Circular economy gives us an opportunity to mitigate climate change and piling up mountains of waste for which we are currently responsible. We show you how this is possible and how you can benefit from circularity.
In many discussions about climate change, the term "circular economy" or the call for more “circularity” comes up, followed by the argument that we absolutely need it to save our planet.
Funny enough, these terms are seldom properly defined. 🤔
So, let's change that!
Today, we want to clarify: Why do we even need a circular economy? What exactly is it? And finally, we will show you how you can profit from the trend towards circularity through investing.
1. We are responsible for the leakage of at least 8 million tonnes of plastics into the ocean every year – which is equivalent to dumping the contents of one garbage truck into the ocean every minute. If we continue the way we are currently going, we will have more plastic than fish in our oceans by 2050.
2. Currently, we live mostly in a linear economy and consume according to the take-make-use-dispose principle. That means that when we're done with a product, we just throw it away. And that's exactly what the Circular Economy is trying to change and what we as consumers should be mitigating.
3. Through various principles, such as the redesigning of products, new technologies and the sharing economy, we can save fossil fuels, metals, minerals and reduce biomass extraction each year. Therefore, the circular economy represents a 4.5 trillion USD opportunity by 2030.
We are drowning in plastic.
Yep - literally drowning.
In fact, already in 2015, we were responsible for the leakage of at least 8 million tonnes of plastics into the ocean per year – which is equivalent to dumping the contents of one garbage truck into the ocean every minute. Just think about what this figure would look like with today's numbers… This also means that 32% of the 78 million tons of plastic packaging produced annually is simply sent into our oceans.
(What is recycling again?🧐)
Furthermore, if no action is taken, due to the continuous rise in plastic production and consumption, this is expected to increase to two garbage trucks per minute by 2030 and four per minute by 2050. This means, with business as usual, that in our oceans there will be more plastic than fish in a few years. Can you imagine that?
As if that were not bad enough, plastic not only contributes to the damage of oceans and animals and enters our food chain, but also causes climate change because it is derived from raw materials such as crude oil, natural gas or coal. These materials have to be transformed using heat and chemical processes (such as “cracking”) to turn them into plastic as we know it. And exactly this process is responsible for the release of toxic emissions into the air.
“But we use so much recycled plastic, it can’t be that bad!”, you might think now.
And if you see a lot of marketing from big companies, it’s easy to see why you would think so. After all, every company is suddenly super sustainableand environmentally friendly. So, is there even anyone who still produces new plastic?
The short answer is yes (you might have guessed it).
The World Economic Forum took a closer look at these claims and came to the conclusion that only 2% of all the plastic we use is actually recycled plastic.
So, to conclude, the situation we are in right now is not really ideal.
In fact, emissions from plastic production have doubled since 1995, reaching two billion gigatons of Co2e in 2015. This means that plastic is responsible for 4.5% of global emissions.
If you look at the geographical distribution of this mass production of packaging, you might think at first glance that it is more the developing countries that are driving the plastic madness. After all, China's production has more than tripled since 1995, and South Africa's has even increased tenfold.
However, that would be fairly short-sighted and although developing countries produce a lot of plastic, the people benefiting from it are often others.
In 2015, 85% of the employees required for plastics consumed by the European Union and the United States were employed abroad - often in coal-heavy countries like South Africa and China. However, 80% of the related value added was generated in Europe and the United States.
So - not only an environmental problem but also a social problem. Great.
As you can see, the plastic problem is quite severe.
But let's take a step back for a moment.
What you just saw with plastic can be applied to an extremely large number of processes and products in our economy - kitchen appliances, clothing, cell phones, you name it - everything is thrown away after use and ends up in a landfill or incinerator.
Because of this pattern - extraction of materials, followed by the production of a product, use of said product and the disposal - the economy we live in today is called a "linear economy".
Every product has a specific, linear life span - from production to disposal.
