Disclaimer: Views in this blog do not promote, and are not directly connected to any Legal & General Investment Management (LGIM) product or service. Views are from a range of LGIM investment professionals and do not necessarily reflect the views of LGIM. For investment professionals only.

Let’s go round in circles…

Whether it’s textiles, food or plastic packaging, both corporates and consumers need to commit to greater recycling efforts and help drive the momentum towards a circular economy.

Considering the heightened level of consumer awareness, the potential for “eco-shaming” represents a growing social threat. Daily, we are subject to news and statistics that ought to burden our environmental conscience. As momentum grows around emission woes, plastic problems and mounting waste in landfills, we know we must act. Our changing world needs solutions, and fast.

The stark reality that David Attenborough brought to our attention during his critically acclaimed Blue Planet series in 2017 did more than just catch the imagination: it highlighted the detrimental effect of unsustainable demand. Around the world, we are now seeing increasing signs of discontent, revolt and activism as more people demand faster change.

With big challenges to solve, there are cries for instantaneous action. Yet, as many will be acutely aware, industry transformation doesn't happen overnight. Finding the right solution and scale takes time and investment. As history has shown, the most profound examples of transformation are those that have a big impact over the long term. Typically, these incorporate changing behavioural biases, technological advancements or seismic industry shifts.

The move from a linear to a circular economy feels like it has the potential to be definitive, seeking a regenerative approach designed to protect and better serve our planet. To gain a detailed understanding of this idea, my recent conversations with the Ellen MacArthur Foundation have proved extremely helpful. As a leading pioneer of this transition, the Foundation’s endeavours help support innovation, strengthen sustainability targets and provide consultation on the value of natural resources.

Crucially, the Foundation has already proved instrumental in amplifying and galvanising industry action across all sectors. Taking a look at the list of blue chip companies involved in their projects helps emphasise the importance of their mission to foster collaboration and form partnerships. This unity will be vital in the bid to find new creative approaches to structural challenges.

Recycle, reuse and redefine

Among companies, there is increasing evidence that meaningful sustainability-related goals are being embedded into corporate strategies as part of a deeper responsibility agenda. Scientific targets, commitments towards better energy efficiency, supply chain improvements and product innovation with a wider consideration for the environment and community all feature heavily. This focus is spearheaded not only by government, economic and consumer pressure, but also through business opportunity, brand reputation and potential for value creation.

While progress varies, the range of companies tackling these issues is encouraging. During the past year we've spoken with a variety of leaders, including Coca Cola HBC, DS Smith, Burberry, Boohoo and Puma, on matters involving the lifecycle of products and long-term sourcing commitments. Encouragingly, we have found that circularity is gradually weaving its way into boardroom thinking and business actions.

While it is unclear exactly how successful these schemes will be, I think we can be optimistic about the potential for positive outcomes. From personal care to beverages, to grocery and general retail, there are tangible examples where enhanced solutions incorporate not only 'greener' design applications, but the reusability and/or replenishment of product.

Corporates, consumers and governments all have a part to play. Circularity protects our environment and addresses consumers' sustainability concerns but ultimately, greater awareness and advancement is urgently needed to drive fundamental change. Momentum is growing, but to achieve a 'world without waste', we need to act now.

For investors, as the concept of the circular economy gains traction, continuous engagement with corporate management and industry partners should enable us to challenge and shape this vision as we look to redefine our economy. This is part of responding to social requirements, but businesses and economies also need to remain relevant in years to come. Through engagement, LGIM can make its voice heard to help drive the global effort to eliminate single-use plastics, push for more efficient use of resources, facilitate better use of technology and ensure more recycling infrastructure is rolled out.

On the active equities team, we identify key global structural trends and support those companies most committed to the transition to a circular economy. We believe these companies have the potential to thrive financially and should make the most significant impact over the longer term as part of industry transformation. Investing in these types of companies will also fuel our own ambition to promote positive outcomes for both shareholders and our planet.