What goes around, could come around
When investors talk about climate solutions, they tend to focus on renewables, electrification, and carbon offsets. What’s often overlooked is the circular economy — despite its potential to deliver up to one-third of the emissions reductions needed to meet net zero goals. According to the Circularity Gap Report 2025, (1) only 6.9% of the global economy is circular. That figure is down from 7.2% a few years ago. The rest — 93.1% — is made up of virgin resource extraction, waste, and emissions. For investors, that’s not just a sustainability concern—it’s a sign of inefficiency and untapped opportunity.
The Circular Economy Explained
A circular economy keeps resources in use for as long as possible. It’s about designing out waste, keeping products and materials in use, and regenerating natural systems. It means more than recycling. It’s smarter product design, better supply chains, and systemic efficiency. Think buildings made for deconstruction, products designed for second lives, and cities with embedded reuse loops.
According to Circle Economy and Deloitte, the transition to circularity could cut global material use by 28% and emissions by 39%. Yet investment flows remain focused on linear systems—extract, use, discard—because policy, pricing, and infrastructure still reward the status quo.
Why Investors Should Care
Circularity isn’t just a sustainability story—it’s an efficiency one. Rising resource costs, regulatory scrutiny, and ESG expectations push towards models that reduce material intensity. Businesses adopting reuse, remanufacturing, and recovery often find they lower costs, improve margins, and insulate against supply risk.
The Circularity Gap Report warns that global material extraction has tripled in 50 years and may rise another 60% by 2060. Construction materials, critical minerals, and biomass— essential to the green transition — are under pressure. Investing in circularity in our view is a defensive strategy against volatility.
But It Doesn’t Always Work
For all its promise, circularity is not a silver bullet. Recycling systems break down when materials are poorly sorted or contaminated. Some materials — like textiles or mixed plastics — degrade with each cycle, meaning they can’t be reused indefinitely. Collection and processing infrastructure remains patchy, particularly in regional areas.
There’s also the problem of rebound effects. Making things more recyclable doesn’t necessarily reduce consumption. In some cases, it can even encourage more use. Efficiency gains are often swallowed up by growing demand—undermining environmental benefits.
Then there’s economics. Many circular models are capital intensive and depend on scale. For smaller firms, reverse logistics, refurbishment, and material recovery can be commercially unviable. Without government incentives or regulation, linear models still win on price. And investors know it.
So while the circular economy presents real opportunities, the risks, limits, and execution challenges must be factored in. Not every circular story is an investable one. But the best ones are.
Australia’s Blind Spot
Despite Australia’s net zero ambitions, circular economy policy remains undercooked. Waste strategies still focus on end-of-life recycling. Carbon plans focus on energy, not materials. And few investment frameworks actively reward circularity.
That’s a problem. Australia generates one of the highest per capita waste footprints in the world. Our construction sector is resource-heavy. Our export economy—particularly mining — feeds linear consumption globally.
The Circularity Gap Report reminds us that materials account for 70% of global emissions once you include extraction, processing, transport, and use. Energy transition alone won’t cut it. We must also use fewer materials, for longer, and design systems for reuse.
Circular Leaders on the ASX
Some ASX-listed firms are showing the way. Brambles (BXB), through its CHEP pallet network, enables reuse in global supply chains. Its 2024 sustainability update claims to have avoided 3.2 million tonnes of CO₂ and saved 4.1 million trees via circular logistics.
Sims Limited (SGM) is another example—processing scrap metal and e-waste into reusable inputs. Close the Loop (CLG) offers recovery systems for packaging and electronics. While smaller, it’s one of the few listed companies whose core business is built on circular principles.
These companies show that circularity can scale, with the right business model. Brambles, in particular, benefits from network effects: the more users on its platform, the more efficient it becomes. That’s attractive to long-term investors.
Still, most Australian institutional investors don’t screen for circularity. That’s a missed opportunity. Funds that can identify scalable circular models early may find outsized returns — particularly as regulation catches up.
Market Signals and Policy Gaps
The WCEF (World Circular Economy Forum) 2025 urges greater capital flow into circular infrastructure. Tools like lifecycle analysis and Circular Transition Indicators are improving investor confidence. In the EU, taxonomies now include circular benchmarks. Governments in Asia are also introducing mandates for product stewardship and material recovery.
Australia lags behind. Our ESG frameworks don’t yet reward circularity. And procurement policies rarely consider whole-of-life resource use. That’s frustrating — but it also means valuations for circular enablers remain undemanding.
For investors, this is a window of opportunity. Sectors like packaging, construction, electronics, and logistics are ripe for disruption. Circularity isn’t a fringe issue. It’s an efficiency upgrade.
It’s Not Just More Recycling
The Circularity Gap Report warns that even perfect recycling would lift circularity to only 25%. The real levers are redesign, reuse, and reduced demand. Buildings need to be constructed for disassembly. Products must be built for multiple lives. And services — not ownership — may need to be defined for future consumption.
Construction waste is a prime example. Nearly half of global secondary materials come from it, but only 22% is recycled—often poorly. Investors require and should back high-value recovery, not just better bins.
Fossil fuels are another issue. Over 80% of global energy still comes from non-renewables. And you can’t recycle a barrel of oil. That makes fossil energy incompatible with circularity. Energy investments must be designed for material recovery too — from recyclable solar panels to reusable battery components.
The Bottom Line
Circularity is one of the biggest blind spots in climate investing. It’s not perfect, and it’s not always profitable. But when it works, it unlocks both emissions savings and financial value. The Circularity Gap Report 2025 is a reminder that circular thinking isn’t a luxury—it’s a necessity.
ASX-listed companies like Brambles, Sims, and Close the Loop show what’s possible. But more capital is needed. More policy support too. Australia’s resource-heavy economy makes it both a laggard and a potential leader in the space.
Investors who understand both the opportunity and the limitations of circularity will be best placed to find value in a decarbonising world. Not every loop will close profitably. But the ones that do will shape the next generation of sustainable returns.
References
Circle Economy and Deloitte The Circularity Gap Report 2025 https://global.circularity-gap.world/
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