Implementing the Sustainable Development Goal 12

The Stewart Investors Sustainable Funds Group supports the Sustainable Development Goals (SDGs). The full list of SDGs can be found on the United Nations website.

‘Earth Overshoot Day’, the day humanity has depleted all resources that our planet is capable of renewing for a whole year1, occurs earlier every year that goes by. In 2019 it was 29 July, while in 1970 it was 29 December.2

In 2017, global material consumption amounted to 92.1 billion tons, a 254% increase from 1970, and is projected to grow to an astounding 190 billion tons by 2060 if we do not make drastic changes.3 Our appetite for consumption not only tests the physical boundaries of what our planet is capable of, but also contributes to climate change, the extinction crisis, waste and pollution. Given these trends, we are faced with the urgent challenge of avoiding unnecessary resource use, reducing waste, and reusing and recycling all valuable materials.

In the areas of sustainability and responsible investing, often plagued by vague jargon and greenwashing4, the United Nations Sustainable Development Goals (SDGs) provide a clear and vital framework around which investors and the broader business community can unite to achieve a collective goal of cleaner business practices. One goal which many investors and businesses are placing emphasis on is SDG 12: Responsible Consumption and Production. The goal calls for, among other things, energy and resource efficiency, minimisation of waste generation, environmentally-friendly infrastructure, and sustainable and fair jobs. Simply put: “doing more and better with less.”5

One concept that is often synonymous with the SDG 12 is the circular economy, which is a process that deviates from our traditional model of ‘take-make-waste’ to one that is regenerative, seeing waste and pollution as a fundamental design flaw. Since 80% of a product’s environmental impact can be calculated during the design stage, keeping materials in use and allowing natural systems to regenerate are vital to achieving circularity.6 An example of circular business model innovation is at Interface7, pivoting from traditional to modular carpets made from reclaimed materials, closing the loop and achieving carbon neutrality across their entire life cycle.8

The Circular Economy

The birth of the circular economy cannot be traced to one specific date, but applications to modern systems gained prominence in the late 1970s.9 One such idea, designed by Michael Braungart and Bill McDonough, treats all material within a given process as either technological or biological nutrients.10 Essentially, waste is regarded as food in these closed-loop systems.

Since the 1970s, the circular economy philosophy has gained momentum and is now regarded as key to future sustainable development, particularly in relation to the SDG 12.

Although internal design processes are crucial to eliminating waste and pollution, collaboration across industries will also be necessary. Unilever is redesigning their plastic packaging to ensure that they halve the amount of virgin materials used, and collect and process more plastic than they sell.11 Through direct investment and partnerships in waste processing, the use of recycled plastics in their products, and producer responsibility schemes, Unilever is aiming to strengthen the market for recycled plastics and boost innovation in the packaging industry.12 This initiative relates to the SDG sub-target 12.5, which calls for reduction of waste generation through prevention, recycling and reuse. By encouraging manufacturers, recyclers, and consumers to increase recycling rates, their efforts contribute to securing a stable and certified supply of recycled raw materials across geographical locations.

An example of a company experiencing tailwinds in the circular economy space is Brambles, a supply-chain logistics company that is operating the world’s largest pool of reusable pallets, crates and containers.

By sourcing 99.7% of their wood from certified suppliers, they are regenerating stocks of raw materials and boosting demand for sustainable forest products. As a result of their share and reuse model, 1.7 million trees and 1.3 megatonnes of wood and plastic waste have been saved.13 By reimagining their business model, Brambles embodies the SDG sub-target 12.5 through reducing pollution, keeping materials in the cycle, and regenerating natural resources.

There are other companies that provide supporting activities for their customers, indirectly contributing towards the shift to global responsible consumption and production. Ansys is a software-based company that supports the SDG 12 through real-world engineering simulation software applicable to a wide range of industries, including the electrification of vehicles, mining and wastewater. Through the software, customers are able to virtually test the performance of products and processes, energy efficiency, greenhouse gas emissions, and water usage without having to create physical prototypes.14 For instance, the company New Wind used Ansys’ software to create a more aesthetically pleasing energy source for urban areas, whose tree-like wind power generator design captures wind in specially-crafted plastic ‘leaves.’15

Through a move from hardware to software-based design, Ansys contributes indirectly to the SDG sub-targets 12.5 and 12.2, contributing to the sustainable management of natural resources. Our conversations with management suggest their technology reduces development time nine-fold and overall product cost four-fold, reinforcing the case for why sustainable business practices, propelled by innovation and good management, will perform better than non-sustainable counterparts in the long term.

Today’s efforts to reverse and prevent climate change are largely focused on renewable energy. Though this is significant in tackling around 55% of greenhouse gas emissions, the remaining 45% of emissions demand a fundamental shift in the systems and processes in place for the consumption and production of goods.16

Transformations are complex and often affect an entire value chain. Concepts like the circular economy and the targets embedded within the SDG 12 are important investment considerations and offer valuable insight into company and management quality.

Developing an understanding of product life cycles and recognising “hot spots” where the greatest improvements can be made, or where potential hidden risks lie, can help investors avoid value traps and identify companies positioned to benefit from sustainability.

Investors play a critical role in achieving long-term value and circularity through stewardship and engagement. Innovations like those being undertaken by Unilever are more likely to succeed when backed by engaged, long-term shareholders.

Investors are able to encourage businesses and the investment industry to prioritise sustainable development in alignment with the SDGs. They have the ability to influence the management of companies, including through dialogue around Environmental, Social and Governance (ESG) reporting, sharing of best practices, and encouragement. To help mobilise capital towards circular economy efforts, investors can suggest areas of improvement, such as product innovation, upscaling initiatives, business model innovation and the development of markets for secondary materials.17

By rewarding companies who prioritise sustainability and the circular economy, long-term investors provide an alternative voice to the sometimes misleading and often short-term market noise.

If we are to reduce the strain we put on our planet and reverse the trend of ‘Earth Overshoot Day’, we must seriously reconsider the ways we consume and produce. As Paul Polman said:

“Climate change is sometimes misunderstood as being about changes in the weather. In reality, it is about changes in our very way of life.”

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