Global circular economy leaves $6.3 trn out for collection

Put bluntly, we’re using and wasting an extraordinary amount, especially as we become more technologically advanced.

Bearing this in mind, the awareness of the global circular economy has grown markedly in recent years as champions of sustainability promote consumption based on the reuse of products, by-products and waste, rather than a never-ending cycle of resource exploitation.

More pertinently, the global value of so-called circularity could yield up to $US4.5 trillion ($6.3 trillion) in economic benefits by 2030, according to the World Economic Forum.

According to HSBC Group’s Advisor of Future Cities and New Industries, Professor Greg Clark, the size of the potential in Australia in terms of job and wealth creation by switching to a more circular economy is significant and “there’s a big acceleration going on right now”.

PwC suggests the circular economy could offer the local economy around $1.8 trillion in value by 2040, while KPMG says around $25 billion annually by 2025.

Clark says it will be impossible for the world to reach its COP26 goals around global warming unless we see a big upswing in circularity, especially as around 80 per cent of the projected world population will be living in cities.

For Clark, the circular economy is particularly relevant in the area of waste across a number of aspects.

“Firstly, it all comes down to what do we do with our industrial, commercial and residential waste,” says Clark.

“Secondly, it’s about food and how we use food waste. The third one is water, the water we drink and where that comes from, how it’s processed and what our toleration is for recycled water.”

He also highlights land and whether we are efficient in its use, as well as our buildings, “both where and how we construct them, and how we deconstruct them and reuse them.”

“And then clearly it’s about our vehicles, and in particular, as we think about the shift towards electric vehicles, it’s about batteries, the precious metals that are in them and how those are reused and recycled.

“The circular economy is about very practical things and shifting us from what we might call a linear model of create, use, dispose, discard to a circular model which is to recreate, reuse, upcycle and then use again and again.”

Yet getting there does require some heavy lifting and Clark says there are multiple ways to help business get there.

“On the governmental side, what you need are the right kinds of regulations and the right kinds of incentives. So regulating against waste and pollution as well as the misuse and overuse of resources, and you’ll see every country in the OECD and many others improving their regulation in this space,” he says.

“The second one is to apply governmental resources for trade promotion, investment promotion, enterprise development and innovation.”

As for the role of banks, it’s about assisting companies to finance their journey to becoming more circular in their use of resources and this has to be active rather than passive.

The upshot being that the more a business switches towards circular processes and away from linear processes, “the more you’re going to be helping to achieve decarbonisation goals as well as wider environmental social and governance goals”.

“And the more a company is able to achieve environmental and social goals, the more a bank like HSBC can incentivise that process and make the financing an active part by discounting the pricing on the more circular elements of their business,” says Taylor.

“At the same time, if a client has a green financing credential, then everybody knows the client has likely gone through a rigorous process of monitoring, methodology, and transparency that adds to their credibility.

“It’s a brand enhancing activity as well as a cost-reduction activity. Banks and sustainable finance are now an active ingredient in this process, and that’s what HSBC is to seeking to do.”

The “key performance indicators” integrated into sustainable finance may include ambitions to reduce landfill waste through recycling and repurposing materials and/or reducing and reusing water. Such initiatives provide a wider range of companies with an ability to play their part in supporting a circular economy.

Taylor says the bank is already seeing local companies attach KPIs related to waste management or water usage, for example, to bonds and sustainability linked loans.

“While these initiatives might not signal a deliberate shift to the principles of a circular economy, they do highlight that the financial sector continues to develop mechanisms which help companies and governments to realise their sustainability goals and take action in areas within their control,” she says.

To reach global sustainability goals Clark reiterates the importance of picking up the pace on increasing circularity. He says the good news is we’re starting to see that post-pandemic - through initiatives like the European Green Deal and Build Back Better in the US.

As appeared in the Australian Financial Review.