The seventh resource: the investment power of recycling

March 18th marks Global Recycling Day. The annual event was created six years ago to recognise the crucial role that recycling plays in preserving our natural resources and our planet’s future. Its focus is to emphasise the importance of recycling to world leaders and ask people across the world to think about preserving our resources.

According to the Global Recycling Foundation, which organises the day, this year’s theme will be recycling heroes. “This will recognise the people, places and activities that showcase what an important role recycling plays in contributing to an environmentally stable planet and a greener future which will benefit all,” it stated*.

It’s why recycling has been dubbed ‘the seventh resource’* – after water, air, oil, natural gas, coal and minerals – because it can be used again and again.

A boost to the economy

However, there’s clearly work to be done. According to the World Economic Forum, half of global plastic production is for single use and only 95% of plastic is recycled**. But the good news is that reusing just 10% of plastic products would reduce the amount of plastic waste reaching the ocean by 50%**.

And there’s also a financial incentive with the annual contribution of the recycling industry towards global GDP projected to exceed $400 billion over the next 10 years*. Not to mention, approximately 1.6 billion people worldwide are currently employed in processing recyclables*.

Investment funds to consider

We can all do our bit to recycle items, as well as encouraging companies to fully embrace this theme through the choices we make in our shopping. But we can also make the point with our investments as many fund managers focus on buying into profitable companies that embrace sustainability issues.

Here we spotlight four portfolios that could be worth considering if you’re wanting to make money but also help preserve the planet.

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and, if you are unsure of anything please contact an expert adviser.

CT Responsible Global Equity

This fund, which is managed by Jamie Jenkins, invests in quality growth companies from across the world that have a focus on sustainability. This portfolio is structured around seven long-term sustainability trends, including resource efficiency, energy transition, and health & well-being.

The fund is heavily weighted towards the United States but also has exposure to countries such as Japan, the UK, Netherlands, Germany and Denmark***. One of the fund’s top holdings is Waste Connections, one of the leading full-service waste collection providers in North America. One service offered by the company is residential recycling that turns plastic bottles into recycled storm water systems****.

CCLA Better World Global Equity

This fund, which takes a responsible approach to investing in quality business at attractive prices, only launched in 2022. However, it’s generated strong returns with lower volatility than many of its peers and we think it’s a contender for anyone wanting an ethically focused global fund.

Its ‘better world’ policy includes engaging with companies, bringing investors together to address issues, and being a catalyst for change in the investment industry. In Q4 2023, the team participated in a collaborative meeting with PepsiCo to discuss its use of plastics, pushing for the company for improved performance on their increased use of virgin plastic in recent years***.

Liontrust Sustainable Future Global Growth

This fund, which is managed by Simon Clements, Peter Michaelis and Chris Foster, look at the world through the prism of three mega trends: better resource efficiency (cleaner), improved health (healthier) and greater safety and resilience (safer) – and then 20 sub-themes within these.

“With finite resources on earth, recycling remains a huge part of the shift to a more sustainable world. But to make better use of materials, we need to consider the whole life cycle rather than just the ‘waste’ stage and move towards a more circular economy,” says Chris Foster.

US holding TREX^, fits within this theme. A manufacturer of composite decking listed in the United States, TREX is looking to address this issue, by using recycled content to make up approximately 95% of the inputs that go into making its products^^. Therefore exposing the fund to the theme of ‘delivering a circular materials economy.’

Janus Henderson UK Responsible Income

Andrew Jones, the fund’s manager, starts with all the companies in the FTSE 350 and then removes all the sectors it won’t own due to its ethical constraints. That leaves around 280. He’ll then look at company fundamentals to identify those with defendable competitive position that boast resilient cash flows.

One current holding in the fund is DS Smith^, a leading provider of sustainable packaging solutions, paper products and recycling services worldwide. The company sees the opportunity for packaging to play a powerful role in the world around us and manages nearly a half-million tons of recycled fibre every year, in North America alone^^^.

*Source: Global Recycling Day 2024
**Source: World Economic Forum, 8 January 2024
***Source: fund factsheet, 31 January 2024
****Source: Waste Connections, 24 June 2022
^Source: FE Analytics, full fund holdings, 31 January 2024
^^Source: Liontrust Asset Management, August 2023
^^^Source: DS Smith, 2024

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.

Published on 14/03/2024