Imagine a whole economy in which resources are used, then reused, in a closed loop that leaves the Earth clean. Some companies are already making this possible.
Right now, the world operates in a “linear economy” model that takes, makes waste and is clearly not sustainable.
Every second, the equivalent of one garbage truck of textiles is landfilled or burned, and the equivalent of six garbage trucks of edible food is wasted globally.1 If we continue on this path, by 2050, global demand for resources will almost triple to 130 billion tons annually, which would overuse the earth’s capacity by more than 400%.2
Imagine this alternative: a “circular economy” that designs, produces and uses goods so they:
- Create no waste or pollution in their manufacture
- Stay useful for longer
- Are efficiently recycled
- Allow the natural environment to regenerate
Such a sustainable economic system would yield enormous environmental, social and economic benefits across the world. One study estimates the benefits of a circular economy would be:3
- $2 trillion in annual U.S. revenues generated by circular manufacturing
- $7 billion in new revenue opportunities from recycling for cities and recyclers
- 250–350 million metric tons less carbon dioxide (CO2) in the air
- 80 million tons of material recovered from residential single-stream recycling
- 30 million more households with access to convenient recycling
How can we make the circular economy a reality?
1 | Redefine waste
A linear economy leaves a long trail of waste, starting with byproducts and emissions from the manufacturing process, piling on with single-use packaging and ending with often underutilized, finished products discarded in landfills.
A circular economy strategy seeks to eliminate waste from the start and create “closed loops” that keep materials within the system.
Such a closed-loop system would reuse byproducts as future inputs and run on renewable energy and sources from recycled materials.4 The shorter or tighter a loop, the better, because it typically would yield the most savings by reducing costs, such as labor and energy.
Waste is not just about pollution and plastic packaging. Underutilization—from cars to clothing—is another waste in the current linear model. For example, the average European car has five seats but carries on average less than two people per trip—and is parked 92% of the time.5
In a circular economy, it’s expected that many industries move from an asset ownership to a service/sharing model. With automobiles, for example, the shift to ride sharing (already underway in some large cities) could significantly increase the efficient use of resources (fewer cars per capita need to be produced, saving raw materials and fuel) while reducing pollution.
2 | Retain value
Extending the useful life of products also combats underutilization. To that end, there is a push to have producers and consumers:
- REPAIR & REFURBISH—The highest value is created when we find ways to maintain products, rather than quickly discard them or even recycle them
- REUSE—Experts see product reuse and redistribution as the next best option to maintaining existing products
- RECYCLE—Investment in innovative technologies and processes is helping many companies incorporate recycling and recycled materials into their production
3 | Invest in a circular economy
The challenges of transitioning from a linear economy to a circular one are numerous. But so, too, are the innovative companies and entrepreneurs rising to meet this challenge with new technologies, products and business models.
Opportunities to invest in a circular economy are growing rapidly as more companies, governments and consumers are motivated to find new circular economy business models, policies and consumption patterns.
If you’re interested in equities, you can invest in funds targeting environmental solutions, or in investment strategies that take sustainability or environmental, social and governance (ESG) factors into consideration. In fixed income, you can invest in municipal bonds that finance infrastructure supporting water, recycling and waste, as well as green bonds that support sustainability-related projects.
In the private sector, venture capital helps fund early-stage companies that are developing innovative technologies or services to advance the principles of a circular economy. Private equity funding is critical as companies mature from early-stage entrepreneurship and need to scale their products or service offering.
4 | Find innovators
Circular economy investment opportunities can be found in almost every industry, product and sector. Consider, for example, the fashion industry and plastics and the public sector.
More than US$500 billion of value is lost every year because clothing is underutilized, then not recycled. Pollution is also a severe problem across the textile industry. In 2015, greenhouse gas emissions from textiles production totaled 1.2 billion tons of CO2 equivalent, more than was emitted by all international flights and maritime shipping combined. In addition, about half a million tons a year of plastic microfibers are shed during the washing of plastic-based textiles such as polyester, nylon and acrylic, and end up in the ocean, according to some estimates.6
The overall benefit to the world economy could be about US$180 billion (around €160 billion) in 2030 if the fashion industry took steps such as converting to a sustainable material mix, eliminating harmful chemicals, decreasing water use and improving transparency and traceability. If not, by 2030, fashion brands could see a decline in their earnings before interest and tax (EBIT) margins of more than three percentage points.7
Innovators are already finding ways to reduce waste and the industry’s environmental footprint by:
- Increasing the durability of clothes and the ability to repair them
- Creating secondary markets for used clothing
- Reducing resources used in the manufacturing process, including raw materials as well as water and energy
- Focusing on the traceability of materials so they can meet recycling standards
Similarly, a great deal of attention is being paid to redesigning the plastic industry. Global companies, from retailers to plastics manufacturers, are setting high targets for plastics recycling, use of recycled and recyclable content, and post-consumer recovery.
