: the technical cycle and the biological cycle. In the technical cycle, products are reused, repaired, remanufactured, and recycled. In the biological cycle, biodegradable materials are returned to the earth through processes like composting and anaerobic digestion.
- Regenerate nature: By shifting from a linear to a circular economy, we can start building natural capital rather than degrading nature. For example, regenerative agriculture allows nature to rebuild soil nutrients and increase biodiversity by returning biological materials to the earth. Currently, most of these materials are lost after use and the land used to grow them is depleted of nutrients.
In addition to these principles, products and their materials must be kept in circulation at their highest value for as long as possible. ‘Closing the loop’ is done in two stages: recovering and retaining the value of the materials and components from waste products, and then using them to make new products. This displaces the sourcing of virgin, non-renewable materials that otherwise would have been used and reduces the consequential environmental impacts of extracting these materials.
Longer use of products is another key aspect of the circular economy, as it slows down the material circulation. Extending the product life defers the need to replace the product and therefore reduces the need for additional resources. It also reduces total emissions that come with the manufacturing process in the period by reducing the amount of production.
The regulatory requirement – why business needs to act
Given the visible consequences of our unsustainable living patterns and a ‘business as usual’ corporate mentality, policy makers globally have started to introduce ambitious regulation, with the EU leading the way. Below we have highlighted some of the examples of regulation that promote a circular economy.
- The EU Circular Economy Action Plan was first adopted in 2015 and amended in 2020 to align with the objectives of the EU Green Deal. The Action Plan has three goals:
- Preventing resource scarcity and reducing Europe’s reliance on imported raw materials.
- Reducing the region’s environmental impacts and meeting its Climate Neutrality target.
- Creating new economic opportunities and improving the region’s competitiveness. The main legislations already adopted under the Action Plan include the Waste Framework Directive, which introduced the first Extended Producer Responsibility (EPR) framework and recycling targets, and the Single Use Plastics Directive, which banned the 10 most commonly found single-use plastic items on European beaches.
- The EU’s Packaging and Packaging Waste Regulation is the most ambitious regulation on packaging globally with the following key measures and targets:
- 90% of beverage packaging (including plastic bottles and aluminium cans) to be collected separately by 2029,
- Mandatory deposit return schemes (already in place in 15 EU countries),
- A standardized calculation of recycling rates across the EU, which better accounts for losses that could arise during waste collection and sorting. The region’s recycling targets have been maintained to 50% by 2026 and 55% by 2030.
- All plastic packaging to be recyclable by 2030.
- 10% of packaging for both alcohol and non-alcohol beverage (excluding wine, spirits, and milk) to be made available in reusable packaging by 2030, increasing to 40% by 2040,
- 30% of recycled content in non-food and some food-grade plastic packaging by 2030 and 65% by 2040. The target is significantly lower for food packaging other than PET at 10%.
Our investment approach
All of these regulations will have both positive and negative investment applications, and, as part of our investment process, we focus on finding companies that will benefit from the trends outlined above. As such, incorporating the principles of a circular economy to investment implications, we see opportunities across many industries. At each stage of a product’s life cycle, there are opportunities for businesses to incorporate circular economy principles to improve efficiency, reduce waste, and capture new markets.
Opportunities can range from using renewable energy sources and environmentally friendly materials, from reducing waste in the manufacturing processes to improving efficiency at the distribution stage, from lengthening products’ lifetime through rental, repair and resale to managing waste and turning waste into renewable products.
Biodiversity Equity Annual Report 2024
Share:
1 Royal Society: The Economics of Biodiversity: The Dasgupta Review, 2 February 2021.
BD015294
