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Decode the Circular Economy and REthink the future

Transitioning to the Circular Economy is critical to ease demand on our planet’s natural resources and deliver sustainable economic growth. Regenerative by design, the Circular Economy minimises waste while providing a new world of opportunity for investors where preservation drives prosperity.

HSBC Asset Management is decoding the Circular Economy to enable investors to rethink their investments and become part of the solution. As part of this move forward, we have launched our Global Equity Circular Economy strategy.

 

 

 

What is a Circular Economy?

Repositioning to a Circular Economy

Bénédicte Mougeot and Travis Tucker on the far-reaching benefits of a Circular Economy
Find out more

The Circular Economy means that we move towards a ‘scarcity’ approach, minimising waste and doing more with less resources.

Companies “do more with less” resources

Companies “do more with less” resources

  • • During the design/production phase, re-engineering focused on resource efficiency
  • • Use of recoverable rather than finite materials and increased recyclability rate

Products are used for longer

Products are used for longer

  • • During product lifetime, re-think usage by sharing or renting instead of buying/owning
  • • Focus on ease of maintenance/repair, upgradability or adaptability

Closing the loop and minimising waste: after use, products serve as inputs

Closing the loop and minimising waste: after use, products serve as inputs

  • • During product afterlife, obsolete product or parts are collected for reuse, refurbishment or remanufacture
  • • Non-recoverable parts are made bio-degradable

Source: HSBC Asset Management, June 2022. The commentary and analysis presented in this document reflect the opinion of HSBC Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Asset Management.

 

 

 

Why should we act now?

Why should we act now?

*Data as at April 2020. Source: Message for Earth Day 2020 , an ecological footprint of 1.8 planets is the quantity of nature it takes to support the world’s population and economy.

 

Current linear model: take, make, use, waste

Current linear model: take, make, use, waste 

Exhaustion of natural resources and water pollution

Exhaustion of natural resources and water pollution

  • • Rarefication of industrial materials and fossil fuels
  • • 80 per cent of water waste is untreated before re-entering the ecosystem1

Soaring CO2 emissions and waste

Soaring CO2 emissions and waste

  • • Global emissions of CO2 have risen by c. 50 per cent since 19902
  • • 5 tons of waste is produced by the average European each year3

Deterioration of Biodiversity & living conditions

Deterioration of Biodiversity and living conditions

  • • Loss of 83 per cent of wild mammal biomass and over 40 per cent of plants4
  • • Commodity shortages could lead to mass starvation

 

All stakeholders are now embracing the Circular Economy transition

All stakeholders are now embracing the circular economy transition

Regulators and Governments worldwide are moving fast forward on Circular Economy

  • November 2019: African Durban Declaration
  • March 2020: European Green Deals Circular Economy Action Plan
  • July 2021: China’s 5-year Circular Economy Plan
  • February 2021: Circular Economy strategies across Latin America

Society calls for action…

  • Environmental activists and IPCC* report urge for changes in consumptions and waste
  • Consumers are ready to adopt mindful consumption practices
  • Geopolitical tensions stress the urgent need for resources sovereignty

Investors and companies are ready for Circular Economy integration

  • EU taxonomy to include specifics on Circular Economy (criteria and thresholds) by end 2022***
  • Increased numbers of companies are disclosing Circular Economy’ KPIs** and strategies

1: January 2022, Visualized: The Circular Economy 101
2: June 2019, Plastic pollution facts and information
3: June 2022, Climate Change - United Nations Sustainable Development
4: May 2022, Waste and recycling

*IPCC = Intergovernmental Panel on Climate Change, **KPIs = Key Performance Indicators Source: HSBC Asset Management. June 2022. The commentary and analysis presented in this document reflect the opinion of HSBC Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Asset Management.
***EU taxonomy for sustainable activities

 

 

 

How does a Circular Economy help preserve our planet?

Circular Economy, a solution to the resources crisis, for decarbonisation and biodiversity protection

Circular Economy model: 3 key principles

Minimising waste and pollution generated

Keeping products and materials in use and at the highest value for as long as possible

Regenerating natural and social systems

Circular Economy model: 3 key principles

Preservation of natural resources

Preservation of natural resources

  • • By doubling the circularity of our global economy, we can reduce material footprint by 28 per cent by 20322
  • • 80 per cent less plastic entering oceans1

Net Zero-emissions requires circularity

Net Zero-emissions requires circularity

  • • Doubling global circularity keeps global temperature rise well below 2o C by 20442
  • • One of the Circular Economy’s principles is to design out waste

Safeguard Biodiversity and living standards

Safeguard Biodiversity and living standards

  • • ≈ 50 per cent decrease in harmful effects on farm-level biodiversity1
  • • More localised production protects purchasing power

Circular Economy helps resolve the world’s most pressing challenges

Investors are catalysing change through portfolios focussed on the UN's Sustainable Development Goals (SDG's). Circular Economy delivers on all 17 SGDs, especially:

Investors are catalyzing change through portfolios focused on Sustainable Development Goals

Example for Goal 12: Responsible Consumption and Production
Every second, the equivalent of a rubbish truck load of clothes is burnt or buried in landfill.

In a Circular Economy for fashion, products are used more, made from safe and recycled or renewable inputs. They are “made to be remade”, recycled or composted and hazardous substances to health or the environment are designed out3

Example for Goal 6: Clean Water & Sanitation
72 per cent of all water withdrawals are used by agriculture4. The most impacted regions – West Asia and Pacific – export scarce water through food and cotton products to net importers like Europe and North America.

In a Circular Economy, efficient textile and food production means a massive decrease in water stress in Asia.

 

1: January 2022, Visualized: The Circular Economy 101
2: The Global Circularity Report 2021
3: Source: Fashion and a circular economy | Ellen MacArthur Foundation
4: February 2021, Scarcity | UN-Water

Source: HSBC Asset Management, June 2022. The commentary and analysis presented in this document reflect the opinion of HSBC Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Asset Management.

 

 

 

Why consider investing in a Circular Economy

An opportunity for investors

Investing in solutions to the long-term sustainability challenges we face offers an added benefit for those who want their capital to contribute to improved outcomes beyond investment returns.

How does the Circular Economy open up opportunities?

 

Companies

Companies
  • • Well prepared for commodity shocks, lower input costs, less dependent on other parties
  • • Securing demand, benefiting from improved customer loyalty
  • • Business models that are aligned to the Circular Economy have been known to enhance companies ROCE*

* ROCE = Return on capital employed

Customers

Customers
  • • Quality over quantity: longer product life cycles; improved transparency and traceability
  • • Deeper customer relationships through customization, reconditioning or repurposing

Society

Society
  • • Healthier environment, less toxicity & pollution, preservation of eco-systems
  • • New avenues for employment through reshoring
  • • Balanced access to resources reduce geopolitical and social tensions
Disclaimer
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. Any views and opinions expressed are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. We accept no liability for any failure to meet such forecast, projection or target. This page is prepared for general information purposes only and does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive it. Any views and opinions expressed are subject to change without notice. This document does not constitute an offering document and should not be construed as a recommendation, an offer to sell or the solicitation of an offer to purchase or subscribe to any investment.
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