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The Circular Economy: Redesigning our Planet’s Future

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Circular Economic Model

Think about the last item you threw away. Did you consider where that product ended up, once you threw it away?

The Earth’s growing waste problem can be traced back to a culture that treats virtually every item we buy and own as disposable. Rapid urbanisation, population growth, and industrialisation are key contributors to the burgeoning volumes of waste that humans are producing each year.

But what if there was away to get around that?

Introducing the Circular Economy

Today’s post from BlackRock highlights the key benefits of adopting a circular economy, and examines the factors that will make the biggest impact in the years to come.

Circular Economy

A Culture of Consumption

Mass production is making products cheaper, more readily available, and more readily disposable, bringing levels of material comfort unimaginable to previous generations.

Companies are making new products at a frenetic pace to keep up with global demand─consuming finite resources as if the Earth had an infinite supply.

The intense effects of this mass consumption are visible across multiple industries:

  • Construction: Construction waste alone is expected to reach 2.2 billion tonnes annually by 2025.
  • Fast Fashion: Roughly 87% of clothing is discarded or burned each year, costing US$100 billion.
  • Plastics: Over 95% of plastic packaging value is wasted every year, costing up to US$120 billion.

As natural resources decline and waste continues to pile up, our society is at a crossroads.

A Tale of Two Economies

Today, most of the world follows the Take-Make-Waste practices of the linear economy, with little regard for future use of these resources and products. Unfortunately, most of this ends up in landfills─by 2050, we could be producing 3.4 billion tonnes of waste each year.

The circular economy, by contrast, is focused on redesigning our systems, processes, and products to enable goods to be used longer, repurposed, or recycled more efficiently.

The circular economy is a major transformational force that will last decades…investors are increasingly considering sustainability factors when making investment decisions.

—BlackRock

Companies and governments that choose to adopt a circular economic model could end up saving €600 billion (US$663 billion) annually─and potentially add €1.8 trillion (US$2 trillion) in additional benefits to Europe’s overall economy.

Designing a Better Future

Three major factors are driving the gradual, global shift to a circular economy.

  1. Economic

    Companies will need to switch from wasteful to sustainable practices, and many are taking steps towards a better future. The New Plastics Economy Global Commitment was signed in 2018 by over 400 organisations to eliminate plastic waste and pollution.

  2. Regulatory

    Regulations such as bans on single-use plastics and international waste imports are growing more stringent, and some governments are also offering tax incentives for corporations that follow sustainable practices.

  3. Society

    More consumers are actively researching and questioning the impacts of the products they buy, and consumer demand is showing a preference for reusable products and practices.

While few public companies today are actively using a circular economy, several major brands are leading the way in sustainable business practices.

  • Philips: Light-as-a-service that provides access to lighting rather than ownership of lightbulbs
  • Levi Strauss: Repurposing old garments into building insulation, upholstery, and new clothing
  • Toshiba: First multi-function printer, heat-sensitive erasable toner can do up to five reprints per page
  • Renault: Revamped old vehicle drive trains, engines, and gearboxes to almost-new condition

Companies and governments in the circular economy have a structural advantage to solve some of the world’s biggest economic issues ─ giving them a strong, long-term market for goods and services, the potential to lower costs, and open profitable new business streams.

Lasting Impact on People, Planet, and Profit

In order for the circular economic model to achieve widespread adoption, both sustainable investment and partnerships across sectors are needed.

This rally for change is making an impact on financial markets─sustainable investments around the world grew from US$13.3 trillion in 2012 to US$30.7 trillion in 2018.

Healthy economies rely on a healthy environment, and building a circular economy is integral to the future health of our economy, planet, and society.

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Central Banks

The Anatomy of the $2 Trillion COVID-19 Stimulus Bill

A visual breakdown of the CARES Act, the $2 trillion package to provide COVID-19 economic relief. It’s the largest stimulus bill in modern history.

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The Anatomy of the $2 Trillion COVID-19 Stimulus Bill

The unprecedented response to the COVID-19 pandemic has prioritized keeping people apart to slow the spread of the virus. While measures such as business closures and travel restrictions are effective at fighting a pandemic, they also have a dramatic impact on the economy.

To help right the ship, the Coronavirus Aid, Relief, and Economic Security Act — also known as the CARES Act — was passed by U.S. lawmakers last week with little fanfare. The act became the largest economic stimulus bill in modern history, more than doubling the stimulus act passed in 2009 during the Financial Crisis.

Today’s Sankey diagram is a visual representation of where the $2 trillion will be spent. Broadly speaking, there are five components to the COVID-19 stimulus bill:

CategoryTotal AmountShare of the Package
Individuals / Families$603.7 billion30%
Big Business$500.0 billion25%
Small Business$377.0 billion19%
State and Local Government$340.0 billion17%
Public Services$179.5 billion9%

Although the COVID-19 stimulus bill is incredibly complex, here are some of the most important parts to be aware of.

Funds for Individuals

Amount: $603.7 billion – 30% of total CARES Act

In order to stimulate the sputtering economy quickly, the U.S. government will deploy “helicopter money” — direct cash payments to individuals and families.

The centerpiece of this plan is a $1,200 direct payment for those earning up to $75,000 per year. For higher earners, payment amounts will phase out, ending altogether at the $99,000 income level. Families will also receive $500 per child.

