Article - June 1, 2023

The Circular Economy: Revolutionizing Waste Management Practices

Learn more about the Harris Williams professionals featured in this article.

As traditional business models give way to modernized structures and approaches, an entirely new economic framework is beginning to take shape: the circular economy. In place of the linear take, make, and waste model long deployed by businesses, the circular economy stands to revolutionize how we approach the production, procurement, and use of materials throughout the economy.

In this article, senior bankers from the Harris Williams Energy, Power & Infrastructure Group and Business Services Group share their insights on the opportunities the circular economy presents for investors.

Key Takeaways:

The circular economy is crucial to deliver on waste management, climate, and many other ESG-related goals, which creates strong long-term tailwinds to propel the growth of those companies enabling circular waste model strategies.
Growth opportunities span each stage of the waste management value chain across multiple high-priority sectors.
Best-in-class companies enabling the circular economy share many common traits; among them are technical and regulatory expertise.

Waste Reduction: A Powerful Tailwind for Growth

The circular economy is governed through three major principles: Eliminate waste and pollution, keep products and materials in circulation, and regenerate the environment. It has the potential to reshape how the economy is constructed and how businesses operate, creating powerful long-term tailwinds to propel the growth of companies enabling this transformation.

Moving past the current take, make, and waste model toward a circular model presents numerous society-wide environmental and economic benefits, including the elimination or reduction of waste entering landfills and associated greenhouse gas emissions. Indeed, the circular economy is crucial to deliver on waste management, climate, and many other ESG-related goals.

Every year, the global population generates more than 2 billion tons of waste, 70 percent of which ends up in a dump or landfill never to be reused.1 “This behavior has massive effects on our planet, including harmful emissions and the pollution of soil, air, oceans, and groundwater,” says Luke Semple. He adds that, unfortunately, the trend shows no sign of slowing down. “Global waste generation is increasing rapidly, which creates greater urgency for corporate and municipal response.”

Semple also notes that heightened investor focus, growing customer advocacy, intensifying ESG mandates, and increasing government regulations on waste disposal are pushing businesses to move aggressively to establish a circular, closed-loop waste model strategy. “Corporations and governments play a critical role in these significant environmental issues given the influence they have on their suppliers, customers, and the economy,” he says. “The question is no longer if companies should rise to the challenge, but, more importantly, how they can address ESG concerns.”

M&A Opportunities Span the Value Chain

Shifts in corporate strategy and legislative policy present significant opportunities for third-party providers with services designed to help customers achieve some of their closed-loop waste management and climate goals. “Businesses across sectors are increasingly reimagining and restructuring how their waste is managed throughout the entire product life cycle,” says Taylor Morris. “This opens up doors for third parties that can help them achieve more sustainable practices that maximize resource usefulness.”

Companies operating in any part of the waste management value chain can provide unique value propositions to corporations pursuing the above strategies. “Innovation is accelerating at each stage from waste generation to hauling, processing, and reuse,” says Morris. “Those leading the innovation stand to gain market advantage, which makes them attractive M&A candidates.”

Third parties can assist waste generators in reducing waste at the source to conserve energy and decrease use of virgin materials. They can help bring innovation to the collecting, sorting, and processing of waste as inputs to produce new products (recycling) or as a nutrient-rich soil amendment from organic waste (composting).

At the end of the life cycle, there’s the opportunity for the reintroduction of repurposed materials, water, biofuels, and other recycled waste to a wide range of end markets. One aspect of this reuse may include converting waste into usable heat, electricity, or fuel through a variety of processes, including combustion, gasification, anaerobic digestion, and landfill gas recovery, resulting in renewable energy and the ultimate reduction of carbon emissions.

A truly circular economy touches virtually every part of the world’s economy. However, there are some subsectors that are more critical than others in moving toward a circular economy. Semple points to water and wastewater as an example. “Water is an invaluable component of most industries, yet there are significant inefficiencies and wasteful practices throughout the value chain,” he says. “There’s a great opportunity to reclaim water from a variety of sources, treat it, and reuse it for beneficial purposes.”

The fact that food waste is the leading waste material entering landfills each year makes food and agriculture high priority subsectors. Food waste processing methods such as composting and anaerobic digestion divert food waste from a landfill and result in material that can be reused for beneficial purposes. The textiles and technology sectors are also large landfill contributors whose products have substantial potential for recycling and harvesting of component materials for re-use.

Plastics represent a significant environmental challenge, as they often end up in the ocean or a landfill. That makes subsectors that are heavy users of single-use plastics, such as packaged goods and healthcare, important areas of focus. “Single-use plastics fail to maximize the full productive capacity of the material and leave businesses and the environment burdened with unnecessary costs,” says Morris. “A circular plastic economy designs materials at first use for eventual reuse and reintegration.”

Noting the many different industries seen as critical to the circular economy, Semple sees several ways investors could participate and create value. “A diverse set of waste management and beneficial reuse platforms across these attractive subsectors could play a critical role as the adoption of the circular economy continues to gain momentum,” he adds.

Capabilities that Differentiate Winners

Companies enabling the circular economy pose an attractive opportunity for investors wanting to tap into growth related to this important trend. Many of the traits that make leading companies stand out in this space are consistent with those of leaders in more specific industry or geographic segments. According to Semple, some of these traits include a proven track record of project execution and organic growth, M&A capabilities, recurring customer relationships, technology enablement, and talent hiring, training, and retention.

Morris is then quick to highlight some capabilities that are particularly important to ESG-related providers. “Technical and regulatory landscape expertise is essential, as research and regulation are quickly evolving. Geographic scale and route density are indicators of growth potential, particularly for providers involved in the movement and processing of waste. Finally, the extent to which the company has a turnkey solution offering and vertical integration potential are key considerations of market success.”

Every industry and company across the global economy has the opportunity and the responsibility to take steps to replace outdated, linear practices with those that emphasize beneficial reuse of materials and minimize the negative repercussions of climate change, resource scarcity, and waste. There is no doubt that this far-reaching movement will create opportunities for best-in-class companies to excel.

For a deeper discussion on the circular economy, please contact our senior bankers.