THE three Rs of sustainability – reduce, reuse and recycle – are well known and almost a cliche. But the principle behind this mantra underpins the concept of “circular economy’’, which has gained in urgency.
Mariam Ashroff, head of sustainability Asia for LGT Private Banking Asia Pacific, says the concept is “quite complex’’. “What will drive this is scarcity in resources, the necessity to change, as well as government policy and consumer awareness.’’
A circular economy is a model where economies are “restorative and regenerative by intention and design’’, according to LGT. This means the value of products and resources is to be preserved and the amount of waste minimised.
Today world economies are linear in the way resources are used as inputs for production. Products are used and then disposed of, creating huge amounts of waste and posing an enormous strain on already scarce resources.
The Earth Overshoot Day, calculated by the Global Footprint Network, illustrates the unsustainability of the status quo. It marks the date when humanity’s demand for resources and services in a given year exceeds what the earth can generate that year. In 2023, the Earth Overshoot Day falls on Aug 2, an apparent flattening of the trend over the past five years. But the overshoot reduction rate is still far too slow, says the Global Footprint Network.
To reach the UN’s target of reducing carbon emissions by 43 per cent worldwide by 2030 compared to 2010, requires moving Earth Overshoot Day by 19 days annually for the next seven years.
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The Global Circularity Report, produced by an impact organisation Circle Economy and Deloitte, finds that only 7.2 per cent of the global economy is circular, and the trend is deteriorating. The report’s first edition in 2018 put the share of global circularity at 9.1 per cent, falling to 8.6 per cent in 2020.
Ashroff says circular economy as a framework for economies is in its infancy and “niche’’. “What circular economy champions is to intentionally design an economic system that’s regenerative. A product is intentionally produced to maximise its lifespan. Users are afforded the ability to repair and extend the lifetime of a product.
“There’s also an end-of-life plan for that product or material so that it comes back into the economy and can be used instead of being left in a landfill, which is where most products end up.’’
The concept, however, is complex to implement. “There’s no one-size-fits-all solution. We have to completely redesign some of the ways we manufacture products or some of the materials we use. You also may need to completely change consumer behaviour, which is very difficult to do, especially in our current consumption culture.
“What will also drive this is policy. The average consumer is not incentivised to put a material back because they don’t benefit from it. Manufacturers are more incentivised, because they can reclaim raw materials for their production.’’
Stefan Hofer, the bank’s chief investment strategist, says the circular economy model is likely to become the new normal. For companies it makes economic sense.
“If you are more efficient in terms of reusing your inputs, that generates returns on their own… There is a preliminary estimate that by 2030, if you really embrace circular economy initiatives, you could generate about upwards of US$5 trillion of extra global GDP. While this is a very macro concept now, the benefits should filter down into the performance of financial markets.’’
Ashroff notes three main areas of focus that are likely to become apparent. One is a circular supply model for companies, focusing on the efficient use of resources. “This ensures that companies sustainably reduce the demand for virgin materials.’’
A second focus is in the functional economy. “You could extend a product’s lifespan – electronics, for example, such that it’s designed to be repaired. A product can be designed so that it can be refilled or used infinitely.’’ The third facet is the sharing economy, such as car-share services.
Hofer says as the circular economy framework is niche, there is no “carve out’’ that would make a clear-cut investment case when reviewing companies or industries. But the urgency would raise the ante on efficient use of resources by industries and by companies.
“If two-thirds of greenhouse gases are coming from the linear process of production and consumption, then it’s urgent to push forward the principles of the circular economy to bring emissions down as fast as possible. That’s a very concrete objective, embedded in the whole sustainability exercise. Companies which are more efficient in reusing their production inputs, would generate returns for investors.
“A circular approach will become the default because companies will run out of material and resources are finite. Businesses will have to get creative about how they address waste; businesses might have to be redesigned.’’
He’s on the lookout for companies at the forefront of efficiency gains. “That’s quite exciting because they’re probably doing some very innovative things, and it’s not inconsistent with a profit motive.’’
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