Circular Economy

Protecting and restoring natural systems is vital for ecological balance, long-term economic resilience and growth. As we price nature’s risks and opportunities, and mitigate and adapt to its consequences, regenerative processes and principles will become embedded into our economic model and its value chains. The value of natural capital flows will unavoidably be priced into financial decision-making.

In this changing context, companies relying on unpriced externalities, excess primary resource extraction, polluting processes, and with fragmented and unresponsive value chains will face structural headwinds. In contrast, companies utilising renewable or regeneratively grown input, closed loop processes, digital technologies for leaner processes, integrated and smart supply chains, as well as service-based business models are well-positioned to capitalise on the opportunities resulting from the transition towards a nature-positive economy.

pricing nature’s risks and opportunities²

System change investing asks where trends are leading to inescapable pain points, triggering inflection points towards superior economic systems that can economically outcompete while restructuring value chains, profit pools and equity markets. The Circular Economy strategy invests in the system changes taking shape around the bioeconomy and resource efficiency.

The bioeconomy favours biobased products, for example timber, which serve as eco-friendly alternatives to resource intensive products, like cement and steel in construction. Smart farming technologies – such as precision agriculture and Internet of things (IoT) sensors – optimise resource use, reduce waste and lower the environmental footprint of agriculture. Additionally, closed-loop water systems recycle water within a system, minimising fresh water consumption and waste.

For example, high-intensity agricultural food production damages natural capital. More than half of total agricultural land is degraded from practices that use freshwater intensively, promote deforestation, release greenhouse gas (GHG) emissions and drive biodiversity loss both on land and in water.³

As the population grows, demand is expected to surge for resources such as non-metallic minerals, metals and biomass materials. Resource efficiency means reduced inputs of virgin materials into our economic model, but also less output being consumed and more being reused. Better design, better materials, better processes, longer product longevity, sharing over owning and recycling are all attractive investment opportunities.

Companies embracing such growth or productivity potential from smarter industrial processes, through to the many advances in lightweight and improved construction materials are likely to be the best positioned to capitalise from the transition towards a nature-positive economy. Rising nature-induced risk will drive a larger role for materials from regenerative, renewable and closed-loop recycled sources, alongside innovative performance materials.

resource demand expected to surge (Giga tons per annum (GT pa by type, global))⁴

Digitising the physical world through technologies like IoT, AI and big data analytics enables the creation of digital solutions that optimise resource use and reduce waste. For instance, precision agriculture uses sensors and data to enhance crop yields while minimising environmental impact. In industrial processes, digital solutions, such as advanced manufacturing and prototyping play a crucial role. Technologies such as 3D printing, digital twins and AI-driven automation enhance production efficiency, reduce material waste and improve product quality.

These innovations are pivotal in driving the sustainability transition and operational excellence in the manufacturing sector. They also contribute to a lower environmental footprint and foster a nature-positive economy.