Circular economy. The traditional production model of the throwaway society is reaching its limits in a world of scarce resources and increasing environmental damage. The transition to an economy that consistently recycles resources can offer a way out. The experts at Robeco have made this an exciting investment theme.
Since the 1950s, more than eight billion tonnes of plastic have been produced worldwide. 79 per cent of this ended up in landfills or in the environment. More than five trillion pieces of plastic are floating in the oceans today. "If we continue like this, by 2050 there will be more plastic pieces in the world's oceans by weight than fish," informs Stefanie Rath, product specialist at Robeco, asking, "Do we really want that?"
The plastic example is a particularly striking illustration of the problems the world will face in the coming years. "Every year we consume 1.6 times the available resources that the Blue Planet currently yields. And if every person consumed as much as the average US citizen, we would even need five Earths," says Rath.
It is already intuitively obvious that this cannot work. And it gets worse. "What happens if the number of people belonging to the affluent global middle class increases from 3.5 billion in 2017 to 5.3 billion in 2030, as projected by the European Commission?" the expert asks.
"The traditional linear approach of take, make and dispose has no future," concludes Stefanie Rath. "On the one hand, we have increasing resource scarcity, on the other hand, the gigantic waste problem. That's why we need a new industrial principle. And that can only be the circular economy."
The basic idea is to use resources for as long as possible and to recycle them again and again to get the maximum benefit from them. "There are calculations according to which we could do without an annual extraction volume of seven billion tonnes of fuels, minerals and biomass by 2030 by increasing circular value creation from the current nine to 15 percent," informs Stefanie Rath.
Slowly but surely, these findings are filtering through to consumers. "It is encouraging to see how many people around the world are taking part in 'Fridays for Future' events, that sales of organic food reached a new record high in this country last year, or how many people are paying attention to not buying plastic or eating less meat," Rath judges. At the same time, politics is exerting pressure. Regulations such as the EU-wide ban on the production of single-use plastic, which comes into force on 1 July this year, clearly show the direction in which things are heading. "Away from the throwaway society. Towards increased use of renewable raw materials and recycling."
This, according to calculations by Robeco and Accenture, creates huge economic potential. Overall, the experts say, a $4.5 trillion global market could be tapped through the transition to a circular economy with more recycling or by redesigning products. For companies active in such an area, this offers enormous opportunities.
To ensure that investors can also benefit, the experts at Robeco have packed four different approaches into one fund - Re-Design, Enabling Technologies, Circular Use and Circular Resources.
"First and most important, because this determines about 80 percent of the environmental impact, is the design phase, which we call Re-Design Input," explains the product specialist. This is about paying attention to the resources used and their recyclability or biodegradability as early as the design stage of a product. A fitting example is a supplier of high-quality wood alternatives for decking boards. The company uses waste - recycled wood and used plastic sheeting - to generate a new product that has a long life and is comparatively cheap.
The second investment area is enabling technologies. "Companies from the IT sector use digitalisation to connect and optimise the entire value and supply chain. In this way, it can be achieved, for example, that less food spoils or the return rate for online orders decreases. As a consequence, the amount of unsaleable stock in the retail sector decreases and the amount of waste going to landfill decreases."
There is also the issue of the sharing economy and circular use. "Circular use can be well demonstrated in the clothing sector. Especially among young people, we see a clear trend towards durable clothing, very good quality and also second-hand items." This is a disruptive development for the fashion industry, which has so far been characterised by strong seasonality and fast fashion. For example, there are more and more manufacturers of outdoor clothing who do without harmful chemicals and pay attention to the particularly long life of their products.
The approach in the fourth area - circular resources - is to recycle all components of a product in some form. More and more medical technology companies, for example, are increasingly taking back equipment such as scanners for computer tomography at the end of their service life and making them fully functional again. The buyers get the restored devices at a lower price, so new customer groups can be tapped who would not be able to afford a new device. "Given the change in consumer consciousness and increasing regulations, the shares of companies that use our resources responsibly should outperform the market in the long term." ®
// How to invest - in the Circular Economy.
One way to invest specifically in the circular economy is through the RobecoSAM Circular Economy Equities fund. "In the first step, we screen the investment universe for companies that fit one of the themes Re-Design, Enabling Technologies, Circular Use and Circular Resources. In addition, we apply exclusion criteria and our sustainability criteria," explains Stefanie Rath. In addition, there is a quantitative analysis that includes the company's market position, competitive position, balance sheet strength, profitability and valuation. This results in a broadly diversified portfolio of 40 to 80 stocks. Since its launch in January 2020, the fund has generated a return of 23% per annum after fund costs (in EUR, D share class) and has clearly outperformed the MSCI World benchmark index. (as of 31.03.2021)
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