Performance materials: efficiency helps preserve nature

 

Our current take-make-waste system harms nature through excessive extraction of natural resources. Performance materials can help reduce this strain. Innovations in materials formulation are allowing for greater reuse and recycling of extracted resources; for extended strength and durability of the materials, and hence of products and structures; and for equal or even enhanced performance of these with fewer physical quantities required. Such solutions can help substantially reduce demand for virgin materials. 

 

Need to know: Using high performance, or engineered, materials can conserve natural resources and extend their use in the economy, while delivering the same or even greater performance. Application of such materials ranges from consumer products like clothing or food packaging, to larger industrial uses in aerospace or construction. This innovation is vital to reducing the industries’ environmental footprint and, notably, their effects on nature While mining and metals will remain essential to the production of goods and services, the industry must continue to find ways to improve the management of its operations, including smarter formulations of traditional materials with enhanced performance features As consumers look to reduce their environmental impact, companies have a significant opportunity to gain market share by using more sustainable and durable materials for their products, as well as recyclable and/or recycled versions of traditional resources like aluminium

 

FIG. 1 Four investment themes drive the Natural Capital strategy

Source: LOIM. For illustrative purposes only.

 

Using high performance materials is vital to reducing environmental impacts and, notably, adverse effects on nature. This can involve extending the use of mined resources through recycling, for example, or finding ways to lessen the volume of product required.

Innovative companies are also using additives to make traditional materials like cement and steel stronger and more resilient so they last longer, while finding ways to reduce the environmental footprint of their own production processes.

 

Why is the footprint so big?

For an example of the environmental impact of the supply chain, we can look to aluminium, increasingly the material of choice for many industries. Automakers, for example, have been using the metal to reduce the weight of combustion-powered vehicles and improve performance. Consumer-goods companies are looking to aluminium as a packaging alternative to difficult-to-recycle plastic.

Aluminium is derived from bauxite, which is extracted from the ground in open-pit mining operations. The bauxite is refined through chemical processes, and the remaining white, powdery alumina is dissolved, melted, and passed through a current, turning it into aluminium.

Overall, the mining and refining processes are highly energy intensive, with potential to create air and water pollution, and to damage the ecosystems that provide habitats for biological diversity if poorly managed.

 

Recycle more

Mining operators have increased their focus on environmental issues in recent years, incorporating plans to restore and regrow ecosystems damaged with mining operations. The United Nations Environment Programme (UNEP) has called on companies in the industry to better understand and appreciate the value of biodiversity, not least to their own operations.

Furthermore, these companies can meet growing demand for materials that are easily recycled. Recycling aluminium, for example, uses only 5% of the energy required to extract raw aluminium from ore.¹ Recycling 1 tonne of aluminium saves about 6 tonnes of bauxite, reducing the need for extraction.

A forecast from the International Aluminium Institute shows that recycled aluminium could meet half of demand by 2050.² Overall, the size of the global metal recycling market is expected to climb from USD 217 billion in 2020 to USD 368.7 bn by 2030, registering a CAGR of 5.2% from 2021 to 2030.³

More stringent government regulations will also help spur the use of sustainable materials. The European Commission, for example, adopted a new circular economy action plan in March 2020 that is a building block of the European Green Deal, the European Union’s sustainability agenda.

The concrete conundrum

The construction industry has been identified as a key priority for encouraging circularity, too.

Concrete is the most widely used building material, with an environmental footprint to match. In fact, concrete has been called “the most destructive material on Earth”, responsible, among other things, for the consumption of almost 10% of the world’s industrial water supplies.⁴  

The good news is that companies in the industry are finding solutions. New additives – such as grinding aids and strength enhancers – and processes for cement recycling can produce a more durable material that lasts longer without the need for correction or demolition. They lessen the need to use resources like water and energy, while reducing the amount of required cement, a main ingredient for concrete.

This has the dual benefit of making the construction significantly more efficient and profitable, while also lessening the environmental impact.

 

Good for business

As consumers increasingly focus on the environmental footprint of goods they use, companies have an opportunity to gain market share by using recyclable and sustainable versions of traditional materials like aluminium.

With global trade distortions and the move toward regional self-sufficiency and resource-independence, the focus on recycling, reuse and optimised use of materials is an accelerating area of investments.

 

At LOIM, we believe nature is the most productive asset and essential to economic growth. Increasing awareness of the damage that humanity has inflicted on nature has prompted a shift in attitude, and a new circular economic model is taking hold.  

This new model not only helps safeguard the environment and preserve biological resources; it also brings important benefits for businesses.

Moreover, as more companies worldwide make sustainability commitments, they will look to switch to inputs that allow them to align product design with goals to reduce environmental footprints and embed circularity.

Companies that can meet this shift in demand face a multi-decade growth opportunity.

 

Sources

For professional investor use only

This document is issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393.
Lombard Odier Investment Managers (“LOIM”) is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Asset Management (Europe) Limited prior consent. In the United Kingdom, this material is a marketing material and has been approved by Lombard Odier Asset Management (Europe) Limited  which is authorized and regulated by the FCA. ©2022 Lombard Odier IM. All rights reserved.