And that is precisely the problem.
The basic idea to solve our current problems with the help of a circular economy can already be seen in the name: "circular".
Instead of living in a linear economy, it is necessary to move to more circularity.
If we come back to the plastic example, this would mean that instead of today's take-make-use-dispose principle, we would rather move towards a take-make-use-use-...use (you get the idea) process. The throwaway part would be eliminated as long as possible, which means that circular economy goes even further than “just” recycling.
As you can probably imagine, such a switch of the whole economy is not that easy and requires producers, recyclers, governments and consumers alike to work together.
And even if the circular economy means work for us in the next few years, we still won't get around it.
According to the EU Circularity Gap report from 2018, only 9.1% of all goods are used in a circular economy today (i.e. they are not just thrown away after use). That is simply too little.
The remaining 90.9% represent the "circularity gap" and thus a lot of work but also a lot of potential for innovation.
Now that you know the core idea of the circular economy - moving away from throwing away and towards extending the product life cycle - let's take a look at how exactly we can accelerate this process by looking at various components of products.
A circular economy challenges us to consider waste and pollution as design flaws
ELLEN MACARTHUR FOUNDATION
1 - Redesigning inputs
For every product we manufacture we need inputs. For a mobile phone, for example, these are glass, rare metals and the like, for plastic packaging these inputs are currently virgin raw materials such as crude oil. Circular Economy challenges this process and calls for thinking about new inputs. For example, there is a company that produces zero waste packaging from seaweed - this is even edible if you like it. 😅 One example that you probably know is the replacement of plastic cups and packaging with paper alternatives. This is a very reasonable use of new inputs, since plastic takes up to 500 years to decompose, while paper can be decomposed in well under 1 year.
2 - Enabling technologies
Technology is another important point for achieving more circularity. This can be new technologies that make production more efficient and thus avoid waste, but also technologies that are used for the supply chain. Walmart, for example, started using blockchain technology for their supply chain a few years ago and was able to save a lot of waste. Another example is online retail - at least 30% of all e-commerce sales are returned and are thereafter often thrown away rather than reused. Smart supply chains and resale offers to customers can prevent a lot of waste and also a lot of transport.
3 - Circular use
Circular use can also mean different things. A widespread example are products of the sharing economy such as car sharing or bike sharing. These offerings lead to fewer people having to buy their own cars or bikes and thus to less production and less waste. In addition, all products are used very efficiently, as they do not sit around unused for hours. Another example are companies like Swappie, which resell used electrical devices (often cell phones). This extends the lifecycle of these products.
4 - Loop resources
Another core component of the sharing economy is to keep products "in the loop" for as long as possible, extending their lifespan and making them economically viable for as long as possible. This is achieved through regular maintenance, the use of intelligent sensors, but also through recycling and reuse of individual product components.
As you can see, there is a lot to do in the area of a circular economy and a lot of room for innovation. Companies that are already working on moving away from the linear economy or even actively working towards a circular economy can therefore benefit from this trend. By 2030, the circular economy transition therefore could be a USD 4.5 trillion opportunity.
This is also reinforced by the actions of governments - the EU for example set out in its Circular Economy Action Plan how our economy should become more circular through subsidies but also bans on some products or processes. Companies that are already involved in the circular economy will benefit rather than suffer from these new regulations.
At Cooler Future you can now invest in the RobecoSAM Circular Economy Equities Fund. This actively managed fund invests in companies that foster circular economy solutions through redesign of inputs, enhancing circular use, and applying innovative technologies to change production and consumption patterns, essentially saving resources.
So even with small investments you can be part of the switch to more circularity and do something good for our planet, but also for your bank account.
Cooler Future does not offer investment advice nor investment services of any kind. All figures, statistics and other data shown on the websites of Cooler Future, or any report published by Cooler Future, are for illustrative purposes only. Historical performance, simulations and forecasts are not reliable indicators of future performance.
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