Goldman Sachs – The evolution towards a circular economy

The need to move towards a Circular Economy – one in which consumption of ecological resources is equal to or less than what the planet can regenerate – has been discussed for years but not sufficiently deployed, with resource consumption 75% more than Earth’s regeneration capacity in 2021 and waste on track to be 70% higher by 2050 vs. 2016. 

However, we see three catalysts that can push forward deployment of Circular Economy solutions, which could potentially unlock $1 tn of annual materials savings, based on a World Economic Forum study. 

  • First, the spike in commodity prices is likely to increase deployment of energy/waste/food efficiency solutions from both individuals and corporates. 
  • Second, the intrinsic link between resource consumption/waste and GHG emissions will make Circular Economy solutions critical for transitioning towards a low carbon economy. 
  • Third, the extension of the EU Taxonomy to include Circular Economy categories is likely to increase corporate and investor focus on solutions as well as valuation uplift for strong performers. In this report, we detail seven Circular Economy themes.

Executive Summary – Evolving towards a Circular Economy – back to the future.

A Circular Economy could help add $4.5 trillion in additional economic output by 2030, and $25 trillion by 2050.

The World Economic Forum estimates that by 2025 recycling, reuse, and remanufacturing could help the economy unlock $1 trillion a
year untapped resource savings. 

We see rising commodity prices leading to increased deployment of energy/waste/food efficiency solutions from both individuals and corporates and the extension of the EU Taxonomy to include Circular Economy categories will provide a boost in recognition from corporates and investors.

Transitioning towards a Circular Economy will be pivotal to solving decarbonisation and will become an increasing focus for investors, corporates and regulators to achieve net zero carbon goals and decouple economic growth from resource consumption, in our view. 

Zero waste pledges are few and far between compared to the proliferation of net zero carbon pledges from companies, governments and investors, yet both are necessary for a sustainable low carbon economy due to the intrinsic link between resource usage, energy and emissions (resource-energy nexus). 

Decarbonisation efforts have traditionally focused heavily on scaling up renewable energy and increasing energy efficiency, while focusing little on the benefits that can be gained via circular economy solutions. We believe the decarbonisation synergies gained through transitioning towards a circular economy will become an increasing focus and priority among governments, corporates and investors in the years ahead.

We identify 7 circular economy solutions that can help corporates reduce their dependence on increasingly scarce resources and create new service offerings, including: 

  1. Efficiency; 
  2. Substitution; 
  3. Durability; 
  4. Ecodesign; 
  5. Asset Utilisation; 
  6. Recyclability and Recycling; and 
  7. New business models and circular partnerships.

The next phase of the EU Taxonomy will catalyze investor and corporate focus on the circular economy. 

We see corporate and investor adoption of the EU Taxonomy as inevitable, serving as a tool for both investment and eventual corporate strategic decision-making. New sectors covered under the circular economy include some of the most underweight sectors in ESG funds currently, presenting opportunities for re-weighting. 

We map the 21 new circular economy activities to our existing GS SUSTAIN EU Taxonomy tool.

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