Mankind is dependent on electronics, but, without a shift to a circular economy, they may end up doing more harm than good.
Anyone who has owned a mobile phone or laptop likely has a drawer in their home dedicated to storing old electronic devices.
We’ve outgrown them, replaced them, broken them, but we can’t bring ourselves to dispose of them.
These hoarded items left in cupboards are technically contributing to global streams of electronic waste – more commonly known as e-waste.
Granted, it’s not as damaging a practice as dumping these products into landfills, exposing the natural world to yet more toxins, but the fact remains that e-waste is not being recycled, which is damaging to the environment and, well, a waste of critical minerals considered essential to the climate transition.
“E-waste has become a phenomenon of western developed economies, as technology has permeated all aspects of our lives and individuals are living multi-device existences, which is far removed from the single-computer-per-household dream a generation earlier,” Charles Radclyffe, Partner at ESG data company EthicsGrade, tells ESG Investor.
“Much of that equipment doesn’t make it to having its components broken down into raw materials and remanufactured, but instead is crushed, sent to landfill, the bottom of the ocean, incinerated, or sent to other parts of the world to deal with the problem.”
The world generated 53.6 million metric tonnes of e-waste in 2019, and yet only 17.4% of it was recycled. The 82.6% not recycled represents US$47 billion in lost value from climate-useful materials that could have been recovered, including cobalt and copper.
“E-waste covers all sectors and all geographies,” says Lee Read, Partner at sustainability consultancy firm ERM.
“If people are working for a company using any kind of technology, then e-waste becomes an issue that investors need to be asking that company about.”
A dangerous addiction
Investors view e-waste as a financially material ESG-related risk for two core reasons: its contribution to climate change, biodiversity loss and nature degradation, and its impact on global supplies of critical minerals.
“When broken or redundant electronics are discarded into landfills, toxic substances can pollute local water and soil environments – these include substances like lead and mercury,” according to Marie Navarre, Head of Sustainable Research at Allianz Global Investors.
Although it only represents 2% of solid waste streams, e-waste makes up 70% of hazardous waste in landfills.
Further, if e-waste is improperly shredded or burnt, damaging dust particles and toxins will enter the atmosphere, contributing to severe pollution, which is damaging to both the environment and human health.
Increased usage of electronics also comes with an environmental warning. By 2040, it’s estimated that the production and active use of electronics, including computers, smartphones and tablets, will reach 14% of total global carbon emissions.
Alongside the expected surge in electronics, demand for energy transition solutions like electric vehicle (EV) batteries and solar panels is also on the rise – putting even more pressure on global supplies of critical minerals.
This means that e-waste – which contains a variety of critical minerals like copper, lithium and manganese – is set to “become increasingly valuable over time”, says Jack Dempsey, European Intermediary Equity Portfolio Manager at asset manager Schroders.
The International Energy Agency (IEA) estimates demand for critical minerals globally will double by 2030 compared to 2021 levels, with metals like copper expected to see an increase in absolute volume demand from around six million tonnes (Mt) per year to 11 Mt by the end of the decade. The critical minerals market reached US$320 billion in 2022, the IEA said.
A separate report by the International Renewable Energy Agency (IRENA) also noted that the mining and processing of critical minerals is “geographically concentrated”, meaning that external shocks, resource nationalism, export restrictions, mineral cartels, instability, and market manipulation are all potential risks that could cause supply disruption and shortages.
“Companies and governments are putting increasing focus on how to bring their supply chains closer to end consumption, and so investors should pay close attention to this dynamic,” notes Dempsey.
“By recovering critical minerals from e-waste, companies can help to improve the security of their supply while also generating a potential margin advantage on the back of cheaper recycled materials.”
According to Dempsey, when engaging with the issue of e-waste, investors need to focus on three key areas: the new business models emerging around electronics, such as leasing and second-hand platforms, building supply chain resilience given increasing geopolitical risks, and building out e-waste recycling infrastructure.
“We don’t believe e-waste is at the forefront of many investors’ engagement plans today,” says Dempsey.
“However, we think it will become an increasing focus over time as demand for electronics continues to grow and the demand for rare earth minerals and precious metals increases.”
Waste not, want not
This all feeds into the importance of supporting the development of a circular economy.
“In practice, circular economy investing is very much in its infancy within mainstream [investment] portfolios,” says John Ditchfield, Chairman and Co-Founder at Impact Lens.
A report published by think tank Circle Economy warned that rising material extraction has shrunk global circularity from 9.1% in 2018 to 7.2% in 2023, with the world almost exclusively dependent on virgin materials. This means that more than 90% of all materials are wasted, lost or remain unavailable for reuse for years, the latter referring back to our drawers and cupboards full of e-waste.
“Manufacturers have not prioritised the recyclability or repairability of electronic devices, which has therefore led to the sub-optimal disposal of waste,” says Tom Atkinson, Portfolio Manager at AXA Investment Managers (AXA IM).
Navarre from Allianz Global Investors says investor focus on e-waste and the circular economy “is at an early stage of development, but engagement is rising”, with recycling seen as “a core contributor to the solution”.
Resolutions have been filed at companies to encourage the integration of circularity into business models, such as a proposal filed by As You Sow at Microsoft in 2021.
The tech major agreed to conduct and publish an independent third-party study analysing the potential impact of making its devices easier to repair, prompting As You Sow to withdraw its resolution.
Microsoft has also partnered with other manufacturers and technology service providers to create the Circular Electronics Partnership, which aims to co-define solutions for applying circular business practices to electronic devices, including the terminology used to describe them and trace them.
