An ETF investing in companies contributing to the circular economy

Transitioning to a Circular Economy for Sustainable Development

The world is facing man-made ecological degradation and the fastest depletion of resources in history. To address this issue, a transition to a circular economy is necessary, focusing on the principles of reduce, reuse, and recycle. This transition is supported by various policy initiatives, such as China’s ‘green is gold’ approach and circular economy laws and strategies implemented by China, the European Union, and the United States.

Policy Initiatives Supporting the Transition

1. China’s ‘green is gold’ approach integrating economic, social, and ecological developments
2. China’s Circular Economy Promotion Law (2008), Circular Economy Development Strategy (2013), and Circular Economy Development Plan (2021)
3. European Union’s Circular Economy Action Plan and A European Green Deal
4. United States’ Resource Recovery and Circular Economy Act, US Circular Economy Policy Database, and National Recycling Strategy

These measures not only contribute to sustainable development but also provide long-term competitive advantages for companies in these regions.

Reasons for Alarm

The depletion of rare resources, increasing waste generation, and pollution of land and water highlight the need for action. Geopolitical tensions further exacerbate the strain on global logistics and access to resources. Earth Overshoot Day, which marks the date when humanity’s demand for ecological resources exceeds what the planet can regenerate in a year, falls on August 2 this year. This indicates that 1.7 planets are needed to meet this year’s needs for renewable resources. The linear economy is estimated to require nearly double the resources by 2050 compared to 2019.

Room for Improvement

Efficiency gains are crucial in achieving a circular economy. Currently, over 90% of all materials are wasted, and the percentage of secondary materials cycled back into the global economy has decreased. There are significant opportunities for improvement in various sectors:

• Less than 40% of electronic waste is recycled in the EU
• Moving to electric mobility solutions enhances the sustainability of the battery value chain
• Packaging waste in Europe reached a record of 173 kg per inhabitant in 2017
• Global plastic waste generation more than doubled between 2000 and 2019, with only 9% being recycled
• Less than 1% of all textiles worldwide are recycled into new textiles
• The construction sector is responsible for over 35% of the EU’s total waste generation
• An estimated 20% of the total food produced in the EU is lost or wasted

Transitioning to a Circular Economy

The linear ‘take-make-use-dispose’ model must be replaced by a circular economy that maximizes the value of products for as long as possible. This can be achieved through various approaches:

• Using circular supplies, such as fully renewable resources
• Working towards product life-extension through reselling, repairing, remanufacturing, and upgrading
• Implementing product-as-a-service and sharing platforms to reduce inefficiencies
• Implementing resource recovery when treating disposed products

Rethinking product life and recycling options requires collaboration across industries and the use of IT technologies to facilitate circularity.

Investing in the Circular Economy

Financial institutions and investment managers have a crucial role to play in promoting the circular economy. BNP Paribas Asset Management, for example, is building an efficient stewardship policy and investing directly in circular topics. Their EUR 1 billion circular thematic exchange-traded fund replicates the ECPI Circular Economy Leaders index, which includes companies that operate in circular sectors or are likely to benefit from adopting circular practices and business models.

The circular economy transition presents a significant growth opportunity, estimated at USD 4.5 trillion, and has the potential to create millions of new jobs. Many companies are already committed to ensuring the constant use of materials they employ. Embracing circular business models and industrial sectors, such as circular supplies, resource recovery, product life extension, sharing platforms, and product-as-a-service, can contribute to sustainable development and provide opportunities for stakeholders and investors.

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Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up, and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets or specialized sectors is likely to be subject to higher-than-average volatility due to concentration, uncertainty, less liquidity, or greater sensitivity to changes in market conditions. Some emerging markets offer less security than international developed markets, and services for portfolio transactions, liquidation, and conservation may carry greater risk for funds invested in emerging markets.

SDGs, Targets, and Indicators

1. SDGs Addressed or Connected to the Issues

   • SDG 12: Responsible Consumption and Production
   • SDG 13: Climate Action
   • SDG 14: Life Below Water
   • SDG 15: Life on Land

2. Specific Targets Based on the Article’s Content

   • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources
   • Target 12.5: By 2030, substantially reduce waste generation through prevention, reduction, recycling, and reuse
   • Target 13.3: Improve education, awareness-raising, and human and institutional capacity on climate change mitigation, adaptation, impact reduction, and early warning
   • Target 14.1: By 2025, prevent and significantly reduce marine pollution of all kinds, particularly from land-based activities
   • Target 15.2: By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests, and increase afforestation and reforestation globally

3. Indicators Mentioned or Implied in the Article

   • Percentage of electronic waste recycled in the EU
   • Percentage of secondary materials cycled back into the global economy
   • Amount of packaging waste per inhabitant in Europe
   • Percentage of global plastic waste being recycled
   • Percentage of textiles worldwide that are recycled into new textiles
   • Percentage of waste generation in the EU attributed to the construction sector
   • Percentage of total food produced that is lost or wasted in the EU

SDGs, Targets, and Indicators Table

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: viewpoint.bnpparibas-am.com

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