• Circularity gains traction: Goldman Sachs is using a circularity-focused ESG filter, elevating companies like Glencore despite their coal operations due to their recycling efforts.
• Big Tech falls short: Resource efficiency concerns keep major tech firms like Microsoft and Alphabet off the top of Goldman’s ESG list.
• Circular economy underappreciated: Circularity, a less recognized ESG factor, is becoming crucial in sustainable investing, especially with global resource limitations.

At Goldman Sachs, a new ESG filter is rethinking how companies are evaluated by focusing on circularity—the extent to which they recycle, manage waste, and reuse materials. This model has identified unconventional ESG picks like Glencore, the world’s largest coal shipper, due to its leadership in recycling, while Big Tech companies like Microsoft and Alphabet are absent from the list due to concerns over their resource efficiency.

Circularity Takes Center Stage

Goldman’s focus on circularity highlights the growing relevance of the circular economy, a model designed to reduce reliance on virgin resources and minimize waste. “A lot of companies are taking on new initiatives that haven’t been quite as appreciated by the overall sustainable investment universe,” says Evan Tylenda, head of Goldman Sustain.

Despite Glencore’s involvement in coal, it ranks high in circularity for its recycling of electronics, batteries, and products containing critical materials like copper and lithium. This makes Glencore attractive from a resource efficiency standpoint, which is crucial for the green energy transition.

Big Tech Falls Behind

In contrast, Big Tech is not scoring well on circularity. According to Tylenda, the tech giants face questions around resource efficiency, specifically how they manage the raw materials needed for their operations. While artificial intelligence and digital solutions could eventually help dematerialize the economy, Goldman isn’t yet seeing direct contributions from these companies to resource efficiency.

Circularity’s Role in ESG

While the circular economy hasn’t gained the same level of attention as climate-focused investments, its importance is growing. “The circular economy is critical to solving for net-zero emissions and biodiversity loss,” says Tylenda, adding that the pressure on natural resources will intensify as the transition to low-carbon technologies accelerates.

Related Article: SHEIN Launches €200 Million Circularity Fund in the UK and the EU and Commits to Investing €50 Million in Broader ESG Efforts

Globally, circularity funds remain limited, with fewer than 100 compared to over 1,100 climate-focused funds. However, investors are beginning to appreciate the long-term value of circularity-focused companies, especially as resource limitations become a critical business concern.

Goldman Sachs’ stock-picking model challenges traditional ESG views by recognizing the value of circularity, providing a new lens for evaluating sustainability in industries ranging from mining to tech. As the pressure to adopt sustainable practices grows, resource management and recycling could become key factors in driving future investment decisions.