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Jonathan Fletcher | How investors can help foster responsible consumption in emerging markets

Jonathan Fletcher | How investors can help foster responsible consumption in emerging markets
21-11-22 / Jonathan Fletcher

Jonathan Fletcher | How investors can help foster responsible consumption in emerging markets

Current global consumption patterns in aggregate are unsustainable and are contributing to climate change, biodiversity loss and pollution.

As populations grow and economies develop, the amount of materials used in the production and consumption of everyday goods and services is rising at rapid rate, and depleting the natural resources we depend on for life on earth.

Emerging markets feel some of the negative effects of consumption most keenly. However, through impacting investing it is possible to invest in companies helping to turn the tide towards a more sustainable future. Here's how.

What needs to happen?

To build a more sustainable future – one in which economic growth doesn't depend on environmental degradation – consumption patterns need to change all over the world, across developed and emerging countries.

We need to reduce consumption overall, but also to make the shift from harmful to responsible: we need to harm fewer forests, emit less carbon, use less plastic packaging and reduce waste by recycling.

In an ideal world, we would produce and consume in a circular economy, one that prioritises the efficient use of resources and upcycles waste into new products that get reused over and over again. In this way, nothing is disposed of; it is reused within the economy multiple times.

The importance of the circular economy is formally recognised in the UN's Sustainable Development Goals (SDGs). These are 17 goals that aim to promote peace, prosperity and the eradication of poverty, all while protecting the planet. 

- For more on what the UN SDGs are about, read our quick guide 

SDG 12 is about ensuring sustainable consumption and production patterns through various measures, including specific policies and international agreements on the management of materials that are toxic to the environment.

Some of the targets associated with SDG 12 include:

  • By 2020, achieve the environmentally sound management of chemicals and all wastes throughout their life cycle
  • By 2030, halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses
  • By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse

But it is not just policymakers who need to contribute to the achievement of this goal. Impact investors have a key role to play. Impact investing intends to make a measurable positive contribution to society or the environment, as well as generating attractive financial returns.

This can be done by investing in the shares of companies which, as well as financial promise, demonstrate intent to positively impact the people and environments in which they operate.

What are some of the issues facing emerging markets?

Emerging markets are likely to feel the impact of irresponsible consumption most acutely.

Not only do the effects of the overconsumption of our natural resources – such as climate change - disproportionately affect those in developing countries, the infrastructure to deal with waste is often underdeveloped or lacking, resulting in pollution and health hazards.

Plastic pollution is a relatively well-known issue across both the developed and emerging world. According to a 2018 World Bank study, the US was responsible for 13% of global plastic waste. Emerging markets like China (which accounts for 11%) and India (9%) are not far behind, while the Latin American and MENA regions generated 11% and 6%, respectively.

But it's not just plastic that is the problem - issues caused by other types of waste are less well recognised.

Take electronic waste, which is the fastest growing stream of waste globally given increases in the consumption of electronic equipment and its (generally) rapid obsolescence. India's e-waste is growing by 30% annually, for example, and recycling rates across the world are alarmingly low. The average across Latin America and the Caribbean is 1.2%, while in sub-Saharan Africa it is 1.6% (2019 data, UN). 

Not only do emerging economies produce their own waste, they also import it from abroad, earning valuable income in the process.

Some developed world countries export their waste overseas because it's cheaper than dealing with it themselves and reduces their own domestic landfill.

But inadequate disposal and recycling systems mean waste is often illegally dumped or burned, with implications for communities' health given the toxic fumes that this process can generate.

One report suggests dumped and burned rubbish, especially plastic waste, is responsible for the death of one person every 30 seconds in developing countries, while landslides from rubbish dumps also pose a serious risk to the lives of wastepickers and nearby inhabitants.

Elsewhere, plastic pollution in drainage systems in some countries in Africa has contributed to outbreaks of diseases like cholera.

Meanwhile, health risks such as DNA damage, impaired thyroid and lung functions, respiratory issues and increased risk of developing chronic diseases like cancer later in life have been associated with exposure to toxic e-waste.

Impact investing: driving positive change at the company level

There is clearly much to be done in emerging economies to deal with waste and, as investors, we can play a role in investing for positive impact as well as financial gain.

*Jonathan Fletcher is Emerging Market Fund Manager and Head of EM Sustainability Research at Schroders.

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