Jake Moeller, associate director – responsible investment, Square Mile Investment Consulting and Research, looks at 5 funds benefitting from recycling and the circular economy.
Our planet’s resources are finite, and with growing populations, it is becoming increasingly important to find ways to minimise and reuse waste.
By giving new life to old materials, we can conserve natural resources, reduce pollution, and even create new jobs. Pleasingly, this is a growing trend in the investment world, and some funds have been investing in companies that offer exposure to the burgeoning circular economy.
1. UBAM Biodiversity Restoration (3D Gold)
This fund aims to invest in companies seeking to protect and restore the natural environment and/or improve the sustainable use of natural resources. For this purpose, the investment team assesses companies based on their revenue alignment to seven biodiversity themes: (i) Circular Economy, (ii) Planet-Compatible Utilities, (iii) Green Cities and Urban Spaces, (iv) Sustainable Management of Natural Resources, (v) Enablers of Change, (vi) Planet-Friendly Diets, and (vii) Sustainable Food Production.
Additionally, businesses within the fund’s investible universe are rated according to four impact intensity factors, which vary from the products/services’ scalability potential to the significance of environmental solutions to the business plan.
The investment process selects some companies, such as Clean Harbours Inc., a leading provider of environmental and industrial services, including hazardous waste disposal and re-refining of used oil; Waste Management Inc., a company involved in waste collection, transportation, and disposal with operations in recycling and renewable energy; and Sims Ltd., an international leader in metal recycling.
2. Artemis Positive Future (3D Gold)
This fund invests in companies that can potentially contribute to a more sustainable future and that can ‘disrupt the status quo’. Alongside an exclusionary screen that removes companies involved in controversial activities from the investible universe, the team seeks out businesses that offer a positive impact through their products and services, focus on disruptive innovation, and have the potential to grow.
The investment management team is mainly driven by a qualitative approach when performing its research duties but also utilises quantitative screening and third-party ESG data.
Some of the companies linked to the circular economy that were found in the fund’s portfolio include Avery Dennison Corp, a multinational manufacturer and distributor of pressure-sensitive adhesive materials which has been increasingly using recycled content and promoting circular economy through corporate initiatives; Tetra Tech Inc., a consulting and engineering firm focused on waste management systems and recycling facilities; and Montrose Environmental Group, a company that helps clients assess and clean up contaminated sites while complying with environmental regulations.
3. Regnan Sustainable Water and Waste (3D Gold)
This fund has a unique core sustainability objective: to invest in companies that provide solutions to global water and/or waste-related challenges. The foundation of the team’s belief is that water and waste products and/or services are continually overlooked by investors, which presents an invaluable investment opportunity.
To be part of the investible universe, a company must derive more than 40% of its revenue from water desalination, wastewater treatment, water infrastructure construction, waste sanitation, pollution prevention, or sustainable packaging. Moreover, third-party scoring data is used to classify companies according to their ESG risks.
Examples of portfolio companies that contribute to the circular economy theme include Republic Services Inc., a major waste management company that handles the collection, transportation, and disposal of various waste streams; LKQ Corp., a company dealing with recycled and aftermarket automotive parts; and Copart Inc., an online marketplace operating firm that facilitates the reduction of the overall waste of vehicles deemed salvage.
4. Pictet Global Environmental Opportunities (3D Gold)
This sustainable global fund aims to invest in a portfolio that is highly aligned with environmental solutions. Companies selected by the team are usually operating in services, infrastructure and technologies related to resource efficiency.
Pictet has adopted a third-party scientific framework to construct its investible universe for this fund, known as the Planetary Boundaries Framework. It identifies nine key environmental dimensions (climate change, freshwater change, stratospheric ozone depletion, atmospheric aerosol landing, ocean acidification, biogeochemical flows, novel entities, land-system change, and biosphere integrity) and specifies thresholds that humanity should avoid crossing to prevent irreversible and catastrophic environmental damage.
For inclusion in the portfolio, the business models of the investee companies are analysed for thematic revenue purity. This means that they need to generate more than 20% of their revenue from at least one of the fund’s proprietary themes, which range from renewable energy to waste management.
Waste Connections Inc., Smurfit Kappa Group, and Westrock Co. are some of the portfolio holdings aligned to the circular economy theme. The first one provides collection, disposal, and recycling services to residential, commercial, and industrial customers. The second and third ones are major players in paper-based packaging solutions and utilise recycled fibres in their production processes.
5. Ninety-One Global Environment (3D Gold)
This fund aims to invest in globally listed equities that use sustainable decarbonisation to promote positive environmental change. The allocation process is based on three key pillars: (i) Invest: ESG considerations must be integrated into all investment processes; (ii) Advocate: engagement with companies, governments, and civil leaders is indispensable; (iii) Inhabit: as a group, Ninety One starts the change internally and commits to the reduction of its own footprint.
Overall, the fund invests primarily in companies that provide or utilise technology-based systems, products, or services in environmental markets, particularly those of alternative energy, decarbonisation, energy efficiency, water treatment, pollution control, waste technology and resource management.
Circular economy is mainly represented in the portfolio by companies such as Waste Management Inc., which was previously mentioned for being held by another fund and that can be classified at the intersection of two key trends: decarbonisation and circularity. The company has a multi-year plan for significant investments in renewable energy and recycling and has a strong commitment to safety and innovation in the waste management industry.
