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Every year, boy scout kids learn about Leave No Trace principles when they arrive at summer camp. The kids seamlessly assimilate that minor digressions may have little significance, but that thousands of such instances seriously degrade the environment and quality of life experience for all.
Circular economics pursue a similar objective by favoring economic development, restorative and regenerative by design, decoupling growth from finite resource consumption, eventually engendering a nimble footprint on earth. It focuses on three principles: design waste-and-pollution-free products; recycle and upscale materials in use; and regenerate natural systems. It spurs circular design thinking as a substitution for the linear growth mindset.
It was “The limits to growth” report issued by the Club of Rome in 1972, which brought the finite resource constraint to the unfettered economic growth ideal to the world’s attention. Aurelio Peccei, who founded the Club of Rome, and a group of reputable scientists (including Donella Meadows) and business leaders had warned for pollution and depletion of natural capital resources in conjunction with global population growth.
Michael Braungart, a German chemist, and American architect William McDonough tried to offer a support movement in the early 90s with the introduction of the “Cradle to Cradle” concept, propagated in their namesake book. Their design mottos centered around reduce, re-use, and recycle. It was a move away from the “Cradle to Grave” paradigm.
Barely 50 years later, we are faced with a five-headed crisis: the earth’s climate and life-supporting systems are imperiled, socio-economic inequalities have only been reinforced, the economic foundations are fragile, trust in institutions and international trade has eroded, and the Covid-19 pandemic, laid a weak public health infrastructure bare.
In his latest book, “The green swan”, author John Elkington observed that the corporation imposes a spectrum of economic, social, and environmental costs on society because it makes commercial sense to do so, and, loosely interpreted, the rules of the game do not forbid it.
Since the break-up of Bretton Woods in 1971, those same corporations have experienced exponential leverage growth, availed through financial and non-financial institutions facilitated credit supply. Debt and equity capital allocation, agnostic of carbon and natural capital footprint of massive fossil fuel and finite resource extraction, spurred sprawling industrial production and unfettered consumption, enhanced by global population growth.
How could the circular economy offer alternative pathways and outcomes?
Let’s look at some recent corporate developments along with the circular economy’s founding principles.
Design waste-and-pollution-free products
Last week, The Recycling Partnership and World Wildlife Fund (WWF) launched the US Plastics Pact, part of the Ellen MacArthur Foundation’s global Plastics Pact network, an ambitious initiative across the plastics value chain to rethink the way plastics are designed, used, and re-used. More than 60 brands, including Coca-Cola, L’Oreal, Danone North America, Unilever, Target, and Walmart, will collaborate for all plastic packaging to become reusable, recyclable, or compostable by 2025.
The Zero Waste Cities is a Brussels based NGO, undertaking a continuous effort to phase out waste – not by burning or land filling it – but instead by creating and implementing systems that do not generate waste in the first place. The network, covering 24 countries, has developed expertise covering the implementation of separate collection, Pay as You Throw (PAYT) collection schemes, and Deposit Return Systems (DRS).
But more severe challenges lie ahead. How to decarbonize the four most ubiquitous carbon-intense materials in our society: steel, concrete, plastic, and synthetic fertilizers?
Recycle and upscale materials in use
A Maria Kelleher study prepared for the American Petroleum Institute concludes that about 525,000 Electrical Vehicle (EV) batteries will reach the end of life by 2025 and over 1 million units will hit the end of life by 2030 (figures are based on EV sales data from 2000 to 2018 and sales projections to 2023). JB Straubel’s, Tesla co-founder, new startup Redwood Materials, has seized this trend by developing processes to recycle battery waste products to be redeployed in new batteries. The Nevada based entity is operating not far from Tesla Gigafactory. Earlier this year, JB Straubel raised around $40 million from Capricorn Investment Group and Breakthrough Energy Ventures investors in his first fundraising round. This environmental investment fund includes Amazon.com Inc founder Jeff Bezos and Microsoft Corpco-founder Bill Gates.
Regenerate natural systems
Regen Network is a Techstars accelerated startup, offering IoT supported tools to regenerate the earth’s natural capital assets. Farmers who deepen carbon sequestration capacity by rolling out topsoil changes can earn carbon offset credits. Similar approaches could be envisaged for (re-)planting trees (forests) and preservation of wetlands (flood protection). Earned credits can be traded on emissions trading platforms in California and Canada. What could educationally be more inspiring than offering kids a similar experiential learning opportunity by providing carbon credits to plant trees in their back garden? With the support of a GPS based location app (to register untampered carbon sink offsets), carbon credits could be earned during childhood, while monetized proceeds could finance future college tuition. May be a startup idea for a green robo-advisor.
From a macro-perspective, why not have every single appliance or product (iPhone, iPad, computer, car, washing machine) tendered back to the manufacturer at the end of the product life cycle? The manufacturer could recycle and upscale product components, and the customer could put the received credit to use for a new purchase, geo-political tensions around finite resources would be reduced, trade balances would be improved, supply chains would be shortened, and, last but not least, the environment would be all the better for it.
The earlier referenced Ellen Macarthur Foundation, is a UK based charity named after Dame Ellen MacArthur, who made yachting history in 2005 when she became the fastest solo sailor to circumnavigate the globe.
The NGO is committed to creating a circular economy that tackles some of the biggest challenges of our time, such as waste, pollution, and climate change. It undertook a strategy to reach out to the finance industry to accelerate the transition to a circular economy by launching new products and services panoply coupled with emerging infrastructure platforms.
It is not an exaggeration to state that there hasn’t been any traditional bank, and by extension, finance innovation since the early 90s culminating in the launch of securitization techniques and interest and credit derivatives, post the introduction of ATMs in the mid-80s.
With the circular economy framework defined, which financial institution will be the first to take carbon offset market infrastructure mainstream? Which one will introduce an innovative pricing mechanism along CDO structuring methodology to capture the reduced externalities of large-scale circular economy exposure? Which one will deploy a smart contract steered financing transaction on the back of a distributed ledger supported value chain tracing recycled and upscaled components over the product life cycle? Which financial institution will establish a framework of transparent circular economy performance metrics? And finally, which one will bring a first lien securitization to market on future (Apple and Samsung) receivables to finance the end-of-life product material tendered by customers?
Within the circular economy paradigm, financial institutions have an enormous opportunity to introduce an innovative product offering with attractive risk-adjusted returns while capturing new customers and leaving a nimble carbon footprint. Maybe a panacea to address depressed price-to-book ratios.
Simultaneously, as during summer camp, leaving no trace is everyone’s responsibility in real life, today and for days to come. Frank Van Gansbeke, Forbes
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