Recent research from the University of Warwick has concluded that a circular economy could help the world recover from the pandemic, while helping nations achieve net zero carbon emissions targets.

As it stands, it would take 1.6 Earths to produce all of the renewable resources used by humans, and this is expected to reach the equivalent of two Earths of renewable resources per year by 2050. Simply put, it is not a lasting solution. path for the future of the planet.

If there is one benefit of any kind that has emerged from the pandemic, it is that it is motivating the world to fundamentally rethink models of societal, business and economic growth: avoiding waste and seeking innovative opportunities and less expensive.

The linear business model is simply no longer viable. A circular model of production and consumption is needed, which focuses on extending the life of products, reducing and reusing waste, and renting and sharing goods and services (see illustration 1).

Exhibit 1: Five circular business models

Business models identified by Accenture in its analysis of over 120 business case studies that are improving resource productivity in innovative ways. Source: Accenture, ECPI, BNP Paribas Asset Management; as of 04/30/2019. For illustrative purposes only.

$4.5 trillion up for grabs

At the 2020 World Economic Forum, it was estimated that there is some $4.5 trillion of potential value in the circular economy.

The Ellen MacArthur Foundation, which works to accelerate the transition to a circular economy, believes that, post-Covid, “the circular economy, as an instrument to decouple economic growth from resource use and impact environment, paves the way for a resilient economy. recovery.”

The foundation recently defined 10 circular investment opportunities in five key sectors:

• The built environment: Renovation and upgrading of buildings; infrastructures for the reuse and recycling of building materials
• Food: tools for farmers to shift to regenerative agricultural production; infrastructure for the redistribution and enhancement of food surpluses and by-products
• Plastic wrap: Innovative business models for reuse; plastic recycling infrastructure
• Fashion: Business model for renting and reselling clothes; clothing recycling infrastructure
• Mobility: Shared vehicle systems; low-carbon and resilient transport infrastructure

Businesses can also build resilience to future pandemics by using disruptive digital technologies or smart manufacturing tools. Big Data, for example, can help streamline vendor selection processes. Cloud computing can be used to facilitate and manage vendor relationships. Logistics and shipping processes can be improved through automation and the Internet of Things.

Circular Economy – Ways to Close the Gap

There are many ways for investors to play a role, for example by:

• Support pure players in the circular economy, whether large companies or start-ups
• Consider green bonds and sustainability-linked loans incorporating circular economy performance indicators and targets
• Support product-as-a-service approaches and ways to optimize end-of-life products, for example, for information technology equipment.

Companies themselves have also started to think circular.

• A major US sporting goods manufacturer has pledged to double its business with half the impact. It fights waste through more efficient design and manufacturing technologies.
• Another has an IT equipment recovery unit that handles nearly 30,000 devices a week. More than 99% of returned waste equipment and end-of-life products are reused or recycled.
• A large civil engineering builder runs refurbishment and rebuild programs, reducing waste and minimizing the need for raw materials for new parts.

Diversification potential for investors

These companies would be eligible for a circular economy index. The ECPI Circular Economy Leaders Equity index, a gauge in euros of 50 large companies, is an access point for investors interested in this approach.

A tracker on the index includes companies in five categories – circular supplies, resource recovery, product life extension, sharing platforms and product as a service. The variety of sectors covered makes it possible to diversify the portfolio and participate in a broad growth trend that stands the test of time.

The circular economy concerns modes of production and consumption that concern all actors in society. Companies that have understood these challenges and implemented the necessary changes should have a sustainable competitive advantage, making them worthy of consideration for investors.

Warning

All opinions expressed herein are those of the author as of the date of publication, are based on available information and are subject to change without notice. Individual portfolio management teams may have different views and make different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income from them can go down as well as up and investors may not get back their initial investment. Past performance does not guarantee future returns.

Investing in emerging markets, or in specialized or restricted sectors is likely to be subject to above average volatility due to a high degree of concentration, greater uncertainty as less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

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