Recycle, share and reuse: Why the circular economy is a big issue for the future

"Around 70 percent of global greenhouse gas emissions and around 90 percent of global biodiversity loss can be traced back to the extraction and processing of resources," says Paul Buchwitz, portfolio manager for global equities at DWS, on the occasion of Earth Overshoot Day 2023.^[1] The goal, he says, must therefore be to transform the linear economy, which is focused on producing, consuming and discarding, into a carbon-neutral and ecologically sustainable circular economy. "This is the only way we can use raw materials more efficiently and decouple economic growth from resource consumption," Buchwitz adds.

Only 7.2 percent of the global economy circular so far

Earth Overshoot Day marks the day when humanity has used up all the natural resources that the Earth's ecosystem can provide within a year. This year, the day falls on August 2.^[2] The fact that humanity is using up as many ecological resources as if it lived on 1.75 Earths is due to the increasing global consumption of natural resources, which has more than tripled since 1970.^[2] What's more, with an immense circular economy gap, the world relies almost exclusively on new resources: "As of today, only 7.2 percent of resources are returned to the circular economy at the end of their useful life”^[3], according to Buchwitz.  Conversely, this means that more than 90 percent of resources are wasted, lost or cannot currently be reused.^[4] 

Estimated potential: $4.5 trillion in additional economic output by 2030

"Companies that offer innovative technologies, products and services as part of the efficient use of resources should therefore be able to tap into attractive growth markets - not least because the topic is also receiving increasing tailwind from the regulatory side," says Buchwitz. The launch of the EU action plan for the circular economy and the expansion of the EU taxonomy to include the categories of the circular economy are likely to attract even more attention to the topic in the future, also from investors.^[5] The fact that the idea of the circular economy is anchored in the Sustainable Development Goals (SDGs) of the United Nations should also provide support. "Goal 12 is aimed at sustainable consumption and production," explains Buchwitz. Given the enormous economic potential, the topic could also offer investors opportunities: "According to estimates, the circular economy could generate an additional economic output of around 4.5 trillion U.S. dollars worldwide by 2030," says the portfolio manager.^[6]

More than just recycling

One point is particularly important to Buchwitz: The circular economy is often equated with recycling. However, this is far too short-sighted: "Recycling continues to play a major role. But increasingly, topics such as maintenance, extending the useful life, sharing, renting, reusing, redistributing, renovating and remanufacturing are also coming more into focus." For example, so-called product-as-a-service offerings, in which a provider retains ownership of a product and the customer acquires access to it. Similarly, alternative business models such as sharing economy solutions, where products are shared by several people, are also likely to be in greater demand in the future: "Cars are only used five percent of the time on average. With car sharing, not only can utilization be increased, but far fewer vehicles are needed overall."^[7]  Buchwitz also sees opportunities with regard to secondhand clothing, behind which there is also a social component in view of more affordable prices: "The global market for secondhand clothing has tripled within two years." According to one study, the secondhand market already accounts for three to five percent of the total clothing, footwear and accessories sector and could climb to as much as 40 percent."^[8]