New demand for recycled plastics could reach 5 to 7.5 million metric tons by 2030. If plastic recycling technologies can meet market demands, they have potential revenue opportunities of US$120 billion in the United States and Canada alone.
Reuse also will be essential to meeting the challenge of reducing single-use packaging. Only about 14% of plastic packaging is collected for recycling, and just 2% of that is recycled to a similar quality. After a short first-use cycle, 95% of the material value of plastic packaging (roughly US$80 to 120 billion annually) is lost to the economy.8 Replacing just 20% of single-use plastic packaging with reusable alternatives, such as long-use, refillable high-end packaging, offers an opportunity worth at least US$10 billion.9
Cities occupy only 1% of land on earth but account for 75% of natural resource consumption, 50% of global waste and 60%–80% of greenhouse emissions.10 By 2050, more than 70% of people will be living in cities.11
Some ways cities could improve their efficiency and quality of life would be to:
- Reduce the need for vehicles (and shift to electric-powered ones) by improving public transportation and bicycle infrastructure
- Require that buildings be designed to make more efficient use of resources and energy, including the possibility that buildings even produce energy. Industrial and modular processes could lower construction costs by 50%, compared with traditional onsite construction. Passive houses, which are purposely designed to significantly minimize heating and cooling needs, could reduce energy consumption by 90%12
- Power themselves with renewable energy, including bioenergy from recycled food and other organic urban waste. A recent study on residual organic waste in Amsterdam found that using bio-refineries, waste separation and return logistics could lead to added value of €150 million, as well as 900,000 tons of material savings and a reduction of 600,000 tons in CO2 emissions annually13
- Improve water conservation and treatment systems. Recovering energy in the wastewater sector can actually offset the energy required for treatment: A plant in Denmark produces more electricity than it needs for its operations and has become a net exporter of power14
In Milan, Italy, for example, municipal trucks (many powered by biodiesel) now collect surplus food from households, commercial properties and schools, and transport it to an “anaerobic digestion and composition” plant. Once processed, biogas is injected into the local gas network and compost is used to fertilize farmland surrounding the city.
Milan is closing the loop on food waste
We can help
Speak to your J.P. Morgan representative to find the circular investment opportunities that suit your goals.
1 “What is the circular economy?,” Ellen MacArthur Foundation, 2017.
2 Peter Lacy, Justin Keeble, Robert McNamara, et al, “Circular Advantage—Innovative Business Models and Technologies to Create Value in a World without Limits to Growth,” Accenture Strategy, May 2015.
3 Capital landscape for investment in circular supply chains, Closed Loop Partners and Closed Loop Foundation, 2017.
4 “What is the circular economy?,” Ellen MacArthur Foundation, 2017.
5 “Growth Within: A Circular Economy Vision of a Competitive Europe," Ellen MacArthur Foundation; Stiftungsfonds für Umweltökonomie und Nachhaltigkeit (SUN); Deutsche Post Foundation; McKinsey Center for Business and Environment, 2015.
6 "A New Textiles Economy: Redesigning Fashion’s Future,” Ellen MacArthur Foundation, 2019.
7 “Pulse of the fashion industry,” Global Fashion Agenda and Boston Consulting Group, 2017.
8 “Harnessing the Fourth Industrial Revolution for the Circular Economy Consumer Electronics and Plastics Packaging and the New Plastics Economy: Rethinking the Future of Plastics & Catalysing Action,” Ellen MacArthur Foundation, 2019.
9 “Reuse Rethinking Packaging,” Ellen MacArthur Foundation, 2019.
10 “Circular Economy in Cities: Project Guide,” Ellen MacArthur Foundation, 2019.
11 “Urban Biocycles,” Ellen MacArthur Foundation, March 2017.
12 “Europe’s circular-economy opportunity,” McKinsey Center for Business and Environment, September 2015.
13 “Urban Biocycles,” Ellen MacArthur Foundation, March 2017.