Guidance published by the UN-convened Principles for Responsible Investment (PRI) calls on investors to identify sectors with high linear material use and environmental impact as part of their investment process and allocate capital to the companies that are supporting circularity. The guidance further emphasises the importance of engaging with portfolio holdings on implementing circularity into their business models, as well engaging with stakeholders more widely, including policymakers and data service providers, to address some of the underlying barriers to a circular economy transition.
However, to better understand the extent to which portfolio companies are prioritising the transition to the circular economy, investors need to see the underlying evidence.
“One of the main challenges we observe as a data provider is the limited discourse and lack of comparable data from electronics producers related to their waste collection metrics, such as the recycling facility used, amount recycled, rate of recycled waste compared to products sold, or evidence of setting collection and/or recycling targets,” Siyu Liu, Industry Lead for Technology Hardware, Storage and Peripherals at MSCI, tells ESG Investor.
“Further transparency and meaningful corporate disclosures could support better informed investment decisions on the topic.”
Investing for change
For every problem, there are investment opportunities to be found in their solutions.
“Investors can allocate their capital to companies that are recycling precious metals in a sustainable way,” says Atkinson from AXA IM.
“While most of these companies are still in the private space, some are already investable for listed equity investors.”
He points to Li-Cycle, a Canadian company that is focused on recovering materials from lithium-ion batteries and reintroducing them into the supply chain. It is currently able to recover up to 95% of all constituent materials, avoiding contributing to landfill waste.
“The company sells these critical raw materials, including lithium, cobalt and nickel, back to customers in the battery supply chain,” says Atkinson.
In February, e-waste miner Mint Innovation received a US$55 million cash injection from the impact investing arm of Australian private equity firm Liverpool Partners. The company extracts valuable metals like gold from discarded electronic products and sells them back to manufacturers to be used for new products.
Last year, Australia’s government-owned green bank – the Clean Energy Finance Corporation (CEFC) – invested US$7.5 million in Australia-based e-waste recycler Scipher Technologies in a move to address the country’s e-waste and associated carbon emissions.
Then there are larger companies like Boliden, a smelter operator in Sweden, which has the capacity to process 120,000 tonnes of e-waste annually, including mobile phones and circuit boards from computers. Its ability to extract precious metals is especially attractive to a region like the EU, which currently imports most of its critical minerals and metals.
“Another approach comes from consumers becoming more accustomed to buying second-hand, a trend more prevalent amongst Gen Z and millennials,” says Dempsey from Schroders.
“A number of companies are bringing refurbished electronics to the market that are both more affordable, as well as more sustainable for the planet.”
This includes France-based Back Market, a re-commerce marketplace for refurbished electronics with more than five million customers that Schroders is invested in.
There’s also ATRenew, which operates out of China to facilitate recycling and trade-in services of pre-owned electronics to prolong their lifecycle. In 2021, over 31.2 million products were transacted through its platform, with the company estimating a reduction of 464,000 metric tonnes of CO2 emissions through electronic reuse.
Carrots and sticks
Policymakers are also turning their attention to e-waste and introducing new rules.
“Globally, e-waste management legislation has increasingly been enforced worldwide, reaching 78 countries and covering 71% of the global population,” according to David Osfield, Fund Manager at EdenTree Investment Management.
For example, the US Bipartisan Infrastructure Law has funded a country-wide battery recycling programme, and the US Department of Energy announced US$192 million in new funding for consumer battery recycling in June.
China has implemented targets for 50% of e-waste to be recycled by 2025 and for all future electronics to contain at least 20% recycled content, as well as creating a platform for public-private collaboration between electronics companies and the Chinese government on building a circular economy for electronics.
However, experts speaking to ESG Investor say that the EU is leading the way on regulation that aims to reduce e-waste and upscale its circular economy.
The EU’s 2020 Circular Economy Action Plan outlines a number of proposals to upscale circularity, such as regulatory measures for electronics and ICT under the Ecodesign Directive, the implementation of ‘right to repair’ rules, including a requirement to update obsolete software, the introduction of a common charger for mobile phones and similar devices, improvements to the collection and treatment of e-waste, and a review of EU rules of restrictions on hazardous substances in e-waste.
“However, the challenge [with current steps taken by governments] remains the lack of enforcement or incentivisation that is needed to drive commercial and more standardised processes and management,” says Osfield.
“Most e-waste therefore ends up in developing countries – smelted down by underpaid workers in unsafe conditions with questionable human rights protections.”
The World Health Organisation (WHO) noted that between 2.9 and 12.9 million women are working in the informal waste sector and are thus exposed to toxic e-waste which can have devastating long-term health impacts.
“In middle and low-income countries, typically in the Global South, the e-waste infrastructure is barely developed and largely managed by the informal sector,” adds Osfield.
“This creates significant social welfare risks, such as severe health risks to workers, as well as to the children and community who often live near e-waste management activities.”
Informal e-waste workers risk being exposed to over 1,000 harmful substances, the WHO said, including lead, dioxins and polycyclic aromatic hydrocarbons (PAHs).
“We simply don’t see enough discussion about the impact of e-waste on developing economies, and the negative effects on local communities disposing of and recycling our old electronics,” says ERM’s Read.
“Going forward, addressing e-waste will be require a global, collective effort to reduce the associated environmental and social impacts as we transition to a circular economy.
“If we want to keep making products that require critical minerals and other components, then we need to start using recycled resources because, at some point, we’re going to run out of materials to mine.”
