In our increasingly industrialized and populated world, the current model of production and consumption of goods and materials cannot meet consumer demands sustainably. The global supply chain is dominated by the linear economy, an economic model in which raw materials are processed, used and then discarded as waste. In 2010, the volume of raw materials entering the system amounted to about 65 billion tons. Unfortunately, raw material extraction and discard have only increased over the years. As a result of high input and heavy reliance on fossil fuels, this single-use approach is a leading producer of greenhouse gas emissions.
The linear method of production and consumption goes against the pressing need and desire for environmental and economic sustainability. If this business-as-usual paradigm does not change, high prices and market volatility could jeopardize profit margins and economic development. To ensure a future that meets demand sustainably, a global shift from the “take-make-dispose” economy to a restorative circular economy must occur.
Defining The Circular Economy
A circular economy is a systemic approach to economic development designed to benefit businesses, society and the environment by decoupling economic growth from the consumption of finite resources. Unlike the linear economy, the circular economy creates products to last. The circular economy is based on three actions:
1. Eliminate waste and pollution from the original design.
2. Keep products and materials in use by prioritizing durability, reuse and recycling.
3. Regenerate natural systems to improve the environment.
Together, these principles represent a powerful and global solution to climate change and economic challenges. Investing in the circular economy can play an instrumental role in accelerating the implementation of sustainable solutions. However, some areas need investment more than others. The following sectors are critical in the shift to a circular economy, and companies within these sectors can also improve their processes to make an impact.
• The Built Environment: Provide green renovation and the upgrade of buildings; improve building material recycling infrastructure.
• Plastics: Provide innovative alternatives and recycled packaging; improve the collection, sorting and recycling infrastructure.
• Fashion: Create rental and resale business models for clothing; improve the collection, sorting, and recycling infrastructure.
• Food: Support farmer transition to regenerative agriculture; support food surplus and by-production collection and redistribution.
How To Invest In This New Model
If business-as-usual continues, global demand for resources could almost triple by 2050, exhausting Earth’s resources by more than 400%. In actuality, failure to transition to a clean circular economy could halt a functioning society, let alone an economy. Linear methods, such as continued deforestation for agriculture, which degrades habitats and contributes to climate change, are already paving the way to the sixth mass extinction. However, investors can support the global adoption of the circular economy in several areas:
• Public Equity: Invest in funds or investment strategies that prioritize ESG factors.
• Fixed Income: Invest in municipal bonds that finance sustainable infrastructure, or green bonds.
• Venture: Support innovation that embodies circular economy principles.
• Private Equity: Support the scaling up of sustainable products or services.
These investment strategies, along with divestment in companies and interests that patronize the linear economy, can start a ripple effect for a future of environmental and economic sustainability.
Environmental And Economic Sustainability
Shifting to the circular economy would change the trajectory of our climate crisis and growing economic instability. In terms of environmental sustainability, the circular economy could reduce 40% of global CO2 emissions, according to the Ellen MacArthur Foundation, by making more efficient use of products and materials within crucial sectors such as cement, steel, plastic and aluminum. These positive environmental impacts simultaneously support economic sustainability by:
• Creating jobs across industrial sectors and supporting small and medium enterprises for a new service-based economy.
• Saving on material costs for fast-moving consumer goods.
• Growing the economy, which would be a result of increased revenues from emerging circular economies and lower production costs.
• Having greater innovation in technological development, material improvement and energy efficiency.
This cradle-to-cradle design will fundamentally change the way that the economy works and determines value. Ultimately, I believe groups that support innovation and invest in a circular economy model can increase profit opportunities.
Circular Economy For A New Age
The linear economy is built on endless consumption and waste. As more and more people are focused on structuring a resilient economy and reversing the climate crisis after Covid-19, now is the moment to invest in a circular economy model. If investors embrace this transformative opportunity, the next generations will be able to enjoy the economic, environmental and societal benefits of a new age.