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How to Invest in Recycling: From Batteries to Plastics

Isabel Kwok is an ethical fund selection investment manager at financial services firm JM Finn.

How we extract, manufacture, use and dispose of finite resources is becoming increasingly important for the survival of all life on earth.

As an investor, it is important to consider how to support innovation that can provide solutions to the large and complex global resource challenges.

This is where the economy is starting to change, and many exciting companies are part of the transition to a more circular economy, whether through the development of greener materials or innovative recycling methods.

How we extract, manufacture, use and dispose of resources is becoming increasingly important to the survival of life on Earth, says Isabel Kwok of JM Finn

How we extract, manufacture, use and dispose of resources is becoming increasingly important to the survival of life on Earth, says Isabel Kwok of JM Finn

Which sectors offer promising investment opportunities?

plastics: Some materials are obviously easier to manufacture than others. Plastics are notoriously problematic due to their complex chemical structures.

Plastics are so useful that they are often difficult to replace. However, we see a big change in some areas, such as For example, in food packaging, where biodegradable plastic alternatives made from materials such as cornstarch, mushrooms and even seaweed are being introduced.

However, these sometimes bring other problems with them, such as: B. causing food to spoil quickly or shorten its shelf life, potentially and unintentionally increasing food waste.

Lithium Ion Batteries: These are used in electric vehicles and contain valuable components such as cobalt that can be recycled.

Isabel Kwok: Recycling can be a difficult area to invest in as it requires a more active approach given the level of research required

Isabel Kwok: Recycling can be a difficult area to invest in as it requires a more active approach given the level of research required

However, the process, which involves either smelting or high temperature smelting, is both complex and energy intensive, making it less economically viable.

The lithium-ion battery industry therefore lacks a large-scale economic recycling solution.

Currently, only about 5 percent of lithium-ion batteries are recycled worldwide. With the massive shift to electric vehicles already underway, we urgently need to find a solution to this problem.

metals: Extractive industries can have a huge negative impact on the environment.

For investors who don’t want to invest directly in mining companies, for example, investing in companies involved in metal recycling can be a more appetizing way to “play” the often highly volatile commodity story.

This approach helps companies provide resource scarcity solutions without investing directly in companies involved in resource extraction.

The recycling of aluminum and zinc reduces CO2 emissions by up to 90 percent and 40 percent respectively compared to primary production, so that there are also clear advantages from a climatic point of view.

Robotics: The development of robotics will continue to be instrumental in the safe and efficient management and processing of waste, particularly as the cost of robotics continues to decrease and automated processing becomes more financially viable.

How much of your portfolio should you risk in this sector?

Deciding how much exposure to this sector you want to take depends entirely on your risk appetite and investment objective.

Some of the technology in this space is well established, but many are fairly new, so it’s probably wise to explore accessing this story through collective investment funds rather than investing directly in stocks.

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As a result, investors can benefit from the managers’ expertise in this area and also control the risk.

But recycling remains a difficult area to invest in, as it requires a more active approach given the amount of research needed to assess the impact of the investment.

It would make sense to look for more general funds that are actively identifying or encouraging companies that can move in this direction, to provide some commitment to promoting waste reduction, but also to ensure diversification is maintained.

Investors may want to look for managers who align with their values ​​and have confidence that their process will reap the rewards.

For example, in retail investing, consider whether a fund manager assesses the level of waste reduction where possible, or actively votes as a shareholder.

What funds and trusts could you consider for your portfolio?

Impax environmental markets (Ongoing fee: 0.85 percent)

Impax is a specialist wealth manager investing in the opportunities presented by the transition to a more sustainable global economy.

It has developed a number of funds, including this one, which is 20 percent invested in resource efficiency and waste management companies that provide solutions to some of the key waste and recycling challenges.

Importantly, it also invests in energy efficiency and water management, which are key components in this story.

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Pictet Nutrition (Ongoing fee: 0.8 percent)

One of the key areas of focus is reducing waste in farming practices, food and packaging throughout the farm-to-table journey.

Managers have identified companies that can increase efficiencies through innovation and careful consideration of materials and inputs to help reduce waste. This is a relatively defensive fund.

JLEN environmental systems (Ongoing fee: 1.24 percent)

This fund has invested in biomass projects in the UK and an energy-from-waste project in southern Italy.

For example, the investment in Codford Biogas Ltd can generate 3.8 MWe (megawatts electric) of electricity by processing up to 100,000 tonnes of liquid and solid food waste annually. This corresponds to the supply of up to 4,000 households.

RobecoSAM Smart Materials (Ongoing fee: 0.96 percent)

A thematic fund that invests globally in companies offering innovative materials and process technologies and integrates sustainability criteria as part of the stock selection process, including metals recycling, industrial robotics and smart packaging companies.

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Edmund DeMarche

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