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Tackling the linear economy: What a waste

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19 May 2022

Reducing the waste companies produce is a more complex problem to solve than simply filling a recycling bin. Unless answers are found, net-zero targets will be tougher to achieve.

Reducing the waste companies produce is a more complex problem to solve than simply filling a recycling bin. Unless answers are found, net-zero targets will be tougher to achieve.

There is a famous joke about a guy ordering a pint of beerwhile traveling on Ryanair, an airline that specialises in cheap flights, if you don’t want any extras. It goes something like this: “How much is a pint of beer, please,” the passenger asks. “£1,” replies the stewardess. “A quid for a pint of beer, that’s great. I’ll have one,” he says, smiling. The stewardess hands him a glass of ice-cold beer and says: “That will be £6, please.” The passenger, feeling a little puzzled by what he has heard, replies: “But you said it was £1?” “It is,” she says, “however, the glass will cost you £5.”

That joke has become reality. In April, Burger King announced it would charge customers £1 for the packaging their meals come in. But rather than being a sneaky way to boost revenue, the fast food giant is hoping the scheme will reduce its waste.

The idea is that once the re-usable cups and containers are returned, the £1 will be refunded. If successful, the five-branch trial will be expanded nationally. Through this innovation, Burger King is tackling a problem that goes beyond overflowing bins on the high street. The “take, make, dispose” economic model is a major cause of pollution and is a threat to the natural world.

Indeed, the World Bank expects 3.4 billion tonnes of house hold and commercial waste to be thrown away in 2050, up from 2 billion tonnes in 2016. This is all the more alarming when you consider that this forecast exceeds the World Bank’s population-growth projections over the same period.

Yet the main issue is not how much waste is being created but how it is disposed of. Our rubbish typically finds its way into open dumps and landfills or waste treatment plants, which do not have systems to collect escaping gases. This is important because the World Bank estimates that disposing of rubbish generated 1.6 billion tonnes of carbon dioxide equivalent greenhouse gases in 2016, or 5% of global emissions.

The situation is worse than the headline figure. It does not include the waste generated by industry, which can send scrap metals to be disposed of by private contractors. So, the harm to the climate is certainly a lot graver than reported.

The world has a rubbish problem, and investors need to solve it if they are serious about decarbonising their portfolios.

Take me round again

Burger King may have found the answer to this problem. It is trialling a circular model. This is where everything is re-used in one form or another This could mean sharing, leasing, re-pairing, refurbishing and recycling materials and products for as long as they possibly can instead of throwing them away.

Reducing the waste companies produce, and the resources they take from our planet, is a core investment driver. “It is in a company’s interest to manage its waste, because it is about efficiency,” says Rebecca White, a responsible investment analyst at Newton Investment Management.

“There are opportunities for companies to think outside the box by not just reducing waste but thinking about what the circular economy could mean for their business model,” she adds.

An alternative model for luxury goods companies could be to copy the second-hand car market, for example. There is another reason why investors should be raising the issue in meetings with corporate boards.

Investors are trying to encourage companies to keep ahead of two evolutions: regulation and consumer demand. “Investors want companies to be positioned to meet future consumer expectations,” White says. This may not be easy. Especially for an industry obsessed with measuring output and change.

White points to a big challenge with waste, recycling and the circular economy: there is no single way to measure the problem. When it comes to climate change, for example, the focal point is greenhouse gas emissions. There is no similar standard when it comes to waste.

A closed-loop mindset

Another issue is there is no one-size-fits all solution to this problem. “Recycling is not the only option,” White says. “It is a big part of the circular economy but is no silver bullet. It is not the only element. We have to think about other solutions to get around these challenges; we cannot recycle our way out of the waste problem.”

There are significant challenges around recycling. One of the issues is that there is a limited number of times you can recycle a plastic bottle. In response to this problem, using different materials, the sharing economy and circular design processes are options to consider.

“We have to think more broadly about the solutions when we think about the challenges within the recycling space,” White says. Companies may not be able to reduce their waste, but perhaps they could find alternative markets for it. “Some are trying to find a use for their by-products,” White says. As an example, she points to a small beer company in the US, which sends its spent yeast and grain to dairy farms to use as animal feed or fertiliser.

Hideki Suzuki, a director of ESG research and integration at Manulife Investment Management, offers a different example of a furniture company that build its products from dismantled materials. The products are then placed in the smallest flattest packaging possible so the user can decide whether to recycle or refurbish. “Such innovative ideas are coming from a closed loop mindset,” he says.

External forces

Awareness of the issue and the need to tackle it has been growing, which could be good news for investors. “Recognition of the importance of a circular business model has been heightened in the past few years,” Suzuki says.

This has opened up opportunities in the two main areas of the capital markets. “In the public equity markets, there are some interesting pure plays in terms of the recycle economy, from waste management to using different material inputs,” Suzuki says.

“From a fixed income perspective, there are green bonds and sustainability bonds which speak to these take, make, recycle themes,” he adds.

For Suzuki, regulation and consumer demand are playing a role in shaping attitudes here. The EU’s Sustainable Finance Disclosure Regulation (SFDR) has a requirement to look at waste intensity alongside water and energy consumption.

Then there is the UN’s global plastics treaty, which has been endorsed by 175 countries to end
plastic pollution. This is not just promoting greater disclosure, but to actually manage these issues. “External forces are making us look at these issues,” he says, adding that more work is needed.

“The regulator could do more around education on the cycle economy and its impact,” Suzuki says. “We hear that younger generations are thought to be more sustainability conscious, but they still want fast fashion and 24-hour online delivery. There can be a disconnect between the younger generation’s actions and their beliefs. “Governments could be doing a lot more,” he says.

The 26% club

Agriculture is an important part of any conversation on the impact the waste we produce has on our planet. Growing crops harms the environment. Indeed, agriculture accounts for around 10% of human-induced emissions, while the wider food system contributes around a quarter (26%).

The situation is made worse by the fact that almost half of all food ends up in the bin. “Approximately 40% of the food we produce goes to waste and we need to tackle that,” Suzuki says.

But when it comes to protecting the planet, the conversation about waste should go further than the amount of food we never eat.

“The environmental impact of the food production system goes beyond greenhouse gas emissions and climate change,” White says. “There is an inter-dependent collection of risks that includes water waste, pollution and biodiversity, so we need to think about it in a holistic way.”

Producing food close to the point of consumption and employing closed-loop systems to recycle water used in these processes are examples of how farmers and companies can limit the environmental damage of food production.

“We all need food, it is a huge industry, so incorporating concepts of circularity is essential to reduce waste,” White says.

Regenerative agriculture is important, Suzuki says, if we want to continue growing food, but this is not easy. “It is important to consider the restoration of soil and biodiversity if our farms are to continue producing food, but balancing yields with soil health is challenging.

“Initiatives that use less water and maximise the crops that are grown are encouraging,” he adds. “Producing less waste is equally critical as regenerative agriculture.” So, waste touches just about every part of our lives and there are several options in how to deal with it.

New business models may appear in the coming years to adapt the “take, make, recycle” model as investors cannot achieve carbon neutrality by focusing on oil and gas alone. Who knows? Perhaps loaning customers the box a burger comes in could be the way forward.

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