Is our current economic system fit for purpose?

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With ever-greater awareness of the flaws of our ‘take, make and waste’ economic model, there is now a determined shift towards a more circular economy, says Sasha Thompson, Investment Analyst with Walter Scott.

Is our current economic system fit for purpose? Now more than ever –with climate change and the Covid-19 pandemic posing significant environmental, social and governance challenges – the question is a crucial one.

In its 2019 Global Resources Outlook report, the United Nations estimated the “extraction and processing of materials, fuels and food” generated half of all global greenhouse-gas emissions.¹ Data provider The World Counts, makes a similar point. It estimates human activities were responsible for the release of 43.1 billion tons of CO2 into the atmosphere in 2019. This was an all-time high, breaking the previous record from 2018.

So far, so unsustainable. But perhaps there is a better way? For Sasha Thompson, Investment Analyst with investment management firm Walter Scott, recent data on climate change talks to the need for a circular economy. Here, the ambition is simple: to minimise waste and to maximise the value extracted from resources by designing more efficient products and manufacturing processes.

Says Thompson: “Numerous data points suggest our current linear ‘take-make-waste’ model is unsustainable. It assumes abundant resources are easily sourced and can subsequently be cheaply discarded with few ramifications. But from an environmental and socioeconomic point of view that’s simply not true.“

Thompson notes that, while alternative energy sources are crucial to meet the goals of the Paris agreement², the targets become considerably more difficult to achieve if efforts aren’t made to change production and consumption habits sufficiently to decouple GDP growth from global materials use. Other well-documented and pressing environmental issues related to the proliferating use of materials include the prevalence of plastics in our oceans, biodiversity loss and water scarcity. 

The answer, says Thompson, is to establish a system of mutually reinforcing cycles whereby materials are kept within supply chains for the maximum amount of time possible through the enhanced durability, reparability and upgradeability of products, and then either recycled or the maximum amount of valuable material extracted. Prior to this, waste can be significantly reduced at the design phase of a product alongside the use of sustainable substitutes. 

This approach could have its own benefits too. According to a 2015 McKinsey report – “Europe’s circular-economy opportunity” – a transition to a more circular economy could generate €1.8trn of net economic benefit by 2030. Cambridge Econometrics, likewise, has suggested a transition to a circular economy could create 700,000 high-skilled jobs.

Circular Economy Systems Chart

Source: Ellen MacArthur Foundation, Circular economy systems diagram. February 2019.

Industry pioneers

All of this sounds good but how is it working in practice? According to Thompson, and as might be expected of an industry at the forefront of today’s technology, a number of companies within the semiconductor sector are already pioneers in the drive to sustainability.

For instance, one company that provides critical equipment for the semiconductor industry has taken substantial steps to bring the circular economy into the heart of its processes. Says Thompson: “Roughly 45% of this flagship product remains in place throughout upgrade cycles. Its mature products and services business aims to refurbish and upgrade older lithography systems to extend their lifecycles, with 91% of its legacy systems sold still in use today. This is a testament to the company’s success and commitment to circular principles.”

A second semiconductor producer cited by Thompson introduced circular economy approaches to its business model in 2016. This company tracks unit waste disposal per wafer and has developed in-house capabilities to recycle electronic-grade sulphuric acid and to extract copper and cobalt from liquid waste with electroplating systems.

Says Thompson: “Not only is this beneficial to the environment but it has allowed the company to be more self-sufficient, reducing its reliance on outsourcing the treatment of metal-containing liquid waste and on the purchase of industrial-grade sulphuric acid.”

One step at a time

Elsewhere, Thompson highlights the case of two global footwear brands which are likewise embracing the circular economy.

The first of these companies launched a sustainability initiative in 2019 which recovered approximately 87 million pounds of footwear scrap, which could then be repurposed in premium running tracks, basketball courts, and new shoes. The same company also launched a footwear subscription service for children whose styles and sizes change at an accelerated pace.

The second company launched a new footwear range which incorporated collected waste material into the design of 15 million of its shoes in 2020, Other actions include the creation of a 100% fully recyclable shoe and a tennis dress that is fully biodegradable. 

Says Thompson: “These are just some examples of the breadth of circular solutions being adopted by companies across all industries. The circular economy is now a key part of the solution as we all strive for a more sustainable future and should no longer be considered a niche concept with limited application. It will be interesting to see how the regulatory landscape develops, with increasing calls to place circularity at the forefront of green agendas, including the use of tools such as carbon pricing to incentivise a transition away from take-make-waste models.”

Important information

https://www.bnymellonim.com/outlook/global-disclosure/

GE651750 Exp: 11 February 2022 

¹ UN Environment Programme annual report letter from the executive director 2019.
² The Paris Agreement came into force in November 2016 and was signed by 196 governments. Its goal is to limit global warming to well below two degrees Celsius.

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