From Cockroach Factories To Cosmetics: Why Garbage Could Be More Treasure Than Trash

From Cockroach Factories To Cosmetics: Why Garbage Could Be More Treasure Than Trash
Milou Beunk

over 2 years ago3 mins

  • Increasing levels of worldwide waste are a big problem, but fortunately you can invest in companies that turn trash into desirable goods, so don't waste this investment opportunity.

Increasing levels of worldwide waste are a big problem, but fortunately you can invest in companies that turn trash into desirable goods, so don't waste this investment opportunity.

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What’s going on here?

The problem of proliferating waste is one with which almost everyone today is familiar. There are still some surprises, however: for example, did you know that 60% of clothing is buried or burned within a year of being made, 33% of edible food is thrown away uneaten, and 50% of all plastics are single-use? The World Bank predicts that waste levels could be growing twice as fast as the global population by 2050 – but that expansion also creates growth opportunities for investor portfolios.

What does this mean?

Our throwaway lifestyles already generate vast amounts of waste – and the garbage heap is set to grow even more rapidly as emerging markets develop a taste for Western consumerism. While the planet’s richest countries are now generally getting more conscious of their disposable societies’ environmental impact, the US remains the world’s worst offender in terms of waste per capita, thanks in part to its infamously poor recycling rates.

Waste per capita
Source: Source: Verisk Maplecroft

Maximum use of products must be made if the world is to avoid being overwhelmed with waste. This requires moving away from the linear “take-make-waste” model of modernity towards a more “circular” economy. As well as focusing on greater reuse of waste as a new resource, the circular economy aims to extend the life of existing products and encourage wider principles of leasing and sharing. Many companies around the world are already developing new techniques that treat trash as a treasure trove of raw material – with quirky examples including cockroach factories that turn food waste into cosmetics, manure piles as an energy resource, and coffee pods becoming bicycles.

Such circular economy initiatives appear to make economic sense as well. The Ellen MacArthur Foundation estimates that the adoption of circular principles in Europe alone could offer annual benefits of $2 trillion by 2030, while they could help Chinese businesses and households save $10 trillion a year by 2040.

Why should I care?

Waste as an investment theme seems to be catching on lately. Money managed in public stock funds focused on the circular economy has increased sixfold since the start of 2020, swelling to over $2 billion. It may be no coincidence that these funds also outperformed their benchmarks by an average of 5 percentage points in the first half of the year. This is an admittedly short timeframe, and most funds don’t yet have proven track records. Still, such investment opportunities are certainly increasing – and they could potentially offer you handsome returns.

Longer-term data also seems supportive: in the UK, companies in the waste sector have consistently created more value than the overall economy for much of the past two decades.

UK waste sector performance
Source: Fidelity International

The simplest and cheapest way to invest is through an exchange-traded fund (ETF). French bank BNP Paribas launched its Easy ECPI Circular Economy Leaders ETF in 2019, tracking an index of the top 50 major global corporations with exposure to the opportunities offered by an increasingly circular economic model.

You could also park your money into an actively managed – but also more expensive – fund, run by a professional investor selecting stocks they think will outperform the market. One of world’s largest asset managers, BlackRock, launched the BGF Circular Economy Fund last year.

While the investment options are relatively plentiful, however, skeptics say the general theme still isn’t big enough to buy into just yet. They argue that many of the young companies developing innovative techniques to recycle and reuse rubbish aren’t yet listed on stock markets. Companies that are currently included in funds, meanwhile, include those that are transitioning towards a circular economy – but may still consume many raw materials or generate high CO2 emissions. The index tracked by the BNP Paribas ETF, for example, features names which investors might not immediately associate with waste reduction. Among its top constituents are serial sneaker shipper Nike and machinery manufacturer Caterpillar; while both firms are making environmental strides, they remain big consumers for now.

Unfortunately, the difficulty of finding “pure-play” companies is one which often occurs in sustainable investing. So if you do decide to square your investments with the circular economy, don’t waste the opportunity to pick wisely…

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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