BlackRock, Renewi and the circular economy

This week, Renewi (RWI) confirmed that it has applied for a secondary listing on Euronext Amsterdam; a move the waste management group hopes will align its brand with “Dutch economic and societal interest in the circular economy”.

The push towards the circular economy represents a move away from the prevailing – make, use, dispose – economic model in favour of one that keeps resources in use indefinitely if possible. If widely adopted, it will necessitate a fundamental rethink on the way that many goods are produced – and which producers warrant our support.

Part of that circular economy is already reflected in the European Union (EU) regulatory framework governing nitrogen deposition and certain forms of acid (PFAS) pollution. The effects of the legislation were brought into sharp relief midway through last year, when the highest court in the Netherlands ruled that the way in which Dutch builders and farmers were dealing with nitrogen emissions was in breach of EU legislation.

The reaction wasn’t wholly favourable. Farmers duly laid siege to The Hague and one Dutch province suspended new regulations on nitrogen emissions. Nevertheless, thousands of construction projects, both large and small, were shelved, or at least postponed, which meant that the commercial division of Renewi had to contend with lower volumes of construction and demolition waste.

Investments in most sectors carry a degree of regulatory risk, but there are certain businesses that can benefit from beefed-up statutory requirements or even new recommendations linked to best practice. Companies such as Equiniti (EQN), those tapped into the ‘knowledge economy’, provide a prime example – they thrive on increased regulatory complexity. The introduction of industry standards such as Mifid II and the General Data Protection Regulation (GDPR) may have lumped extra costs on business, but they have also created lucrative consultancy opportunities.

Which brings us back to waste management; or what might aptly be termed waste mismanagement. It was only in 2018, when China banned the import of certain kinds of solid waste from foreign countries, that widespread public pressure started to mount over the ways in which we dispose of our refuse. Shipping it halfway around the world seemed utterly perverse, but in the wake of the ban the UK started offloading its detritus to other Asian nations, some with highly questionable reputations on marine pollution. In theory, any waste exported from the UK cannot be dumped, incinerated or end up in landfill, but the country was under pressure to meet a European Union (EU) target to recycle half its household waste by 2020.

Transnational regulations, though integral to efforts to ensure best practice in environmental matters, are routinely flouted. But recent comments by BlackRock chief executive Larry Fink in support of sustainable investment strategies indicate that capital may have a central role to play.

The fossil fuel industry usually comes in for the lion’s share of criticism when environmental, social and governance (ESG) mandates are discussed, but if the BlackRock pledge prefigures an accelerated transition from the make, use, dispose model, then companies within other sectors, such as packaging and bulk chemicals, may need to rethink and evolve their business practices, or simply wither on the vine.

But the circular economy encompasses creative as well as proscriptive elements. For investors, the thinking behind the business philosophy is compelling, not only from an environmental perspective, but also because it is not inimical to wealth creation – quite the opposite, in fact. Research from Accenture (US:ACN) suggests that the circular economy could generate $4.5 trillion (£3.46 trillion) of additional economic output by 2030, based on the global supply/demand gap of natural resources over the period.

The private sector will remain a central component. A recent report from the Environmental Services Association (ESA) indicates that local authorities in England that contract out their waste services achieve higher recycling rates than in-house services. But whether a relatively small operator such as Renewi will be able to adapt to the changes brought about by the circular economy more efficiently than, say, an industry heavyweight such as Veolia Environment S.A (Sp:VIE) is open to conjecture.

Renewi’s Dutch foray is more than just window dressing, particularly in view of the BlackRock statement. Long-term planning in the UK waste management industry has been characterised by complacency and inertia, but with an expected compound annual growth rate of 6 per cent through to 2025, there are certainly enough incentives for both institutional and retail investors.



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