We consume a lot. And we waste a lot – not just food and packaging but clothes rarely worn and cars or tools that are used infrequently. We need to move from a linear economy where we make-consume-dispose to a circular economy in which usage is more important than consumption and disposal.
A circular economy involves sharing, recycling, re-using and waste-management. There would be less leakage; products would be designed for reprocessing; waste could become a raw material. The energy currently required to replace a product could be spent more effectively.
The world already uses more natural resources than ecosystems can naturally regenerate. The extraction, processing and manufacture of goods accounts for 62 per cent of total global greenhouse gas emissions.
The linear model generates vast amounts of waste that pollute our water, air, soil and natural spaces, destroying ecosystems and harming human health. A circular economy could significantly reduce emissions, helping to achieve Paris Agreement targets for curbing global warming, while minimising waste is environmentally beneficial.
But a switch to a circular model also provides the opportunity for efficiency gains that unlock sustainable economic development potential and improve quality of life.
Technology, particularly the smartphone, is a key facilitator. Instant knowledge of the availability of products and services allows the sharing economy to exist and thrive. Empty homes can be let short-term; ride-hailing, car rental, scooter and bike hire make car-ownership less important; music streaming makes CDs redundant; e-books mean less paper and printing.
Circularity has implications for the global economy and the way we think about it. Producing fewer goods because we re-use or share them could affect manufacturing jobs. Spending on those items would fall too. But the total usage of the goods would be unchanged. If, instead of everyone in a block of flats owning a power drill that is used just once a year they share one tool, they do just as much drilling – but at less cost to themselves and the environment.
So weak production or spending data may not be symptoms of economic weakness. Indeed, economists need to rethink the goals of economic development – should the focus shift from GDP growth to wellbeing or other measures?
The move towards a more circular economy can unlock USD4,500 billion of global GDP by 2030, according to the World Economic Forum, as resources are better utilised and employment switches from resource extraction and waste-disposal to higher-skilled productive industries.
People are already switching to a ‘using economy’. Their demand is driving the trend to sharing and consumers are considering the environmental consequences of their choices.
But the world is still only 9 per cent circular. Government policy can nudge consumer behaviour. Encouraging more recycling is meaningless unless there are adequate waste collection, sorting and processing systems in place, for instance, and programmes to facilitate the shift to new jobs will be key in maximising the economic gains from a circular economy.
Given the focus on green issues and the opportunities for growth, we expect the circular economy to feature much more in future policy making.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: James Pomeroy
Equities: Stock ratings and basis for financial analysis
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