Jillian Reid, Mercer

Adopting a circular economy lens enables multiple, interconnected issues and their cumulative effects to be assessed and addressed – which is an exciting opportunity for investors facing a growing list of systemic issues in their efforts to meet long-term financial goals.

At the recent Climate Finance Summit in Sydney, hosted by the Investor Group on Climate Change (IGCC) before more than 300 institutional investors, corporate leaders, and policy-makers, the IGCC launched a new discussion paper on the Circular Economy.  

Regenerate and Restore: A Circular Economy Discussion Paper for Investors includes a briefing on circular economy fundamentals, case studies, a focus on the investment opportunity, and the links between circular economy approaches and climate mitigation, resilience and adaptation. 

The built environment features include:

  • how built environment changes could find 2 billion of the 3.7 billion tonnes of potential emissions reductions identified in the circulation of key materials
  • the investment opportunity across multinationals, small and medium sized businesses and start-ups in the private and public markets 
  • case studies from ArcelorMittal, Rio Tinto, Mirvac 55 Pitt St, New Forests and Timberlink
  • the actions investors could take to accelerate circular economy alignment, including identifying where companies are at on a four-stage scale. The Appendix guidance for construction, cement and steel companies flags example improvement areas 

Conference panel sessions included one on climate solutions in nature and new timber-based products, together with another innovation session where carbon capture and use developments in building materials caught the room’s attention. 

Adopting a circular economy lens enables multiple, interconnected issues and their cumulative effects to be assessed and addressed. That is an exciting opportunity for all investors facing a growing list of systemic issues in their efforts to meet the long-term financial goals of beneficiaries.

The paper aims to increase circular economy understanding across the investment industry and its stakeholders and prompt implementation to support emissions reductions and improve portfolio resilience. 

Background on circular economy thinking

In this decisive decade for climate action, investors are increasingly exploring systemic approaches that have the potential to reduce emissions while simultaneously addressing other important environmental and social goals.

One such approach is to adopt a circular economy model, which aims to decouple economic activity from the consumption of finite resources, based on three key principles: 

  • designing waste and pollution out of the system 
  • keeping products and materials in use and at the highest value for as long as possible
  • regenerating natural and social systems.

This is the antithesis of the linear economy, which relies on a “take, make, waste” approach to drive mass production and consumption fuelled by cheap labour, capital, resources, energy and materials. 

Emissions reduction – and the other 45 per cent

While transitioning the energy system to renewable generation is intrinsic to circular economic activity and can address around 55 per cent of global emissions, addressing the remaining 45 per cent requires us to reduce the emissions profile of industry, agriculture, forestry and other land use; essentially our economies’ current modes of production and consumption.

Less than 9 per cent of the resources in the global economy are managed along circular principles, which suggests approximately 90 per cent of resources may be under-utilised (i.e. truly wasted). That is a particularly damning statistic when you consider the global economy currently uses 74 per cent more biological resources than what the planet’s ecosystems can regenerate on an annual basis. See overshootday.org – this year we exceeded our budget on 28 July. 

Redesign, regenerate, restore – waste not, want not

The role of investors and capital allocation, particularly super funds, in the system change required is significant. Coreo chief executive officer and co-founder Ashleigh Morris says: 

“An intimate relationship exists between capital flow and materials flow in the circular economy. Far beyond a waste management strategy or recycling at scale, the circular economy aims to redesign the system so there is no waste. 

“Shifting from extractive to regenerative, from ownership to access, from monopolies to networks, scale to scope, and from products to services, capital circulation will either block or support the ability of a circular economy to thrive.”

However, this will take many system participants working together to address the challenges the paper outlines, like metrics measurement, skills developments and new collaborations. While Australian policy is currently inconsistent, states, cities, and key institutions are building important foundations here and around the world with momentum increasing. A new government, however, has a new opportunity to establish circular economy principles as the way forward. 

  • Download the paper in full here to hear the investor perspective and consider the actions you can take in your own organisation. 

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