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When we think about addressing climate change, we typically focus on direct sources of emissions, and opportunities in alternative and renewable energy. However, over the past six months, it is companies operating in less high-profile impact investment market segments such as water and waste improvement, and sustainable products, that have seen significant growth.
The table below shows the average stock and total portfolio contribution returns from each of the five climate sub-segments identified in the Solactive Climate Change and Environmental Opportunities Index.
* Solactive Climate Change and Environmental Opportunities Index used as proxy to climate change sectors over 6 months to 10/09/2021. Past performance is not indicative of future performance.
Taking a closer look at what will be required, beyond just renewable energy, to tackle climate change and achieve net-zero emissions by 2050 helps to reveal why these sectors are experiencing such growth.
The circular economy
Governments and businesses are rapidly recognising the need to improve the existing ‘take-make-waste’ linear model of production and are beginning to transition to a circular economy – one that avoids waste through improvements in design and recovery of materials that can be reused.
The European Commission, for example, has this model central to its thinking in announcing a Circular Economy Action Plan as a core part of their European Green Deal. European governments see not only a significant benefit to the environment but also an opportunity for their economies and the businesses that can create value from the 88% of secondary materials and resources being wasted during the production and consumption lifecycle1.
The recycling boom
Essential to this transition is the recycling industry.
One of the most important and high-profile recycling challenges facing producers and sustainable innovators is plastic waste. Plastic waste production and incineration will pump more than 850 million tonnes of greenhouse gases into the atmosphere this year alone. By 2050, those emissions could rise to 2.8 billion tonnes2. Solutions in plastic production and waste management are therefore considered one of the most vital contributors to pollution targets, and by proxy, capital expenditure.
Beyond plastic waste, circular economy thinking is revolutionising industries across the production landscape, including materials like metals. The factors driving growth in this market include:
- rising demand for metals across various industries, particularly complex metals used in technological devices and electric vehicles
- the increased focus toward conservation of natural resources, and
- policies to reduce greenhouse gas emissions.
For example, the first regulation under the EU’s Circular Economy Action Plan aims to ensure batteries used in the European market are sustainable and safely recycled through their entire lifecycle3.
Companies contributing to global circular economies
The BetaShares Climate Change Innovation ETF (ERTH) provides exposure to a diversified portfolio of global companies that are helping address the climate change problem through the reduction or avoidance of CO2 emissions. Below are some of the companies in ERTH that are contributing to rapidly developing circular economies globally:
Umicore operates one of the largest and most complex precious metals recycling operations in the world. The Belgian company is able to recycle waste across the entire value chain of metal operation, from slag and spent fuel cells during operation to end-of-life products like spent rechargeable batteries, electronic devices, and hybrid electric vehicles. Amongst other applications, Umicore refines the complex metals to be used in their supply of electric vehicle raw materials. As an example, Umicore recently began working strategically with Audi to achieve 90% cobalt and nickel recovery from the Audi e-tron high-voltage batteries4. Umicore’s operations directly align with the EU’s first circular economy regulation.
Carbios, a French Biochemistry company, was named one of the 100 most promising technology pioneers of 2021 by the World Economic Forum. Carbios has developed new enzymatic recycling technology, enabling the production of polylactic acid (PLA) plastic substitutes which are 100% recycled and 100% recyclable plastic products, without loss of quality.
Tomra, the world leader in recycling sorting, operates 84,000 reverse vending machines globally – recovering more than 40 billion used beverage containers each year. Their extensive application knowledge and in-house manufacturing enable customers to extract higher-purity fractions from recycling and waste, in order to maximise both yields and profits. With only 14% of plastic packaging recycled today, and 2% recycled at the same quality, Tomras’ estimated value proposition based on the average price of re-used plastics is between US$50 billion and US$80 billion annually5.
ERTH provides exposure to companies that are providing the technologies and solutions to enable both corporate and governments to lower their carbon emissions across a range of sectors and industries including:
- Water and Waste management e.g. Umicore, Carbios, Tomra
- Clean energy providers e.g. First Solar, Nordex
- Sustainable products e.g. Trane Technologies, Nibe Industrier
- Enabling Solutions e.g. Fuelcell Energy Inc, Ballard power systems
- Green Transportation e.g. KION group, Tesla
There are risks associated with investment in ERTH, including market risk, international investment risk, sector risk and non-traditional index methodology risk. ERTH’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global shares exposure, given its concentrated sector exposure. ERTH should only be considered as a component of a diversified portfolio. For more information on risks and other features of ERTH, please see the Product Disclosure Statement, available at www.betashares.com.au. A Target Market Determination is also available at www.betashares.com.au/target-market-determinations.