investment viewpoints

    Biomaterials: nature’s renewable alternative

    Biomaterials: nature’s renewable alternative
    Alina Donets - Portfolio Manager

    Alina Donets

    Portfolio Manager
    Pascal Menges - Head of Equity Investment Process and Research, Client Portfolio Manager

    Pascal Menges

    Head of Equity Investment Process and Research, Client Portfolio Manager

     

    While chemicals are useful, they are also harmful and resource-intensive. Biomaterials are part of the green chemistry industry that represents a non-hazardous and resource-efficient alternative with enormous potential.

     

    Need to know:

    • Worldwide, chemicals are a big part of the economy, but they rely substantially on fossil-fuels and minerals extraction, and produce harmful pollution
    • Bio-based chemicals and enzymes (or biomaterials) can be used as alternatives to chemicals derived from fossil fuels while promoting the transition to a circular bio-economy and supporting price and economic stability through greater independence from constrained resources
    • Natural, non-hazardous alternatives based on renewable biological resources are rapidly growing market share while supporting, rather than depleting, ecosystems

     

    Biomaterials and the circular bio-economy

    In the circular bio-economy, biological resources are renewable, sustainably managed, recovered and reused as much as possible. Taking into account the various products and applications where innovation would allow us to rely on biomaterials instead of mineral or non-renewable alternatives, nature could supply up to 60% of our economic inputs1.

    Bio-based chemicals and enzymes (or biomaterials) can be used as alternatives to chemicals derived from fossil fuels. Leveraging nature’s regenerative qualities, they are neither hazardous to humans and ecosystems nor depend on extracting resources. Incorporating the self-regenerative features of nature through the use of bio-based materials can over the long run alleviate much of pressure and harm to eco-systems, while also improving the balance of access to important economic inputs globally.

    Our Natural Capital strategy taps into the growth opportunities from harnessing the regenerative power of nature and preserving it through a leaner form of industry. Biomaterials are aligned with the circular bio-economy, which is one of four sub-themes of growth opportunities in our strategy.

     

    FIG. 1 Four investment themes drive the Natural Capital strategy

    Source: LOIM. For illustrative purposes only.

     

    Chemicals are a big business

    Worldwide, chemicals are used in myriad industrial and household applications, and permeate many aspects of daily life. They are useful, but is our heavy usage of them sustainable?

    From 2000 to 2017, chemical production capacity worldwide almost doubled from 1.2 to 2.3 billion tonnes, and the industry exceeded USD 5 trillion in value. Between 40,000 to 60,000 industrial chemicals are used in global commerce2. As chemical-intensive sectors like construction, autos and electronics grow, the industry is projected to double again by 2030 to USD 10 trillion.

     

    Resource-intense and polluting

    Substantial fossil-fuel and minerals extraction is crucial in the traditional production of3:

    • Petrochemicals and derived materials, like styrene used in plastic packaging and disposable consumer products
    • Consumer chemicals, such as detergents
    • Specialty chemicals, including dyes widely used in textiles and in other industries
    • Basic inorganics, like fertilisers
    • Polymers, such as widely used durable plastics

    In 2015, almost 1,700 million tonnes of feedstocks and secondary reactants were used to produce 820 million tonnes of chemical products.

    Chemicals represent a harmful source of pollution, too. About 62% of the 345 million tonnes of chemicals used in the European Union (EU) in 2016 were hazardous to humans4. Many chemical products and their associated waste have hazardous properties and mismanagement leads to millions of tonnes of air, water and land pollution that is a major cause of disease and premature deaths for people and produces similar damage to many other living organisms. In 2016, the burden of disease caused by certain chemicals was estimated to be 1.6 million lives and 44.8 million disability-adjusted life years.

     

    Disrupting planetary balance

    In 2016, 35% of chemicals used in the EU were harmful to terrestrial and aquatic environments5. Plastic pollution, for instance, is a known cause of marine-life mortality and also negatively affects terrestrial animals. Chemical pollution threatens ecosystem services vital to economic and environmental stability by contributing to oceanic dead zones, harming pollinators, accelerating antimicrobial resistance and degrading coral reefs.

