A circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, and recycling existing materials and products as long as possible. Part of the circular economy aims to tackle global challenges such as climate change, biodiversity loss, waste, and pollution.
For investors, the opportunity set is broad but differs dramatically in terms of risk and industry maturity. We see an opportunity in companies enabling the circular economy, whether it be recycling services or the production of new biodegradable materials, but many circular concepts are still in their infancy.
In recent months, a number of announcements related to circularity helped support the thesis that circular concepts are becoming more commonplace.
One area where we’ve continued to see developments is in resale. Thrifting is not a new concept, but the rise of fast fashion in recent years has resulted in a large increase in clothing and textile waste, increasing the urgency for solutions. We continue to see M&A activity in the resale space, and several brand partnerships meant to increase secondhand purchases have been announced. We believe consolidation is a positive sign for the industry overall, as marketplace providers have struggled to reach profitability among stiff competition.
“As resource scarcities become more prominent, circularity becomes more attractive, and the entire global energy transition is reliant on mined materials. An onshore wind plant requires about nine times more mineral resources than a gas fired plant, and a typical electric vehicle uses about six times the mineral inputs of a convention car. Innovation in circular concepts will be key to facilitating this transition”, says CIO Thematic Investing Strategist, Michelle Laliberte.
To tap into the more niche and emerging industries, investors can consider private investments, which offer a prudent way to gain early-stage exposure versus small-cap public companies that tend to be more volatile.
- Circularity is gaining traction as consumers, governments, and investors become more attuned to the growing threat of resource scarcity, and the need for better waste solutions. For more, please see our full Longer term investments report "The circular economy."
- We view recent M&A activity as a healthy development for the resale industry, in addition to growing traction in brand partnerships.
- Private market solutions can offer a way to gain exposure to earlier-stage circular concepts, for investors with adequate time horizons and with the ability to endure lock-up periods.
For much more discussion on the circular economy, see the UBS Trending: The circular economy: What is it?
See the visual one pager on the circular economy.
Also see: Sustainable Investing Perspectives: Circular economy, biodiversity, and EU carbon border tax and Lessons from the shadow economy: catalytic converters & the value of scrap.
Main contributor: Amantia Muhedini
This content is a product of the UBS Chief Investment Office (CIO).