There are three other key things to know about this portion of the stimulus funds:

  1. There will be a temporary suspension for any student loan held by the federal government. This means no payments required and no interest accrued until the end of September, 2020.
  2. Borrowers with federally backed loans can request forbearance on mortgage payments for up to six months.
  3. There will be an expansion of unemployment benefits, including a four-month enhancement of benefits. This plan includes freelancers, workers in the gig economy, and furloughed employees.

Big Business

Amount: $500.0 billion – 25% of total CARES Act

This component of the package is aimed at stabilizing big businesses in hard-hit sectors.

The most obvious industry to receive support will be the airlines. About $58 billion has been earmarked for commercial and cargo airlines, as well as airline contractors. Perhaps in response to recent criticism of the industry, companies receiving stimulus money will be barred from engaging in stock buybacks for the term of the loan plus one year.

One interesting pathway highlighted by today’s Sankey diagram is the $17 billion allocated to “maintaining national security”. While this provision doesn’t mention any specific company by name, the primary recipient is believed to be Boeing.

The bill also indicates that an inspector general will oversee the recovery process, along with a special committee.

Small Business

Amount: $377.0 billion – 19% of total CARES Act

To ease the strain on businesses around the country, the Small Business Administration (SBA) will be given $350 billion to provide loans of up to $10 million to qualifying organizations. These funds can be used for mission critical activities, such as paying rent or keeping employees on the payroll during COVID-19 closures.

As well, the bill sets aside $10 billion in grants for small businesses that need help covering short-term operating costs.

State and Local Governments

Amount: $340.0 billion – 17% of total CARES Act

The biggest portion of funds going to local and state governments is the $274 billion allocated towards direct COVID-19 response. The rest of the funds in this component will go to schools and child care services.

Public and Health Services

Amount: $179.5 billion – 9% of total CARES Act

The biggest slice of this pie goes to healthcare providers, who will receive $100 billion in grants to help fight COVID-19. This was a major ask from groups representing the healthcare industry, as they look to make up the lost revenue caused by focusing on the outbreak — as opposed to performing elective surgeries and other procedures. There will also be a 20% increase in Medicare payments for treating patients with the virus.

Money is also set aside for initiatives such as increasing the availability of ventilators and masks for the Strategic National Stockpile, as well as providing additional funding for the Center for Disease Control and expanding the reach of virtual doctors.

Finally, beyond the healthcare-related funding, the CARES Act also addresses food security programs and a long list of educational and arts initiatives.

Hat tip to Reddit user SevenandForty for inspiring this graphic.

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China

COVID-19 Crash: How China’s Economy May Offer a Glimpse of the Future

China has seen a severe economic impact from COVID-19, and it may be a preview of what’s to come for countries in the early stages of the outbreak.

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COVID-19 economic impact

The Economic Impact of COVID-19

China, once the epicenter of the COVID-19 pandemic, appears to be turning a corner. As the number of reported local transmission cases hovers near zero, daily life is slowly returning to normal. However, economic data from the first two months of the year shows the damage done to the country’s finances.

Today’s visualization outlines the sharp losses China’s economy has experienced, and how this may foreshadow what’s to come for countries currently in the early stages of the outbreak.

A Historic Slump

The results are in: China’s business activity slowed considerably as COVID-19 spread.

Economic IndicatorYear-over-year Change (Jan-Feb 2020)
Investment in Fixed Assets*-24.5%
Retail Sales-20.5%
Value of Exports-15.9%
Industrial Production-13.5%
Services Production-13.0%

*Excluding rural household investment

As factories and shops reopen, China seems to be over the initial supply side shock caused by the lockdown. However, the country now faces a double-headed demand shock:

  • Domestic demand is slow to gain traction due to psychological scars, bankruptcies, and job losses. In a survey conducted by a Beijing financial firm, almost 65% of respondents plan to “restrain” their spending habits after the virus.
  • Overseas demand is suffering as more countries face outbreaks. Many stores are closing up shop and/or cancelling orders, leading to an oversupply of goods.

With a fast recovery seeming highly unlikely, many economists expect China’s GDP to shrink in the first quarter of 2020—the country’s first decline since 1976.

Danger on the Horizon

Are other countries destined to follow the same path? Based on preliminary economic data, it would appear so.

The U.S.
About half the U.S. population is on stay-at-home orders, severely restricting economic activity and forcing widespread layoffs. In the week ending March 21, total unemployment insurance claims rose to almost 3.3 million—their highest level in recorded history. For context, weekly claims reached a high of 665,000 during the global financial crisis.

“…The economy has just fallen over the cliff and is turning down into a recession.”

Chris Rupkey, Chief Economist at MUFG in New York

In addition, manufacturing activity in eastern Pennsylvania, southern New Jersey, and Delaware dropped to its lowest level since July 2012.

Globally
Other countries are also feeling the economic impact of COVID-19. For example, global online bookings for seated diners have declined by 100% year-over-year. In Canada, nearly one million people have applied for unemployment benefits.

Hard-hit countries such as Italy and Spain, which already suffer from high unemployment, are also expecting to see economic blows. However, it’s too soon to gauge the extent of the damage.

Light at the End of the Tunnel

Given the near-shutdown of many economies, the IMF is forecasting a global recession in 2020. Separately, the UN estimates COVID-19 could cause up to a $2 trillion shortfall in global income.

On the bright side, some analysts are forecasting a recovery as early as the third quarter of 2020. A variety of factors, such as government stimulus, consumer confidence, and the number of COVID-19 cases, will play into this timeline.

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