Strategy investing for circularity

Until now, sustainable development policies have been implemented to limit the environmental and social impact of the production process,

Rather than questioning the entire production schema, which is linear by nature. Commodities are extracted, transformed, consumed and eventually destroyed.

However, over the past few years, this schema has been brought radically into question. Indeed, it assumes that, to be sustainable, commodities are unlimited … but it is now clear that commodities are becoming scarcer. Even those which are considered unlimited, like water for example, are fragile and under threat.

This shared observation triggers a variety of responses. Thoughts of reversing growth, frugality and sobriety flourish, out of the collective anguish regarding the depletion of resources. These solutions call into question the fundamental basis of our economic and social model.

The circular economy is more pragmatic, based on the simple observation that the linear production process eliminates, at the end of the supply chain, rare and precious commodities. 57% of waste is thrown away or incinerated in the European Union. In order to resolve the question of the depletion of resources, commodities which are currently destroyed on a massive scale must be reinjected into the production process. To do so, waste must be used as much as possible for new production, while the lifecycle of products must be extended and the dismantling of goods must be facilitated for recycling.
This approach can be applied practically throughout the entire production chain, by promoting maintenance and repair services to limit the replacement of goods and extend their lifecycle. A second-hand market must be developed, so that goods which are replaced, but still in working order, can have a second life. Manufacturers must be encouraged to implement reconditioning procedures for obsolete products to be recycled into the market. The circular economy also promotes the possibility of recycling product components.
The systematic adoption of recuperation, extension or “refurbishment” measures mechanically reduces initial resource extraction and therefore consumes less energy. Above all, it establishes recycling circuits at the local level and even develops new district services which create specialised circular-economy jobs. These professions may require highly specific craft skills (engineers, electricians, IT) or lesser qualified professionals. Some forecasts predict the potential creation of 2 million jobs in Europe by 2035.
The necessary adjustment implied for companies must not be underestimated. They must partially revise their production processes, for example by pre-programming reconditioning techniques and recyclable components, starting at the assembly line (eco-design). They must also create an environment which promotes the circular economy. When one production unit’s waste can become another factory’s commodity, upstream logistical and economic circuits must be put in place to facilitate the exchange of resources.
David Czupryna
Senior Portfolio Manager
Bastien Dublanc
Senior Portfolio Manager
  • EN
    Investing for a circular future
  • FR
    Investir pour un avenir circulaire
  • DE
    Investieren für eine zirkuläre Zukunft
  • IT
    Investire per un futuro circolare
  • NL
    Onze planeet opnieuw voeden
  • ES
    La gestión de los recursos de nuestro planeta

Regulatory incitement is therefore a key factor in advancing towards a circular economy.

The European Union has set an objective to reduce CO2 by 500 million tonnes by 2035 thanks to the circular economy, involving recycling 65% of municipal waste and 75% of packaging waste. The recent ban on plastic bags is a step in this direction. The constraint factor is nonetheless keenly felt by both producers and consumers.

Investor input can therefore accelerate the process significantly. It is up to investors to apply investment criteria based on the implementation of a circular economy. These criteria draw on corporate policy, for example, whether the company plans to improve its maintenance services, or is specialised in the second-hand market (like eBay) or sells reconditioned products (like Dell, HP, Philips) or recycled products (Umicor).

These criteria also draw on internal processes.

For example, does the company use recycled materials or does it optimise energy usage? What part – if any – of its R&D budget is spent on eco-design (like Google’s ARA project)? Is waste used to develop new products, such as within agricultural businesses?

The circular economy is no fiction.
It is based on rational initiatives and organised measures. Above all, the circular economy gives a new meaning to the notion of cooperation and convergence between players who are otherwise too often mistrustful of one another. Private investors, companies, public authorities and citizens must find new ways of understanding and managing their long-term relationship with the economy, production, growth and redistribution.

The modern-day world is facing a major challenge, and it can only be met by applying collective intelligence and all-round cooperation. 

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