8 key sustainability challenges for Asia: Transitioning to a value-creating Circular Economy

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8 key sustainability challenges for Asia: Transitioning to a value-creating Circular Economy

In November, the world will come together at the COP26 Summit in Glasgow. Under current government policies, the world’s temperature is set to rise by as much as 3C degrees this century. A key goal of the COP26conference is to get world leaders to commit to ambitious carbon reduction targets that keep temperature rises to well below 1.5C degrees. This is easier said than done, and requires carbon emissions to be cut by half by 2030 and reach net zero by 2050.

For Asia, the challenges of achieving net zero are significant given that the region is responsible for nearly half of the world’s greenhouse gases. Climate change is only one of a number of challenges, however.  Like the rest of the world, Asia will need to move from an economic model that we characterise as Wasteful, Idle, Lopsided and Dirty (WILD) to a model that is Circular, Lean, Inclusive and Clean (CLIC™).

Like the rest of the world, Asia will need to move from an economic model that we characterise as Wasteful, Idle, Lopsided and Dirty (WILD) to a model that is Circular, Lean, Inclusive and Clean (CLIC™)

There are eight challenges that Asia will need to address to help shift its future:

1. Achieving Zero Waste: Asia is expected to top 50% of global GDP by 2040, and drive 40% of the world’s consumption. For a sustainable future, strategic waste management will be key. It is not enough to just recycle, there also needs to be a shift to waste prevention, product re-design, and re-use. Extending product lifecycles as much as possible is one avenue, as is the sustainable sourcing of inputs in production processes, as well as the use of evolving technologies such as additive manufacturing. Though Asia’s economies are disparate, most sectors across the region are united in achieving a goal of zero waste, particularly in the consumer goods, industrials, and utilities sectors.

2. Learning How to Harness the Value of Natural Capital: Over half of the world’s GDP output depends on natural capital – assets like forests, water, fish stocks, minerals, biodiversity and land. Low income countries in particular depend on natural capital for 47% of their wealth.  Therefore, the regeneration of nature is an important component of a circular economy. Biological materials can safely re-enter the natural world. Once they have gone through one or more use cycles, they will degrade over time and return their embedded nutrients to the environment. Biodiversity is key to healthy ecosystems which provide a wealth of services to our economy, including pollination, carbon storage, and the filtering of air and water. The destruction of natural capital undermines these critical ecosystem services that form the foundation for much of our economy.

3. Embracing Dematerialisation: It is time to deliver structural change to production and consumption patterns through shared ownership models, and wider dematerialisation. The sharing economy recognises that to achieve an outcome, such as transport from A to B, it suffices to have access to an asset (such as a car), rather than necessarily needing to own it. Sharing economy models have disrupted transport, real estate, and consumer markets, with new applications still developing Digitalisation is additionally enabling businesses to shift from a material or tangible product to a service, be it in the form of cloud computing sharing, or leasing.

4. Developing Resource Efficiency: Like the rest of the world, Asia needs to learn how to achieve more with less. Since 1990, the Asia-Pacific region has had exponential growth in resource use. According to the Economic and Social Commission for Asia and the Pacific (ESCAP), domestic material consumption per capita in the low- and middle-income countries increased by 270%, while it increased by 10% in high-income countries. However, ESCAP research provides empirical evidence on the strong links between resource efficiency gains and the creation of jobs as well as other benefits, including progress in the Human Development Index, improved access to water and sanitation, and enhanced energy management. Resource efficiency saves money for businesses and consumers, and reduces waste generation. The challenge is to be as efficient as possible with what goes into a product. Manufacturers and consumers need to shift to ingredients that are renewable instead of finite, and to processes that create value rather than destroy it.

Creating equal opportunities for all is actually a growth strategy

5. Creating a Fairer Society: Creating equal opportunities for all is actually a growth strategy. All forms of discrimination lead to the under-utilisation of human capital, hamper economic participation, and lead to inferior economic outcomes. Investments in Fintech, online education, and more accessible forms of healthcare are all prime candidates to address these inequalities and unlock economic potential. Progress in these areas can also boost demand, triggering shifts in spending patterns in consumer discretionary sectors.

6. Building More Secure Societies: The Covid-19 pandemic has demonstrated the fragility of our economy and society, and its vulnerability to external shocks. As our world has grown more interconnected, environmental, social and economic disruption can reverberate across supply chains. Similarly, social capital – including the trust and relationships that exist within communities – is an important ingredient to successful business. Ensuring security, resilience and good governance are necessary prerequisites to economic development and growth.

Decarbonising economies is a complex challenge, one that will require significant investments across the board, in renewable energy, cleaner forms of transportation, and greener construction

7. Reaching Net Zero: Cutting emissions will be no easy task. Across Asia, several countries have made pledges to reach net zero by 2050, in line with the Paris Climate Accords of 2015. Decarbonising economies is a complex challenge, one that will require significant investments across the board, in renewable energy, cleaner forms of transportation, and greener construction. But these transitions already represent significant investment opportunities. With the falling costs of green technologies, such investments are likely to be growth-positive. With trillions of dollars of investment required around the world, the opportunities for transitioning companies and solution providers are multiplying rapidly. Effective implementations of the roadmaps that many countries have introduced will be essential.

8. Learning To Be Adaptive and Resilient: Nobody said it was going to be easy. Adjusting to environmental change will be key for Asia’s success. This can include building flood defences along coastal lines, setting up early warnings for cyclones, and switching to drought resistant crops. Engineering and construction services aimed at protecting cities and key infrastructure is essential, alongside monitoring technologies and the redistribution of costs through financial services such as insurance and risk rating agencies. Even in a best case scenario, climate change will magnify existing challenges – but early planning can reduce avoidable damage and disruption.

Even in a best case scenario, climate change will magnify existing challenges – but early planning can reduce avoidable damage and disruption

Asia’s concerns are being mirrored globally. By addressing these critical eight challenges, Asia can change the future not just for its own region, but also for the world.

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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