24 February 2020 – 08:00 CET Chief Investment Office GWM Investment Research Future of waste Finding opportunities in waste reduction Content Chapter 1 Chapter 2 Chapter 3 6 19 25 What are the major types of waste? What are the impacts of waste? What are the best ways to 7 Solid waste 20 Impacts of solid waste reduce waste? 13 Energy waste 24 Impacts of energy waste 26 Reducing solid waste 31 Reducing energy waste The future of waste Authors Design This report has been prepared by Mark Haefele CIO Content Design UBS AG, UBS Switzerland AG and Simon Smiles Michael Galliker UBS Financial Services Inc. (UBS FS). Solita Marcelli Werner Kuonen Please see the important disclaimer Margrit Oppliger at the end of the document. Past Matthew Carter Elena Vendraminetto performance is not an indication Maximilian Kunkel of future returns. The market prices Andrew Lee Editors provided are closing prices on the David Lefkowitz Mark Boehme respective principal stock exchange. Jeannine Lennon Erin Jaimovich Barry McAlinden Cover picture Antonia Sariyska Language Michael Galliker Melissa Spinoso English Alexander Stiehler Publishing date Thomas Wacker Contact 24 February 2020, 08:00 CET [email protected] With thanks for the contribution of: Editor in Chief Omar Moustafa, UBS Evidence Lab Simon Smiles Maximilian Kunkel Project management Pranvera Reci 2 February 2020 – Future of waste Chapter 4 Chapter 5 38 48 Where are the investment Regional, country, and sector opportunities in waste? insights on waste 39 Mainstream companies whose 49 Data insights from UBS Evidence operations generate a material Lab and UBS Chief Investment amount of waste and that have Office Global Wealth Management proven to manage waste and pollution proactively 41 Companies whose primary line of business is dedicated waste man- agement or companies that issue debt specifically to tackle waste 47 Mainstream companies with poten- tial for corporate engagement to improve c ompany waste manage- ment and commercial performance February 2020 – Future of waste 3 Key findings Reducing waste boosts companies’ profits while lowering costs to the consumer. And what’s more, it can also improve broader societal outcomes. We currently waste around 30% of all food globally at a Fig. 21 cost of USD 1tr a year. Meanwhile, 10% of the global popu- Waste reduction and its link to the UN’s lation goes hungry. Plastic packaging volumes are expected to Sustainable Development Goals more than quadruple by 2050, yet 95% of the value of such plastic is lost after one use, at a cost of up to USD 120bn each Waste year. And, without change, plastics in the sea could outweigh reduction fish by 2050. This report offers concrete waste reduction solutions that can direct impact indirect impact increase businesses’ financial returns.We highlight main- stream and innovative companies that have cut fuel costs by billions of dollars, slashed landfill waste by up to 90%, or reduced food spoilage to less than 1%. In our view, investors can capture long-term returns by investing in waste reduction opportunities. Doing so aligns both with lawmakers’ drive for stricter regulation, and with growing consumer demand for companies that make a positive impact. In this report we list the dedicated management companies in the waste sector, one part of an overall waste market whose estimated size of USD 2tr is twice that of Australia’s stock mar- ket (MSCI Australia Index). We flag the equities and bonds of companies that generate material levels of waste but reduce it more proactively than peers. And we identify the equities and bonds of companies that have made strides—or have the potential to—in tackling waste (including cases where shareholder or bondholder engagement could boost corporate and investment performance). The following chapters analyze the main sources of waste (p. 6–18) and the impacts of that waste (p. 19–24). We pres- ent potential best practices to address waste that can prove Source: UBS profitable for businesses and investors (p. 25–37). And, in the final chapter, we use data from UBS Evidence Lab to highlight regional, country and sector insights on waste. 4 February 2020 – Future of waste Fig. 2 Global solid waste composition External views Rubber and leather 2% Interview highlights* Metal 4% 2% Wood Glass 5% "Waste management is going to play an increasingly Plastic 12% important role in delivering commercial returns as well as 44% Food and green tackling the climate crisis. The sector is growing signifi- cantly—we expect it to double between 2017 and 2025. And although the majority of people think waste starts in the home, residential accounts for only 10% of it. Bigger Other 14% areas of waste generation and opportunity are in the construction and industrial sectors."