The world’s natural resources are not infinite. It takes 18 months to generate the resources that the human population uses in only a year. Simply put, this is not a sustainable path for the planet’s future.
Another way to look at this is to say that it would take 1.6 Earths to produce all the renewable resources we use. As things stand today, the human population is expected to use the equivalent of 2 Earths of renewable resources per year by 2050. The effect of this overuse is a growing scarcity of resources.
That’s why we must think again about what we throw away – seeing not waste, but opportunity.
With recycling recognised in the UN’s Sustainable Development Goals (SDGs) 2030, individuals, governments and companies can take direct action to support the global green agenda.
As investors, we believe recycling is a key part of the circular economy: It helps to protect our natural resources. Each year, the ‘Seventh Resource’ (recyclables) saves over 700 million tonnes in CO2 emissions. This is projected to increase to 1 billion tonnes by 2030. Recycling is a central element of the campaign to reduce the wasteful use of our natural resources.
Investing in businesses that are active in (the transition towards) the circular economy can pay off in the long term. On the occasion of World Recycling Day, on 18 March, Sébastien Soleille, head of the energy transition at BNP Paribas, and Bertrand Alfandari, ETF & Index Solutions, BNP Paribas Asset Management, explain how.
What is the circular economy and what are the main challenges?
Sébastien: The ‘linear’ economic model, which follows a ‘take-make-dispose’ pattern, is not viable in the long term. A new model of production and consumption is needed: A circular one that consists in extending the life of products, reducing and reusing waste, and leasing and sharing goods and services.
Some of the main challenges are to improve waste management, rethink the way we use our products, and revise the notion of planned product obsolescence.
Exhibit 1: Five circular business models
Business models identified by Accenture in its analysis of more than 120 case studies of companies that are improving resource productivity in innovative ways. Source: Accenture, ECPI, BNP Paribas Asset Management; as of 30/04/2019. For illustration purposes only.
What is BNP Paribas as a company doing in this area?
Sébastien: We are committed to the circular economy in many ways by developing financial products and services related to the circular economy for clients. There is of course the dedicated exchange traded fund (ETF) developed by BNP Paribas Asset Management [1].
The BNP Paribas offering also includes:
- Support of circular economy pure players, be they large companies or start-ups
- Green bonds [2] and sustainability-linked loans integrating circular economy performance indicators and targets [3]
- Development of product-as-a-service and optimisation of product end-of-life, for example, for information technology equipment (e.g. with BNP Paribas 3Step IT).
In addition, we aim to reduce our direct impact by limiting our paper consumption and buying recycled paper or paper from sustainably managed forests, and recycling more waste.
What is the role of asset management in the circular economy?
Bertrand: From an asset management perspective, this theme reflects a real ecological concern: There are many initiatives to recycle our waste or give new life to the products we use (clothes, equipment…) and the development of a sharing economy that also saves natural resources.
This trend requires a rethinking of existing models, and a change in consumption patterns towards more responsible products. Consumers know that they are now ‘consumer actors’ and we are convinced that this trend should include how individuals save over the long term, both professional and retail investors. That’s why BNP Paribas Asset Management launched an ETF on the circular economy in May 2019 [1].
How can companies contribute to the circular economy?
Bertrand: There is the example of a leading US sporting goods maker which has committed to doubling its business with half the impact. It combats waste through more efficient design and manufacturing technologies. Another key player in the transition to a circular economy has an IT equipment recovery unit that processes nearly 30 000 devices a week. More than 99% of the end-of-life IT equipment and product waste returned to this top IT company is reused or recycled.
In a completely different field, a large earth-moving equipment maker operates remanufacturing and rebuild programmes to overhaul components and machines rather than simply repairing or replacing them. This reduces waste and minimises the need for raw materials for new parts.
Such companies would qualify for a circular economy index and for investment.
How can you invest in such companies?
Bertrand: The ECPI Circular Economy Leaders Equity index is one way to do this. This is a euro-denominated index of 50 major companies. Some of these are in sectors such as recycling or renewable energy. Others can be included if they are seen to be moving towards the circular economy such as industries that now generate high CO2 emissions or consume raw materials.
There is a tracker on the index in the BNP Paribas Easy range [1]. Its constituents fall into five categories – circular supplies, resource recovery, product life extension, sharing platforms and ‘product as a service.’ Companies come from many different sectors. For investors, that means portfolio diversification benefits as well as participating in a future-proof trend with promising growth and return opportunities.
[1] For more, go to https://www.easy.bnpparibas.fr/professional-professional/. The BNP Paribas Easy ETF strategy is mentioned for illustrative purposes only.
[2] For more on green bonds, visit our Investors’ Corner blog
[3] For more, go here
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