The take-up of circular economy principles in business is rising fast; and responsible investors are backing it.
PGGM, the second largest pension fund in the Netherlands, has traditionally invested in all the usual money-makers, like oil companies, big pharma, and corporate giants. But in 2015, it took a dramatic step. By the end of that year it had allocated €8.9bn in what it calls “solutions for sustainable development.” In other words, it put billions into investments with the express intention of addressing systems-level social and environmental challenges: building housing for low income communities, developing water-saving technologies and new energy infrastructure, all while still earning competitive returns.
This solutions-oriented way of investing wasn’t a one-off project, nor was it simply meant to be good public relations (although it was). It is part of an increasingly popular approach to return a reasonable profit while simultaneously making a positive impact on the world. Specifically, PGGM has focused its solutions-oriented investments on climate change, water and food, and healthcare; mirroring its beneficiaries’ career concerns.
At the same time, PGGM has joined a group devoted to growing the circular economy: the practice of finding clever ways to more intelligently use our limited (and often costly) resources like energy, land and materials. This group, the Circular Economy 100, convenes businesses, emerging innovators and governments to collaborate and share insights on how to move away from the traditional waste-ridden linear economy toward one that is restorative by design.
Efforts by the World Economic Forum, the Global Impact Investing Network, United Nations-backed Principles for Responsible Investment, McKinsey & Company, the Ellen MacArthur Foundation, and a host of others are catalyzing and strengthening investor and business activity around the circular economy and its environmental systems-level implications.
In the report titled “Investing in the new industrial r-evolution: Insights for asset owners and managers financing the circular economy” Link we examine the emergence of this new industrial revolution.
The report highlights the rise of two complementary forces. The first is the realization among corporations that the linear approach to manufacturing is inefficient and unsustainable, and that a shift towards a circular approach (focusing on renewable energy, re-use of what would previously be considered waste products, and the sharing economy) is necessary and inevitable. A second, broader trend is the growing demand for investment products that simultaneously provide financial returns and address social and environmental challenges on a global scale—what we call “systems-level investing”. To fully realize the power of these two trends, investors need to embrace circular economy practices more fully within the context of system-level environmental considerations.
Today, many of the measurement and reporting frameworks available for impact-oriented investing or ESG integration do not transcend simple measurements of pollution outputs or tons of wastes recycled to give proper weight to things like product design that maximizes product life cycles or business models that embrace service-based approaches and convert consumers into users, closing the circle of material use and promoting overall efficiency. In a circular economy, products and materials are made from either pure, non-toxic consumable materials (biological nutrients) or durable materials (technical materials) and are designed to be easily disassembled, enabling easy repair, reuse or refurbishment.
For example, the Dutch carpeting and floor-products company Desso, with its commitment to “Cradle to
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