* 17% Paper and cardboard Urs Wietlisbach Source: World Bank, 2019* Partner, Co-Founder, and Member of the Board of Directors, * Kaza, Silpa, Lisa Yao, Perinaz Bhada-Tata, and Frank Van Woerden. 2018. What a Waste 2.0: Partners Group A Global Snapshot of Solid Waste Management to 2050. Urban Development Series. Washington, DC: World Bank. doi: 10.1596/978-1-4648-1329-0. License: Creative Commons Attribution CC BY 3.0 IGO “Energy waste is a major challenge both at the country and company level. I’d draw particular attention to energy Fig. 29 waste in buildings. In the US, commercial buildings use Just 4% of green bonds actively address 20% of national energy consumption. They waste 30% waste—an opportunity for growth? of this energy, accounting for around 12% of US green- house gas emissions."* 2% Adaption Land use 3% Professor Donald Sadoway 2% Other John F. Elliott Professor of Materials Chemistry Waste 4% Massachusetts Institute of Technology; Co-Founder, Ambri; UBS Water 11% Global Visionary Alumnus 35% Energy *This interview contains views which originate from outside Chief Investment Office Global Wealth Management (CIO GWM). It is there- fore possible that statements herein do not fully reflect the views of Transport 17% CIO GWM 26% Buildings Source: Climate Bonds Initiative, UBS February 2020 – Future of waste 5 Chapter 1 – What are the major types of waste? Chapter 1 What are the major types of waste? 6 February 2020 – Future of waste Chapter 1 – What are the major types of waste? How waste is defined varies. In our analysis, we focus on two main categories: solid waste (also known as municipal solid waste, or MSW) and energy waste.1 Throughout this report we’ll explore each category in turn, first looking at the major contributors to these types of waste. Solid waste The majority of the world’s solid waste consists of food and At a regional level, East Asia and the Pacific account for nearly a green materials (44%), followed by paper and cardboard quarter of all solid waste, while Europe and Central Asia account (17%), and plastic (12%) (Fig. 2). for 20% of the total and North America 14% (Fig. 1). 1 All waste is not created equally—or rather, different countries Solid waste generation also changes as national income and regions produce solid waste in different quantities and pro- changes. High-income countries generate 34%, or 683 million portions. In absolute terms, the US and China are the world’s metric tons, of the world’s waste even though they’re home to largest solid waste producers, followed by Brazil and Japan. just 16% of the world’s population. Low-income countries are home to 9% of the world’s population and generate about 5% of global waste, or 93 million metric tons.2 1 For more details about global waste, included special wastes such as industrial, agri- cultural, medical, and e-waste, please see Kaza, Silpa, Lisa Yao, Perinaz Bhada-Tata, and Frank Van Woerden. 2018. What a Waste 2.0: A Global Snapshot of Solid 2 Kaza, Silpa, Lisa Yao, Perinaz Bhada-Tata, and Frank Van Woerden. 2018. What a Waste Management to 2050. Urban Development Series. Washington, DC: World Waste 2.0: A Global Snapshot of Solid Waste Management to 2050. Urban Devel- Bank. doi: 10.1596/978-1-4648-1329-0. License: Creative Commons Attribution opment Series. Washington, DC: World Bank. doi: 10.1596/978-1-4648-1329-0. CC BY 3.0 IGO. License: Creative Commons Attribution CC BY 3.0 IGO. Fig. 1 Which regions produce the most solid waste? Solid waste generation by region 20% Europe and 14% Central Asia North America 6% 23% Middle East and North Africa 11% 9% 6% East Asia and Pacic South Asia Sub-Saharan Latin America Africa and the Caribbean Source: Kaza, Silpa, Lisa Yao, Perinaz Bhada-Tata, and Frank Van Woerden. 2018. What a Waste 2.0: A Global Snapshot of Solid Waste Management to 2050. Urban Development Series. Washington, DC: World Bank. doi: 10.1596/978-1-4648-1329-0. License: Creative Commons Attribution CC BY 3.0 IGO. February 2020 – Future of waste 7 Chapter 1 – What are the major types of waste? Solid waste composition differs by national income levels. Fig. 3 The share of food and green waste is lower in high-income countries than in others, and richer nations produce consider- Richer countries waste more nished goods, ably higher percentages of waste from manufactured or fin- poorer ones waste more food ished materials such as paper, plastic, and glass (Fig. 3). Solid waste composition by income level Food and green Exploring each and every category of solid waste is beyond the Finished goods Upper- Lower- High middle middle Low scope of this report. Instead, we want to focus on the types income income income income of waste that have the biggest impact on people, the planet, and profits.