As part of the trend to move to a green economy, the acronym ESG came into the world, meaning consideration of environmental considerations in addition to economic considerations, as part of the development and success of a company. Those who advocate a combination of these considerations: Environment, Society and Corporate Governance (Environmental, Social, and Governance) want companies to work not only to increase their profits but also to take these considerations into account, and even claim that companies that take these considerations into account, even succeed in increasing profits. According to them in WIN-WIN both for companies and for the world. For example, such an investment would avoid investing in companies that have a negative impact on the company (such as cigarette companies) or the environment (oil companies).
Public companies are known to like to see their stock rise so even if their executives do not necessarily think it is indeed a real need, they are quick to join market trends and issue publicity announcements that contribute to rising stock prices. This is happening in all markets (as can be seen recently around cannabis and green energy – The public loves it and therefore companies announce that they are entering and investing in areas).
“Rising environmental challenges such as droughts, fires and floods, in addition to changing consumer preferences and government regulation, are causing companies large and small to disengage from relying on finite resources and look for other solutions,” said Jessica Matthews, head of sustainability at JPMorgan Bank.
BlackRock, the world’s largest asset management company, which manages more than $ 8.6 trillion, is also aware of this fact, and after announcing last year that from now on they will invest in companies that adhere to ESG considerations, Another area: circular economy. Here too, this is an issue that sounds good to modern ears and so they believe the stocks of these companies will go up.
So what is a circular economy?
If the traditional economy is built on the use of the product, repairing the product if it breaks down and finally throwing it in the trash, in a circular economy the way of thinking is production and consumption, and then reusing the products, or recycling them and turning them into a new product. Proponents of the method believe that beyond its obvious environmental benefits, this way of thinking also has economic benefits – for manufacturers and consumers.
For the sake of illustration – the garbage every second is equal to a truck of one textile buried or burned, equivalent to 6 garbage trucks for edible food. Today, only 8.6% of the global economy is circular and it is estimated that by 2050 global demand for resources will increase to 130 billion tonnes per year. There is a study that as a result of a circular economy estimates an increase of two trillion dollars in annual revenue in the US, seven billion dollars opportunities for urban revenue and a reduction of 250-350 million tons of carbon dioxide, 80 million tons of recycling from private homes and 30 million tons of more convenient access For waste recycling.
“By 2030, the circular economy could generate savings of up to $ 4.5 trillion worldwide, consisting of 92 million tons of textiles in landfills, 1.3 billion tons of food waste, and 45 trillion gallons of water wasted through food production each year.”
What are you watching in Blackrock?
BlackRock believes the trend toward a green economy will continue to expand (in part in light of new US President Joe Biden’s statements on war on climate change and green investment) and presents four investment sectors worth considering in 2021 as investment opportunities, assuming the world continues to move. A greener, more circular economy.
“Although the corona plague has threatened to curb global momentum around sustainability, the circular economy has nevertheless returned to lead as a result of several factors – increasing regulatory compliance, changing consumer preferences now turning to sustainable alternatives, and organizational responses focusing on circular methods.”
What sectors do they recommend?
BlackRock believes plastic is not the problem and may even be a solution “There are ways to reuse plastic not just by recycling it, and we see huge companies using bioplastic alternatives like poly-lactic acid for food packaging instead of plastic. We believe the epidemic will shift the focus to construction “Proper infrastructure for plastic disposal – waste management, collection, sorting and chemical recycling. Therefore, we believe in investment opportunities in the supply chain of the post-Corona era, because now, unlike in the past, there is a discourse on the proper use of plastic and not its complete removal from the process.”
Their second recommendation is, of course, technology. “Technology companies play an important role – they both adopt the principles of a circular economy and push their customers to do so. The issue will become more significant in electronics, especially in the process of disassembling and recycling electronic components, and there are already companies working on new products from old electronics -” It is cost effective and adds value for customers looking for a sustainable investment.We are looking for companies that help reduce waste by reuse or recycling, and this also applies to the components of the electronics we use.
“At the same time, we are seeing more and more applications based on a cooperative economy and offering online flea markets, second-hand and rental sales platforms, e-waste recycling solutions, leasing for electrical products and more. We expect the field to develop, especially in electronic components where a sustainable solution is needed. “For our investment portfolios, we are looking for companies that help reduce waste, primarily through reuse or recycling, this applies to the components that go into technological hardware, and also for household products.”
The third area they recommend is health and they believe there is a growing need to build a more reliable health infrastructure. Medical equipment is a leader in reusing devices and products. Hospitals are required to have the latest and greatest equipment, and product recycling can be more efficient than electronics – Today there are companies that manage efficient logistical systems for the collection, renovation, or dismantling of used medical equipment, and there is increased use of the leasing model for medical equipment as well.
“Health services play an important role in the circular economy with increasing relevance, especially given that much medical equipment is in single use only. The corona plague has highlighted this area, and we believe it has accelerated the need for a better understanding of proper medical waste use and the need to develop solutions. Permanent and better for recycling and reuse of medical equipment. ”
Blackrock also recommends another sector, which may sound surprising in the context of sustainability and the circular economy: fashion. “Just like food and investment packaging, the fashion industry is now under pious consumer scrutiny, which is expected to accelerate the industry’s transition to more circular practices. For our investment portfolios we are now looking for brands and companies that manage supply chains that lead this transition and adapt business models. We have a better ability today to push towards the circular economy than half a year ago. Given the extent of the change needed for this transition and the significant barriers to change, we believe that today’s industry leaders play a critical role in this solution. Our essential tool for pushing companies into this transition is investing. In companies that will take proactive steps to promote a circular economy and report on their progress. ”
Which companies are already operating in this way?
In 2019, the resale market in the field of fashion, for example of RealReal, grew 25 times compared to the field. In addition, Phillips reported that 13% of its revenue comes from the circular practices it has adopted. Unilever has announced that it will cut back on the use of virgin plastic by 2025. Other examples include RePack, which manufactures reusable packaging for products purchased online and more.
According to the English Alan MacArthur Foundation, there are 10 public funds that focus on the circular economy, in whole or in part, and include Blackrock’s BGF Environmental Economy Fund (expected right?), The Decalia Fund and also BNP Paribas Easy (BNP.PA). There are also companies like WestRock (NYSE: WRK) and Waste Management (NYSE: WM). In addition, there is also the company Clean Energy Fuels (NYSE: CLNE). Here and here you can read about other companies in the field.
And what in the country?
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Announced in January the establishment of a joint venture to recycle electric waste alongside the Ultratrade of the Reichman and Teddy Sagi family and the e-waste recycling corporation MAI. The construction cost is estimated at NIS 20 million, with the money used to purchase recycling machines for a facility for recycling air conditioners, refrigerators and other electrical products that the partnership will establish. Electra Consumer Products and Ultratrade will each hold 45% of the company, while May Corporation will hold 10%.