Circular economy investing

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My-Linh Ngo
July 26, 2021

More sustainable ways of consumption are becoming a priority within the investment community. This stems from a need to not degrade our natural environment, with climate change, biodiversity loss and pollution become ever more pressing.

The evidence is growing that such challenges are becoming systemic and are starting to impact financial markets, economies and society as we know it.

What is a circular economy?

In contrast to a ‘take-make-waste’ linear model, a circular economy is regenerative by design and aims to gradually decouple economic growth from the consumption of finite resources, which can degrade the natural environment.

The concept of a circular economy embodies the principles of how we need to reframe our thinking to break away from the destructive practices that dominate daily life. It is a systematic approach to economic development, designed to benefit businesses, society and the environment.

Circular economy in the investment community

Taking a circular approach means looking at the products being produced and the operational processes which result in their production.

The investment community has been active in addressing both these aspects. For instance, in the last few years, there has been a focus on waste management, with single-use plastics in consumer goods and packaging getting a lot of attention.

Increasingly, efforts have expanded to consider the management of ‘natural capital’, in terms of how we are managing resources such as forests or the fish in our oceans. Improving process efficiency – ‘doing more with less’ – has also been a prominent theme, manifesting through efforts such as energy efficiency.

The aim of investors’ efforts is two-fold:

1. Encourage companies (whether through their investment selections or engagement activities) to consider alternative business models.

2. Highlight that by taking a more proactive, strategic and holistic approach, businesses can gain competitive advantage – and if they refuse to change, they risk getting left behind.

This is particularly true in light of growing regulation, with regulators introducing targets on the treatment of waste and recycling, or with the taxation of certain products to disincentivise harmful practices, whilst introducing incentives to encourage those we want to promote.

Consumers and society at large represent another catalyst, as evidenced by public outrage at the damaging effects of plastics on our wildlife, and being fuelled by the rise of the millennial voice.

Circular economy at BlueBay

We recently launched our Impact-Aligned Bond strategy, which is a sustainability-focused, thematic public debt strategy investing in companies providing solutions to global challenges. Enabling a circular economy is one of our seven investment themes.

The theme centres around investing in solutions that improve the quality of the environment by designing out waste and pollution, keeping products and materials in use and promoting stewardship of natural systems.

The strategy currently invests in companies that focus on using materials in their products that are recyclable or contain recycled content, promoting energy or resource efficiency in industrial processes, as well as those which promote more sustainable waste management.

Click here to learn more about our Impact-Aligned Bond strategy.

For more ESG insights, visit our Responsible Investing content hub.

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