    The extent of agrochemical pollution and toxic waste caused by humanity has resulted in these two planetary boundaries being transgressed. We use the planetary boundaries framework to help define the various dimensions through which economic model may impact natural capital6.

     

    FIG. 2 Toxic waste and agrochemical pollution are two of the planetary boundaries that have been crossed

    Source: LOIM analysis; based on Rockstrom et al (2015), updated based on Transformation is Feasible Report by Randers, Rockstrom et al (2018).  For illustrative purposes only.

    1) IPCC Global Warming of 1.5C report (2019)
    2) World Wildlife Fund and Boston Consulting Group (2015)
    3) BBC/EPA
    4) FAO (2015)
    5) UNEP (2016)
    6) Living Planet Index
    7) OECD (2016)
    8) Trucost (2013

    A non-hazardous alternative

    Natural, non-hazardous alternatives that are based on renewable resources exist – and are rapidly growing market share while supporting, rather than depleting, ecosystems.

    Research into green chemistry has advanced rapidly with supportive regulation, public awareness and consumer demand in the past decade, driving progress in fields including: bio-based chemicals, renewable feedstocks, safer solvents and reagents, green polymers and the atom economy.

    The market value of the global green chemistry industry was reported to be more than USD 11 billion in 20157, and grew to account for more than 14% of the overall chemicals market by 20198. The pandemic has not slowed it down: analysis shows that the green chemistry industry is likely to grow at a CAGR of 6.6%-11.5% from 2020-2025.

    With increasing difficulties and instability in accessing traditional chemicals, bio-based alternatives can be also viewed as a step toward stabilising supply chains, production capacities and over the long term, potentially the risk of inflationary pressures, too.

     

    Enzymes: natural catalysts

    Enzymes form a part of the green chemistry industry. They are proteins that promote specific chemical reactions and are the foundation of metabolism. They accelerate biochemical processes, making them more energy- and resource-efficient. Humans have used enzymes to produce biochemical reactions for thousands of years: fermenting crops to produce wine and beer is an early example.

    A substitute for petrochemicals, enzymes are used in a range of commercial applications, including: biofuels production, washing detergents, foods and animal feed, and in producing bio-based chemicals. By facilitating biochemical reactions, enzymes directly reduce the use of petrochemicals. Also, enzymes, their feedstocks and by-products are biodegradable, reducing industrial waste that would otherwise be discarded in landfills.

     

    Unrealised growth potential

    There are more than 4,000 recognised types of enzymes, but it’s estimated that more than 25,000 exist in the natural world. With an estimated 90% yet to be classified, there is  enormous scope for innovation and growth.

    Within the biomaterials sector of the circular bio-economy exist companies developing or providing solutions aligned with the growth industries of bio-based chemicals and enzymes. We believe these represent strong growth opportunities aligned with the aim of preserving nature and harnessing its regenerative properties.


    Sources

    1 Source: “The Bio Revolution: Innovations transforming economies, societies, and our lives,” published by McKinsey Global Institute in May 2020.
    2 Source: “Global Chemicals Outlook II,” published by  the UN Environment Programme in 2019. s
    3 Source: “LCA of Chemicals and Chemical Products,” by Fantke and Ernstoff. Published in Life Cycle Assessment in 2018.
    4 Source: “Consumption of hazardous chemicals,” published by the European Environment Agency in 2018 (updated in 2019).
    5 Source: “Consumption of hazardous chemicals,” published by the European Environment Agency in 2018 (updated in 2019).
    6 “Outside the Safe Operating Space of the Planetary Boundary for Novel Entities “ by Linn Persson et al. Published by American Chemical Society in 2022.
    7 “The $100 billion case for safer chemistry,” by Libby Bernick. Published by GreenBiz in 2016.
    8 “Green chemistry: a strong drive of innovation, growth and business opportunity,” by Jay Golden, PhD et al. Published in 2021 by the University of Massachusetts Lowell and the Lowell Center for Sustainable Production.

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