Waste Not, Spend Less: How the Circular Economy Can Make Companies More Efficient
By Steven Heim
Globally, humans generate 3.5 million tons of solid waste each day—a figure that is set to triple by the end of the century if we do nothing to prevent it. The World Economic Forum estimates that ocean plastics will outweigh fish by 2050. Landfills account for approximately 14% of methane emissions in the US, and food waste alone amounts to roughly $680 billion in developed countries and $310 billion in the developing world. It is vital that companies use our world’s precious resources responsibly—and it’s clear that waste represents a lost opportunity for capture and reuse.
Imagine a company that diverts its waste from a landfill, saving on the operational cost of disposal, then repurposes that “waste” for another company to fuel its own process. This win-win for both corporations and the environment is called the “Circular Economy,” and embracing it could help companies become more sustainable and more profitable. Companies that focus on “Eco-Efficiency”—reducing the use of energy, emissions, water, and waste—can improve resource productivity and their bottom line by limiting energy and water waste in their operations and by reducing waste disposal costs.
Since 2015, Boston Common has led an investor initiative on Eco-Efficiency to identify barriers to adoption and encourage corporate best practices in our portfolio companies. We launched our Eco-Efficiency initiative focusing on portfolio companies with the highest greenhouse gas emissions after analyzing the carbon footprint of each of our core strategies. Phase 1 of our engagement with companies focused on energy and water. This year in Phase 2, we are broadening our focus to include waste by encouraging companies to adopt Circular Economy concepts in their strategic planning in order to turn wastes into resources, reduce costs, and improve product quality.
Benefits can be found across sectors; International Flavors & Fragrances and Repsol, for example, incorporate Circular Economy concepts into their strategic visions for their flavors and fragrances and oil refinery businesses respectively.
Despite the vast potential for companies to cut energy use and thereby reduce global greenhouse gas emissions, internal barriers block achieving superior Eco-Efficiency performance. Further, rather than merely improving existing operations, we want companies to re-imagine their products, redesign processes, and re-conceptualize business strategy in order to cut resource use. On Earth Day 2017, we reported on the aims and framework for our Eco-Efficiency initiative.
Over the past year, several portfolio companies with very different challenges on Eco-Efficiency have made progress as the result of our ongoing engagement or their own efforts. We also worked to sharpen Eco-Efficiency metrics and questions to identify best management practices. Some highlights:
Progress with Portfolio Companies:
Air Liquide committed to updating its energy efficiency targets after already adopting new GHG reduction goals. The company also plans to analyze its water use and footprint for its global operations, following our 2016 engagement.
Origin Energy has turned way from buying coal-fired power plants. In our engagement with Origin, the company spent two years revising its capital allocation system to align with its long-term sustainability strategy.
Capital allocation for Eco-Efficiency investments is a key benefit for Beijing Enterprise Water to retrofit and build new water systems in China. The company is working to convince the central government to allow higher returns for investors in such projects.
As a member of the Ford sustainability stakeholder team, we advocated that Ford adopt public energy efficiency targets and join the EP100, a leadership campaign through which companies commit to doubling their energy productivity.
Lowe’s committed publicly to exploring renewable energy investments for its US stores, following an agreement with Boston Common, New York State Comptroller’s Office and a private investor.
3M and Schneider Electric each doubled their energy productivity for facilities using the US Department of Energy’s “50001 Ready” energy management program vs. their “business-as-usual” facilities. The program helps companies improve their operations, save money, and increase energy productivity.
Progress on Metrics:
The Sustainability Accounting Standards Board (SASB) mapped our Eco-Efficiency metrics vs. the SASB framework, including specific topics and quantitative metrics, to determine how companies communicate Eco-Efficiency performance across its industry-specific disclosure standards.
Ceres adopted and adapted Boston Common’s Eco-Efficiency framework in its new energy efficiency program to benchmark energy efficiency management practices by REITs and automotive industry companies.
11 Energy companies including Equinor (formerly Statoil), EOG, Apache, ConocoPhillips, Occidental Petroleum, Chevron, Halliburton, Exterran, Noble Energy, Phillips 66 and BHP provided feedback and suggestions for our Eco-Efficiency framework and questions in a May meeting Boston Common convened in Houston.
Boosting energy efficiency could give companies greater financial returns and reduce total GHG emissions. Rather than ask companies to adopt specific energy efficiency measures for their industries, we try to surmise the corporate internal best practices management practices for all industries. We have mapped those best practices into a set of metrics that investors can use to gauge performance on these issues. Metrics can drive better performance and disclosure, with more attention from management on Eco-Efficiency issues.
We will continue to engage companies to become more efficient and to adopt Circular Economy concepts. As long-term investors, we believe that companies with products and processes that address the growing challenges of resources scarcity are better positioned to become industry leaders in the transition toward a low-carbon—and less wasteful—future.