ISS ESG Releases An Investor’s Guide To The Circular Economy

ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc. (ISS), today released An Investor’s Guide to the Circular Economy, a new report written by the ISS ESG Circular Economy Taskforce, with contributions from the Ellen MacArthur Foundation and ING Bank.

The new report highlights analysis suggesting that the more circular a company is, by keeping resources at their highest value and reducing waste, the lower its risk of defaulting on debt, and the higher the risk-adjusted returns of its stock. This also has implications for the current cost of living crisis being experienced in many economies around the world.

The report begins with a detailed elucidation of the circular economy concept for investors and financial institutions. Subsequent chapters include specific practical application in the automotive industry, the circular economy’s role in climate change and Net Zero strategies, plus its positive implications for biodiversity.  

The penultimate chapter, written by ING Bank, explains how the role of financial institutions will be vital in this transition and provides a range of use case examples. In the final chapter, the Ellen MacArthur Foundation looks to the future, describing the regulatory and transparency preconditions that need to be met if the economy is to move from awareness to scaled action. 

“In particular, the finance sector is in the process of assessing how the circular economy concept intersects with the implementation of evolving regulation such as the EU Green Deal’s Circular Economy Action Plan and the EU Taxonomy,” said Maximilian Horster, Head of ISS ESG. “ISS ESG supports clients developing investment strategies encompassing circular principles, through collaborative thought leadership such as this timely new report, in tandem with tailor-made Circular Economy solutions,” added Horster.

Key Takeaways

• Humanity’s current global consumption patterns would require the resources of 2.3 planet Earths by 2050. Adopting a circular approach in our economic design and planning offers an opportunity to turn this trend around. 

• Cost of living concerns are on the rise, and circular economy thinking can combat increasing prices for raw materials. The circular economy focuses on keeping resources at their highest value and reducing waste, meaning companies with a circular business model can provide more value to their customers while using fewer resources.

• This matters for investors – analysis suggests that the more circular a company is, the lower its risk of defaulting on debt, and the higher the risk-adjusted returns of its stock. 

• Product circularity is about more than just recycling – the concept needs to be built into the design and planning stage if it is to truly deliver on its potential. Circular business models offer tangible benefits to the management of real-world problems such as climate change, working conditions, and threats to biodiversity. 

• The banking sector is actively utilising the concept of circularity in the design of a range of new corporate financing products. 
  
• As the circular economy gains increasing prominence, regulators have a range of different levers they can pull in order to maximise the economic benefits associated with new, more transparent ways of doing business. 
  
• ISS ESG continues to focus on this emerging area of sustainability thinking in our work with investment clients to maximise the positive real-world outcomes associated with their own responsible investment practices. 

Download a copy of the report.