To kick-off 2022, we dive deeper into another of True Alpha’s six thematic focus areas that we believe is ripe for investment: the Circular Economy.
For centuries, our economy has functioned linearly: we take materials and resources from the Earth, we manufacture products, and then we throw these products away as waste when they are no longer of use. Take, for example, plastic packaging; the average plastic shopping bag, take-out container, and plastic utensil set are used for only 12 minutes before they are discarded, and with only 5% of plastics being recycled annually in the US, there is a good chance they go straight to the landfill [1]. Every year, the world consumes over 100 billion tonnes of material, generating 45% of total global greenhouse gas emissions [2]. Our use of resources has tripled over the last 50 years and could double again by 2050 [3]. To maintain our current living standards, powered by unsustainable production and consumption, we would need 1.75 Earths [4]. This “linear economy” has put immense pressure on the Earth’s natural resources and systems, and is no longer a sustainable—or justifiable—way of living.
The need to move away from a “take, make, waste” model has introduced the concept of the circular economy, a model of production and consumption that centres around refurbishing, recycling, repairing, and reusing products and materials– not disposing of them once done with their intended use [5]. The model emphasizes the redesigning of products and processes so that goods can be used longer, repurposed into other quality goods, or efficiently recycled to increase the lifespan of materials. The circular economy is based on three, design-driven principles [5]:
• Eliminate waste & pollution by considering them design flaws and not an inevitable end to production and consumption
• Circulate products & materials through the intentional design and re-use of certain products (like plastic food or product packaging), so they can avoid the landfill
• Regenerate nature by returning organic matter (like food waste) to soil in order to increase nutrients
As of 2020, only 8.6% of our global economy is considered “circular” [4]. However, the concept of reusing and repurposing materials is steadily gaining traction as a sustainable investment theme.
An increased prevalence of environmental challenges, such as increased pollution, government action (e.g., plastic taxes and bans of single-use plastic), and changing consumer sentiment, is forcing companies to end their reliance on finite resources and look to more sustainable, circular solutions. Within the next 10 years, the circular economy could result in US$4.5 trillion in global economic benefits, such as diverting 92 million tonnes of textiles from landfills and saving 1.3 billion tonnes of food waste every year [6]. This enormous, trillion-dollar opportunity is turning investors’ heads as the push towards a more circular economy drives new business models and innovation. Since 2019, circular economy-focused public equities assets grew from US$300 million to US$9.5 billion, and the number of private equity funds dedicated to the circular economy increased 10-fold [6].
Investors looking for public equities addressing this demand for a circular economy need not look further than True Alpha. Our purpose-built trading algorithm works within a universe of selected, impact-focused public equities in six thematic focus areas. Among True Alpha’s Circular Economy vertical are Waste Connections, Darling Ingredients, and PureCycle Technologies.
Waste Connections (NYSE:WCN).
Founded in 1997 and headquartered in Canada, Waste Connection specializes in collection, transfer and disposal of waste, as well as recycling services. In 2020, the company committed $500 million to achieving their sustainability targets, and managed to eliminate 18.2 million metric tonnes of CO2 emissions [7]. As of Jan 9, WCN’s market cap is US$33.9B [8].
Darling Ingredients (NYSE:DAR)
In operation since 1882, Darling Ingredients reduces waste in the agri-food industry by collecting animal by-products that would otherwise be discarded, and transforming them into specialty ingredients such as collagen, edible fats, and organic fertilizers. Darling was selected by Investor Business Daily for their 100 Best ESG Companies of 2021 [9]. The company’s market cap as of Jan 9 is US$10.6B [10].
PureCycle Technologies (NASDAQ:PCT)
PureCycle Technologies specializes in producing recycled polypropylene plastics through a licensed process that turns waste plastics into virgin-quality resins. In doing so, PureCycle is able to close the loop on the reuse of recycled plastics. The company began trading on the NASDAQ in March 2021 and has already garnered a market cap of US$1.08 billion [11].
To learn more about True Alpha and our circular economy-focused picks, please contact Fund Manager, Kai Chen (kai@truenorthimpact.com)
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