Sustainability

Circular economy: strategy to combat climate change

Circularity: what is that exactly? With circularity, today's products are the raw materials for tomorrow. The circular economy is one of the solutions to climate problems, both ecologically and economically. And at the same time a challenge to us all.

 

03/06/2021 – Judith Sanders

Our global economic system is built on a linear model: we extract natural resources to make products. These are used for a relatively short time and then thrown away. We owe our economic growth and prosperity of the last two hundred years to this. But the earth's ecosystems are suffering under this system. The extraction of resources and their processing into materials, fuels and food account for about half of total global greenhouse gas emissions, cause water scarcity and over 90% of biodiversity loss.1

In a circular economy, further increasing environmental damage can be limited, as can raw material scarcity. This is offset by higher labour and production costs. It costs companies time and money to start producing differently. And demand may decline as the lifespan of circular products increases. A new method to bind customers to a company for a longer period of time seems to have been found in 'products as a service'. This involves offering products and matching services via a subscription model, for example.

From product to new product

More and more companies are incorporating circularity into their business models and reusing raw materials. One example is the Norwegian company Tomra, known for its packaging machines that make it possible to reuse valuable raw materials from plastic bottles. Tomra is also a co-developer of steam peelers, which peel potatoes extremely efficiently. This increases the product yield, while energy and water consumption is significantly reduced.

Sports brand Adidas also participates, with the Futurecraft running shoe. This shoe is designed with recycling in mind. Only one type of material (TPU) and no glue is used, which makes recycling easy. At the end of the usage cycle, the parts are processed into 'pellets': granules that are used to make a new shoe. It is the first step in the company's broader strategy to use only recycled polyester in all products by 2024.

Another positive development is the increase in sales of second-hand clothing and products. The auction site eBay now generates around 20% of its turnover from the sale of used articles. The company wants to avoid three million tonnes of CO₂ emissions between 2020 and 2025.

The fact that the development towards circularity is being taken up sector-wide is proven by the former Philips Lighting, now Signify. With its Brighter Lives, Better World programme, the company is focusing on sustainable consumption, reuse and the elimination of waste. One example is recyclable 3D-printed luminaires, which reduce the ecological footprint of lighting by 47%.2

Demand for circularity is increasing

Companies that save and recycle raw materials are more resistant to scarcity of raw materials and subsequent high prices. We also see that a good sustainability policy makes brands more attractive. In the Global Consumer Insights Pulse Survey by consultancy PWC, 29% of respondents said they buy brands that promote sustainability.3 Millennials in particular make decisions based on sustainable and environmentally responsible considerations. Research by Kantar Consulting shows that brands with 'purpose', or meaning and long-term goals, have increased the valuation of their products by 175% over the past 12 years. This compared to a growth rate of 70% for brands with a low sense of purpose.4

Although circularity is still in its infancy, the attention and demand is growing. In short, it is a development to keep an eye on. And perhaps the answer to the many questions that lie on the path to a sustainable world.

Judith Sanders — Investment strategist

1 Source: UNEP (2019), Global Resources Outlook 2019
2 Source: Signify Infographic 
3 Source: PwC’s March 2021 Global Consumer Insights Pulse Survey
4 Source: Engage for Good

Image Lansink's Ladder

In the late 1970s, politician Ad Lansink stated that the best way to make progress is to compile a hierarchy of options in the production of goods and services. Whereby the best option is to reduce or even avoid the use of physical resources altogether. Reuse is the best option, followed by recycling, recovery and finally landfill.

 

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The risks associated with investments

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