Why reducing waste is a solid business opportunity
Why reducing waste is a solid business opportunity
Waste is choking our land and our oceans – but a growing number of companies are turning rubbish to riches
A global switch to circular economy tools and processes is creating a major opportunity for investors, according to experts. Moving to production and consumption models that minimise waste could deliver up to $4.5tn in economic benefits by 2030, according to the World Economic Forum1 And the move is not seen as a fad but rather a fundamental adjustment to economic conditions in the 21st century.
“The economic models we are working on were created in the 19th or 18th centuries, when resources were seen as completely unlimited and the world population was mostly below 1.5bn,” says Bénédicte Mougeot, Head of Climate Equity at HSBC Asset Management. “We are not fully conscious of the multiple pressure points arising from the scarcity of resources. This scarcity is linked to population growth and overconsumption, especially in developed countries. We have already started to exceed nature’s boundaries.”
One of the most visible signposts of the overuse of global resources is climate change, which is largely caused by the unsustainable extraction and use of fossil fuels. But excessive consumption is creating resource challenges in many other areas. This year, Earth Overshoot Day – the date at which humanity is estimated to have used up the ecological resources that the Earth can generate in a year – fell on 28 July, marking one of the fastest rates of depletion ever2 and signalling a growing waste problem worldwide.
[1] www.weforum.org/projects/circular-economy
[2] www.overshootday.org/newsroom/past-earth-overshoot-days
The challenge now is reducing the amount of waste we create, reusing what we can and recycling the rest
“We all know that as a society we are consuming more than ever before, which of course leads to more waste,” says Tim Duret, Director of Sustainable Technology for UK and Ireland at Veolia, a benchmark company for ecological transformation. “The challenge now is reducing the amount of waste we create, reusing what we can and recycling the rest.”
New business models
To address this challenge, companies and consumers need to break away from business models that reward consumption. However, adopting circular business practices already makes sound business sense on multiple levels. Foremost among these is consumer pressure. In the face of mounting levels of waste, environmental degradation and climate impacts, consumers are increasingly demanding products that can be produced and used in a sustainable way.
“Failing to address demand for circular practices is now risky for businesses and could have an impact on a brand’s reputation,” says Mougeot. Reflecting this growing concern for the environment, businesses also face increasing regulatory pressure to reduce waste and increase circularity. But some experts argue regulations could still go much further.
“In many countries, the sorting of municipal solid waste is not mandatory at the household level, resulting in a stream of mixed residues that is often not well processed, and ends up in landfills, open dumps or being burnt,” says Henrique Pacini, Economic Affairs Officer at the United Nations Conference on Trade and Development. “This results in a heavy and cumulative toll on the environment, and a missed opportunity in the form of various materials and components that could have a second life in the economy.”
Dwindling resources
Ultimately, some of the biggest drivers for the adoption of circularity could come from a simple evaluation of resource economics. Because they limit waste in all its forms, circular business practices are generally seen as being linked to greater efficiency, which can help improve margins and profits. A lack of recycling is also a problem for companies and countries that used to ship their waste abroad, typically to China.
“With the Basel, Rotterdam and Stockholm conventions controlling trade of sensitive wastes, as well as the import restrictions for scrap materials adopted by China and others since 2016, shipping waste elsewhere became a difficult option for helping offload municipal infrastructures,” Pacini says. “I expect trade in waste to mostly be in pre-processed, certified-recycled secondary materials which are near or at par with virgin-grade materials, but those need a great deal of recycling infrastructure and value-addition before hitting a port. It’s far better to reduce overall waste production per person, which is the premise of circularity.”
As demand grows for recycled materials, so does the investment in domestic reprocessing infrastructure
On top of this, there is growing awareness of the challenges associated with exploiting dwindling resources, at a time when significant amounts of raw materials are being tied up in post-consumer waste. The World Bank estimates more than 2bn tonnes of solid municipal waste is generated worldwide a year. 3Recovering most of this for use as raw material could help reduce waste and resource depletion in one go. With recycling rates in the UK currently at around 45 per cent, there is still much that can be done in this area, creating a significant opportunity for investors.
“As demand grows for recycled materials, so does the investment in domestic reprocessing infrastructure,” says Veolia’s Tim Duret. “Closing the gap quickly depends on maintaining investor confidence to build more, but the prize is that the economic benefits of an expanding circular economy will be delivered close to home.”
[3] datatopics.worldbank.org/what-a-waste/trends_in_solid_waste_management.html
For Professional Clients only and should not be distributed to or relied upon by Retail Clients.
The material contained herein is for information only and does not constitute legal, tax or investment advice or a recommendation to any reader of this material to buy or sell investments. You must not, therefore, rely on the content of this document when making any investment decisions.
This article is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. This article is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe to any investment.
This communication is based on information obtained from sources believed to be reliable but which have not been independently verified. HSBC Global Asset Management (UK) Limited and HSBC Group accept no responsibility as to its accuracy or completeness. Care has been taken to ensure the accuracy of this presentation but HSBC Global Asset Management (UK) Limited accepts no responsibility for any errors or omissions contained therein.
Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target.
HSBC GIF Global Equity Circular Economy is a sub-fund of the HSBC Global Investment Funds, a Luxembourg domiciled Société d'investissement à Capital Variable (SICAV). UK based investors in HSBC Global Investment Funds are advised that they may not be afforded some of the protections conveyed by the provisions of the Financial Services and Markets Act 2000. HSBC Global Investment Funds is recognised in the United Kingdom by the Financial Conduct Authority under section 264 of the Act. The shares in HSBC Global Investment Funds have not been and will not be offered for sale or sold in the United States of America, its territories or possessions and all areas subject to its jurisdiction, or to United States Persons. All applications are made on the basis of the current HSBC Global Investment Funds Prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most recent annual and semi-annual reports, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8 Canada Square, Canary Wharf, London, E14 5HQ. UK, or the local distributors. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case of retail clients, the information contained in the supporting SID.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Where overseas investments are held the rate of currency exchange may also cause the value of such investments to fluctuate. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Stock market investments should be viewed as a medium to long term investment and should be held for at least five years. Any performance information shown refers to the past and should not be seen as an indication of future returns.
HSBC GIF Global Sustainable Healthcare is an Article 8 fund. Detailed information for article 8 and 9 sustainable investment products, as categorised under the Sustainable Finance Disclosure Regulation (SFDR), including; description of the environmental or social characteristics or the sustainable investment objective; methodologies used to assess, measure and monitor the environmental or social characteristics and the impact of the selected sustainable investments and; objectives and benchmark information, can be found at: https://www.assetmanagement.hsbc.co.uk/en/intermediary/investment-expertise/sustainable-investments/sustainable-investment-product-offering.
www.assetmanagement.hsbc.co.uk
Copyright © HSBC Global Asset Management (UK) Limited 2022. All rights reserved.