With the SRI Equity Circular Economy Fund, the Belgian asset manager Candriam has launched another impact investment fund. The launch comes exactly one year after the start of its Climate Action Fund.
The fund will focus on two types of companies, fund managers Koen Popleu and Monika Kumar told Investment Officer. ‘On the one hand, we will invest in so-called enablers. These are companies that help make the transition to a circular economy possible,’ says Popleu (pictured). ‘These are companies that are involved in sustainable energy, but also, for example, companies that are developing technologies to better recycle plastic. At the moment, for example, it’s complicated to recycle coloured plastic.’
But also companies that are improving the sustainability of their products to make them last longer, or companies active in the sharing economy (such as providers of shared cars or other sharing platforms), are seen as enablers.
This part of the portfolio shows a fairly strong overlap with the Climate Action Fund launched last year, especially in terms of investments in renewable energy. ‘That fund also focuses on reducing or avoiding greenhouse gas emissions, and is therefore partly in the same companies,’ said Popleu. The overlap between the two funds is currently 30% of the portfolio, which is also the maximum. ‘I will personally oversee that this 30% is not exceeded.’
Transformers
The second category of companies in which the fund invests is called transformers. These are companies that use a lot of raw materials as input for their products. ‘It is precisely these companies that must initiate the transition to a circular economy, for example by switching to fully recycled packaging. These are often consumer-related companies, but they may also be aluminium smelters or paper mills,’ explains Popleu.
The consumer staples and consumer discretionary sectors account for approximately one third of the fund’s portfolio. These could for example include Unilever, which is aiming to halve the use of non-recycled plastic in its packaging by 2025.
This contrasts sharply with the vague and unambitious policy of competitor Nestlé: in a press release last year, it stated that it did not want to be climate-neutral until 2050, but it has as of yet failed to make that objective any more concrete. Candriam, however, declines to say in which companies it does or does not invest as a company policy.
No supermarkets
A category of stocks that conspicuously absent from the fund’s portfolio are supermarket chains, which are nevertheless a major source of packaging materials and therefore indispensable for the creation of a circular economy. Although, in theory, supermarket chains can do a lot to reduce the use of packaging materials, Candriam does not see the sector as a credible transformer for the time being.
‘Supermarkets are users of packaging materials, they cannot independently decide not to use any or fully recycled material because they do not manufacture products themselves,’ explains Popleu. ‘For the time being, we think their circular ambitions are too low to be included in our strategy anyway,’ he adds.
According to Popleu, the fund is off to a flying start. Although a track record is of course still lacking, invested assets already amount to $120 million (€107 million). ‘Even institutional investors have already invested in the fund and we have several RFPs running. That’s quite exceptional, because usually institutional investors want to see a track record of a number of years before they join’.
Green Deal
It is another indication of the hotness of sustainability as an investment theme, says co-manager Monika Kumar. ‘We’re talking about a multi-decade investment opportunity. The EU wants to be climate neutral by 2050 and become a zero-waste society. This means that the European Green Deal will have a very strong focus on the circular economy, and huge investments will flow to it, for example in electrification of transport and renewable energy.’
And while the ever stricter European regulations are an obstacle for polluting companies, the same rules are an incentive for others, Kumar points out. ‘Between 2025 and 2030, European companies will have to quadruple the share of recycled components in their production. This offers enormous opportunities for the companies in our portfolio.’
But is a truly circular economy, the ultimate goal for 2050, ultimately possible in a globalised world, in which products often cross half the world several times before reaching the end user?
‘Globalisation can indeed be an obstacle to a rapid transition to a circular economy,’ admits Popleu. ‘The shorter the supply chains, the lower the environmental impact. But the reality is that we live in a globalized world. We believe that a transition to a circular economy is also possible in this reality.’