Sustainable infra investment is more than recycling and renewables

According to the Global Footprint Network, on average, humans currently use the equivalent resources of 1.75 Earths. Our rate of consumption, mainly in developed economies, has overtaken the resources our planet can offer each year. This must change.
Expanding the circular economy is one way to address our overconsumption and support the transition toward a low-carbon economy. It offers opportunities to improve efficiencies and reduce costs across infrastructure investments, as well as develop new revenue streams. Green Alliance, an environmental think tank, estimated that 450,000 jobs could be created in the circular economy by 2035, many of which will be required across the infrastructure industry.

Climate change and population growth are adding unprecedented pressure and complexity to our ability to deliver the infrastructure of the future. Governments facing stretched fiscal budgets as a result of the covid-19 pandemic have limited capacity for future infrastructure investment. Institutional investors and asset managers therefore have a key role to play.
For investors, scaling the circular economy offers plentiful opportunities to fund infrastructure assets that are developing circular solutions beyond recycling and renewables. Some investors also see this as a potential de-risking strategy. Analysis by the Ellen MacArthur Foundation of 222 European companies across 14 industries found that the closer to circularity a company can be, the lower its risk of default on debt over one- and five-year periods.

The foundation estimates that the transition to renewable energy will only address around 55 percent of global carbon emissions by 2050. To reach net zero, in addition to constructing fresh renewable energy sites, we need to change the way we make and use products, materials and food.

By adopting the principles of the circular economy – to eliminate waste and pollution, re-circulate products and materials and regenerate nature – we can tackle the remaining 45 percent of emissions associated with industry, agriculture and land use. A hierarchy of action for circularity now expands beyond the initial focus on three elements – reduce, reuse, recycle – and encapsulates up to six other approaches including material substitution, repair, refurbishment, repurpose and recover. All these offer opportunities for us to rethink the infrastructure needed across our economies and infrastructure investment holistically.

There is a growing demand for infrastructure to support this system as a whole and for circular economy principles to be built into the design and development of new infrastructure. Infrastructure’s long-term nature means action taken now will determine a nation’s economic, environmental and social trajectory decades into the future.

“Constructing new infrastructure assets requires changes to the design processes, planning and delivery to ensure that the circular economy principles are applied from the start”

There are many aspects of infrastructure that can be transformed and developed to contribute to the circular economy. While recycling infrastructure can be an important and necessary part of a transition to a circular economy, it is inadequate on its own to drive circular economy outcomes and should be considered one of the last options.

A recent study identified that 80 percent of a product’s environmental impact is determined during the design phase, indicating that a transition to a circular economy requires a transformation of the entire operating system, not just at the end of life.

Constructing new infrastructure assets requires changes to the design processes, planning and delivery to ensure that the circular economy principles are applied from the start. We must revisit how assets are constructed, how they are used and what happens when they are no longer needed.

Timber’s contribution

Initiatives such as using waste products from demolition sites in new sites and substituting high-carbon emitting materials such as cement and steel for renewable materials such as timber will make significant contributions towards transitioning to a circular economy.

The Global Infrastructure Hub estimates that manufacturing is responsible for around 20 percent of global emissions. These are largely driven by the production of cement, steel, plastics and aluminium. Therefore, another key stage is to develop solutions that allow us to make better use of existing products or use component parts once products reach the end of their life.

This can range from logistics-based infrastructure to return used products to the manufacturer to be refurbished/repurposed, through to designing new machinery to repair, remanufacture and repurpose used products. They all serve the same goal of reducing consumption of raw materials and the associated emissions.

Transport infrastructure is also very important to achieving a circular economy. Initiatives such as electric charging points and battery swap initiatives for those who don’t want to wait to charge their vehicles are only going to become more important as consumers increasingly shift to electric vehicles. Currently, the UK government says there are around 29,600 public charge points for charging electric vehicles in the country. By 2030, it expects the number to grow to a minimum of 300,000.

The current cost-of-living crisis could accelerate the growth of the EV industry in the UK as consumers seek ways to reduce fuel costs. This will result in demand for electric charging infrastructure to increase faster than anticipated.

Unsurprisingly, digital infrastructure also has a critical role to play in our journey towards a circular economy. Digital technologies are increasingly integrated across the infrastructure lifecycle to create ‘infratech’ solutions. At its broadest definition, infratech can be considered any technology that impacts the development, delivery and ongoing operation of infrastructure. It enables connectivity, automation and optimisation in line with circular economy principles across the value chain.

At the end of the circular economy hierarchy is a focus on recycling and recovery. The objective of applying prior circular economy principles, such as recovery and refurbishment, is to reduce the vast levels of waste we currently produce. New business models are needed to rapidly move away from a reliance on recycling, towards models that use what is already in existence.

Still, efficient waste infrastructure assets will be needed to ensure that materials that can be reused are taken out of the waste system and utilised in other ways. Any residual waste that cannot be avoided, reduced, reused or recycled may then be used to generate energy.

The potential for infrastructure investment to support the circular economy is vast and the opportunities will continue to grow. However, progress in some areas is sporadic and requires further investment to make the changes we all need to see. Investors must identify the opportunities for innovation and support them to meet their sustainability objective, secure in the knowledge that the investment case is compelling – and the need is becoming ever more urgent.

Rebecca Craddock-Taylor is director of sustainable investment at Gresham House