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July 06, 2021 | GSAM Connect

Investing in the Green Economy

Circular Economy: Why It’s Not a "Waste" of Time

In this series, the Fundamental Equity Team shares their views and insights on how corporate innovation is driving the global transition to a more sustainable growth model.

Designing scalable solutions to make major parts of today’s economy circular and reusable will be crucial in meeting key emission targets. With 300 million tons of plastics, 50 million tons of electronic waste, and 33% of all food tossed away annually, we clearly have a waste problem on this planet. But we believe innovative companies and informed investors have the potential to make a change by turning trash into treasure.

Read on to get a better sense of the problem we face and what we can do about it.

 

With 300 million tons of plastics, 50 million tons of electronic waste, and 33% of all food tossed away annually1, it’s surprising that we find time to think about anything but trash. There’s no avoiding it: we have a waste problem on this planet. But we believe innovative companies and informed investors have the potential to help change that by turning trash into treasure.

Let’s take a closer look at the dirty truth to get a better sense of the problem we face. According to research first published in Nature on December 9, 2020, the amount of things humans have made from concrete, glass, metal, plastic, fabric, electronics, etc. is likely to exceed 1.1 trillion metric tons—the mass of all living things on earth.2  And due to increases in population, as well as the industrial and technology revolutions, the growth rate of anthropogenic product shows no sign of slowing.

For perspective, at the beginning of the 20th Century, total mass attributed to humans was approximately 3% of all global biomass, or 35 billion tons. In 2020, “global man-made stuff” was growing by 30 billion tons per year. That’s equivalent to every person on the planet creating more mass than his/her weight every week. With more stuff comes more garbage.

Size Matters–but So Does Income

According to the World Bank, there are 2.01 billion tons of municipal solid waste created annually. This implies that about 7% of everything we produce each year turns to garbage. When averaged across the world, this suggests that waste generated per person amounts to about 270kg annually. Not surprising, higher-income countries, while making up only about 16% of the global population, generate the most waste—34% of the world’s total.

The composition of waste also varies by income. Low-and middle-income countries produce more food and green waste (57% and 53%, respectively), while higher income countries produce roughly half of the “dry waste,” which includes waste that can be recycled, such as plastic, metal, glass, paper and cardboard. As Exhibit 1 shows, worldwide, a large chunk of waste, 37%, still winds up in landfills—and only 8% is placed in sanitary landfills with gas collection systems. Just 20% is reused through composting and recycling, while 11% is incinerated for final disposal. That means more than 30% ends up in open dumps.

 

Exhibit 1: Global Waste Composition and Treatment Methods

Source: World Bank. Numbers may not add to 100% due to rounding. As of 2018

 

What's more, a lot of waste ends up in oceans. Some scientists believe there could be more plastic than fish in the oceans by 2050.3 And based on worldwide economic trends, the annual global waste generated is expected to grow at more than double the rate of population growth, reaching 3.4 billion tons by 2050. High-income countries are expected to see a 19% increase in waste production, while lower and middle-income countries are estimated to see growth rates of 40% or more as their economies grow.

There is also a social justice issue at stake. While the overall trash and resulting greenhouse gas (GHG) can imperil the health and safety of all of us, young people and lower-income countries are likely to suffer the most. According to the World Bank, lower income populations are likely to see the most negative impacts from global garbage problems because adequate waste treatment and disposal technologies are almost exclusively the domain of high- and upper middle-income countries. Also, lower-income countries typically rely on open dumping; 93% of waste in low income countries compared to just 2% in high-income countries4.

 

Exhibit 2: Projected Waste Generation by Region

Source: World Bank. As of 2018

 

Circular Economy Solutions: Turning Trash into Cash

While the size of the waste problem on our planet is significant and growing, there’s hope for altering the current “take, make, waste” mindset—and it’s here that we think “circular economy” companies have an important role to play.

Take plastics, which represent about 12% of global waste but are among the largest causes of environmental pollution on earth, particularly in the world’s oceans. Compostable bioplastics can be used instead of plastics made from petrochemicals to produce a wide range of products, from straws, cups and bottles to shopping bags, toys, diaper linings and more. Other solutions include recycling (mechanical and chemical) and more effective disposal (chemical conversion of plastic to fuel). Implementing such solutions on a large scale may have the potential to reduce the percentage of “wasted” plastic.

And it’s not just plastic. There’s a good chance today’s gorgeous evening gown will be tomorrow’s global garbage. Increasingly excessive consumption patterns have created millions of tons of textile waste, with about 80% of discarded clothing occupying nearly 5% of landfill space in developed countries. Another, not so glamourous data point: the fashion/clothing/textile industry is responsible for about 10% of humanity's carbon emissions.6

But what if garbage were, to put it in fashion terms, the new “black”? Today, technology exists that can turn textile waste into a dissolving pulp that can be packed into bales and used as a substitute for materials like cotton, oil, wool and other petroleum-based inputs like polyester. This is important, because every kilo of clothing that is recycled reduces land usage, waste production, plastic pollution and CO2 and chemical emissions.

These technologies not only bode well for the planet. They also provide investors with the opportunity to capitalize on investment opportunities rooted in new and innovative technologies with the potential to speed the transition to a truly circular economy. But it’s not just about turning trash into cash. We believe an active investment strategy that incorporates material environmental social and government (ESG) factors is one of the best ways to help achieve positive environmental impact. Because, as we all know, there’s no Planet B—at least, not yet.

 

1. Source: World Resources Institute as of August, 2020.

2. Source: National Geographic as of December, 2020.

Performance may not add to 100% due to rounding.

3. Source: World Resources Institute as of August, 2020.

4. Source: World Bank.

5. Source: World Bank.

6. Source: Business Insider as of October, 2019.

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ABOUT THE AUTHOR

Luke Barrs

Luke Barrs

Head of Client Portfolio Management, Fundamental Equity, EMEA, Goldman Sachs Asset Management

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