Feedback loops: How investors can help push for circular economies
Circular economies can reduce the cost of waste and make businesses more sustainable – with a little help from investors
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The transition to a net-zero future does not only rely on reducing carbon, it depends on how efficiently we can all eradicate waste. For shareholders, this means using their voting rights to back businesses which have embraced the principles of the circular economy: eliminating pollution, reusing resources, and regenerating nature.
Circularity challenges the current 'take-make-waste' linear model of production and consumption to progress to one in which resources are kept in use and waste is reduced. This can be as simple as recycling old products into new ones, renting products or ensuring they are built to last the consumer’s lifetime and beyond. These actions address the pressing need to conserve the planet's resources while presenting businesses with the chance to build long-term value.
Coutts' Responsible Investing Director Karen Ermel says: “There's an opportunity for companies to be more resilient if they start thinking about the risks associated with waste, so that they may better position themselves for a more sustainable future.”
Less luggage in landfill
One such company that has incorporated circular practices as part of their sustainability strategy is Samsonite.
As part of their discussions with Coutts’ partner and responsible investing group EOS at Federated Hermes, the luggage brand has committed to increasing the use of sustainable materials and is developing solutions to recycle products at the end of their life rather than having them sent to landfill.
This action is due to the discussions between EOS and the company's CEO in 2018 around waste, innovation and circular design and production.
“By tackling the root causes of waste, we can help businesses build circularity into their models and solve a lot of future issues,” says Karen. “Issues such as changing consumer behaviour and demand,; and mitigating regulatory constraints, will need to be addressed by businesses wanting to manage their balance sheet and future risk.”
This is where shareholders can demonstrate their power – whether through direct engagement with companies or through shareholder voting and resolutions.
For example, EOS influences companies at different levels of the value chain to encourage them to evaluate their environmental, social, and governance (ESG) progress. Karen argues that putting circularity at the top of the sustainability agenda requires pressure from shareholders because, otherwise, there is no incentive to drive change.
“EOS will talk to companies and advise on best practices to provide better awareness of circularity solutions, push them to think of alternative business models, and help them set targets that are ambitious enough to actually reduce waste,” she explains.
These measures, along with EOS' ability to track progress, can help drive businesses to take action that is not only tangible, but effective.
But change will need to come from both inside (shareholders) and outside (government). “Outside because it helps gain visibility and gets people to talk about the issues, and inside because this is what drives change,” stresses Karen.
Waste not, pay not
Perhaps the most visible rendering of the pressure on companies to think about circular economies will come from the pricing of waste. As with the carbon tax, the government may impose regulatory policy encouraging circular production and innovation and punishing waste via tax and levies. And once you put a price on waste, it will be hard to ignore.
Coutts can help add value by applying collective pressure where individual clients may struggle to do so. Through shareholder engagement, we have a wider view of the risks and opportunities for businesses and can help build the investment case for circular economies.
By pushing companies in the right direction towards circularity and engaging businesses at different levels of the value chain, shareholders can play an important part in helping encourage this change – thereby making sure the businesses they invest in are forward thinking and ready for any new regulation.
And while consumers will always need goods, it's time to look at more innovative ways to make and use products, and what we do with the materials afterwards.
It's time to put circularity at the heart of business.