In this article, Jamie Butterworth, partner at Circularity Capital LLP; and Antonia Gawel of the World Economic Forum’s Pace initiative, explain why the circular economy is increasingly being seen as a powerful framework for regenerative economic growth and how investors are developing specialist strategies to drive value in this space.
All around the world, businesses, governments, investors and consumers are recognising the challenges caused by linear ‘take-make-dispose’ models of production and consumption. In 2019, for example, more than 92 billion tonnes of materials were extracted and processed, producing roughly 50% of global carbon emissions. The subsequent waste produced across fields such as plastics, textiles, food and electronics is consequently yielding a high environmental toll worldwide.
In a bid to reverse this trend, governments, investors and corporations are closely examining the circular economy as an alternative framework for future growth, with a number of factors driving this increasing interest. The circular economy, which focusses on designing out waste and building regenerative flows of materials, offers both the ability to decouple growth from primary resource extraction and the potential to deliver up to $4.5 trillion in economic benefits to 2030.*
Firstly, the transition away from today’s extractive, linear business practices is dependent on the development and uptake of circular business models. A growing number of businesses are now developing such business models which can enhance asset utilisation and enable companies to grow faster and achieve higher margins.
Secondly, it is becoming increasingly clear that we will struggle to address the global climate crisis without addressing our relationship with consumption – and how we make and use products and services. With global resource extraction forecast to double to c.190 billion tonnes by 2060,** the pressure is on for the circular economy is increasingly being seen as a tool that can enables us to re-design energy and resource intensive models of production and consumption.
Thirdly, consumers are also now increasingly aware of the broader environmental ‘externalities’ of today’s predominently linear economy. This is illustrated by the recent increase in awareness of plastic pollution – 60 years after the launch of lab-synthesized plastics, 5.25 trillion plastic items are now littering our oceans and governments across the world are working to ban the sale of single-use products. The resulting publicity has generated huge momentum around the environmental issues plastics pose and created an appetite for change.
Finance has a critical part to play in enabling a transition from linear to circular business models. Its role is two-fold. Firstly, finance has the potential to dis-incentivise investment in linear business models that contribute to high natural resource extraction. Secondly, it can support the innovative solutions pushing the circular economy forward, enabling circular innovators through supportive financial mechanisms.
The World Economic Forum (WEF) has introduced a number of circular economy initiatives since 2012. In 2017, it launched the Platform for Accelerating the Circular Economy (PACE) as a forum for public and private sector leaders to take the commitments needed to accelerate collective action towards a circular economy transition. Comprising 80 public, private, international and civil society executive leaders and more than 200 members, the PACE community champions 18 projects across the globe.
Value chain transformation is also a key focus. In 2018, the Global Plastic Action Partnership (GPAP) launched to translate commitment to a move to a circular economy for plastics into tangible strategies and investible action plans. Working actively in Indonesia, Ghana and Vietnam, the WEF has brought key stakeholders together to achieve the targets required to achieve a transition away from the ‘take-use-dispose’ model of plastics production, and to identify the data, information, investment and policy changes needed to make this a reality.
Scale360° is an initiative which aims to grow the ecosystem for circular fourth industrial revolution (4IR) by mobilising action among innovators, governments, civil society and private sector stakeholders. The initiative focuses on driving innovation across the fields of plastics, electronics, food and fashion/textiles.
The circular economy is now, as a term, part of the business vernacular, but progress towards achieving full business circularity is slow. Indeed, today, only 8.6% of the world is circular.*** At Circularity we believe that nimble, innovative, growth stage businesses play a key role in transforming this challenge into an opportunity. Since establishing the firm in 2015 we have worked hard to develop the network and knowledge base required to source, select and grow a subset circular businesses that are outperforming their linear competitors whilst delivering a measurable positive environmental impact.
*Accenture, Waste to Wealth (2015)
**Global Resources Outlook, International Resource Panel (2019)
***Circularity Gap Report (2020)