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Manager Insights

Circular Economy: Reducing Food Waste

Manager Insights Article ESG Thematic Equity
July 2020
Circular Economy: Reducing Food Waste

Authors & Contributors

Brian Blongastainer, CFA, CMT

Brian Blongastainer, CFA, CMT

Karen Miki Behr

Karen Miki Behr

Katherine Kelly

Katherine Kelly

We are in the early stages of a pivotal trend that we believe will transform consumptive behavior – Circular Economy. Today’s purchases are driven by a new and more informed consumer. The proliferation of information and data has provided consumers with the ability to research brands and products prior to purchase, shifting how conscious consumers allocate their spending. Increased knowledge and a deeper understanding of the negative impact consumer purchases have on the environment are leading to more aligned interests between consumers and brands to alleviate this strain.

While the circular economy trend is in its infancy, we believe its growth is accelerating as a result of the COVID-19 pandemic and is rapidly taking hold in several industries, most notably food and beverage. We are seeing significant developments in the areas of food waste, sustainable foods and improved packaging all with the goal of reducing environmental waste. Private companies focused on researching and developing products and solutions in these areas are receiving significant capital flows while public companies are making these top priorities within their environmental, social and governance (ESG) frameworks. As more food and beverage companies embrace this trend, we are witnessing rapid change, innovation and growth that is accelerating the move to a circular economy.

 

Reusable Packaging

One major structural change resulting from COVID-19 is the increase in grocery and restaurant food delivery and curbside pickup in lieu of dining out and visiting grocery stores. This has resulted in a significant increase in the use of takeout containers, leading to growing concerns over the negative impact this waste will have on the environment. Packaging Digest reports that the global production of plastic is 78 million metric tons. Only 14% of this plastic is recycled, with the remainder going to landfills. According to Packaging Digest, plastic bags take 10 to 12 years to decompose, plastic bottles 20 years, and Styrofoam 500 years.1 While the plastic and packaging industry has had an outsized negative impact on the environment, emerging trends are bringing about change as public and private companies fund the development of eco-friendly alternatives.

We have met with multiple companies in 2020 that are focused on developing reusable containers. Several of these companies have successfully raised capital from investors to fund research and development in this area, while others have already shifted to using reusable containers with significant environmental savings. The solutions vary, but the goal is the same – to solve the problem of single use plastics. On the development front, we met with a company that is producing plant-based containers with a shorter shelf life compared to plastics. The containers can be used in microwaves and ovens and are constructed from materials that can be composted in 18 months. On the usage front, we engaged with a fast casual restaurant that is highly focused on sustainability and is saving 75,000 pounds of plastic per year through its reusable bowl program. Large public companies continue to work with private innovators to develop alternative solutions including a bottle made entirely of plant materials that contains an inner lining of plant plastic that decomposes at a significantly faster rate than traditional plastic, but can also be recycled. Based on our research and engagement with both private and public companies, we anticipate that broader adoption will require time due to the need for increased scale and lower costs to compete with traditional plastic. However, we believe the long-term secular trend is firmly in place and we expect momentum to continue accelerating. Once adoption and scale expand, the positive environmental impacts should be meaningful.

 

Food Waste and Sustainable Food

We have met with several companies to discuss the growing trend toward sustainable food consumption and decreasing food waste, which is being driven by younger generations who have a heightened focus on the environmental impact of the food they purchase and consume. Promising developments from these conversations include a company that is developing a plant-derived coating to reduce rot and double or even triple the shelf life of several fruits and vegetables without requiring refrigeration. Other companies are focused on improving the food supply chain to make use of produce that does not meet the criteria of many large supermarket chains. The goal of such efforts is to save 200 million pounds of food waste in 2020. Public and private meatless and plant-based food alternative companies continue to raise capital in 2020 to support ongoing research and development. This segment is quickly gaining market share and shelf space from traditional meat and dairy companies as innovation continues in lab grown, cell-based meat and plant-based milk, yogurt and coffee creamers. The success of public plant-based protein food product companies has helped raise awareness for the category, leading to more private investors deploying capital to the meat and animal alternative product space over the past six months.

Consumers are driving significant change in the way our food is developed and packaged as the demand for meatless and plant-based foods served in reusable or easily composted non-plastic containers continues to grow at a rapid pace. The momentum starts with one company saving 200 million pounds of food waste or another saving 75,000 pounds of plastic, and expands and multiplies across companies with an end goal of significantly reducing the environmental impact of the food industry. These innovations are all part of the circular economy, the growth of which we believe will be a substantial contributor to the development of the broader food and beverage industry going forward.

 

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1Packaging Digest, COVID-19 Spurs Spike in Sustainable To-Go Food Packaging, May 6, 2020. https://www.packagingdigest.com/sustainability/covid-19-spurs-spike-sustainable-go-food-packaging
 

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