The resource gap: Why Earth Overshoot Day should matter to investors

Key points:

• Research shows that by 2 August, mankind’s demand for the Earth’s natural resources will exceed what can be regenerated within the year
• But as investors we can play a role and help push back the date as we move to a more sustainable future
• Circular economy solutions can address some of the issues around the way we use the Earth’s resources but also help reduce carbon emissions, protect biodiversity and more

It’s a well-documented fact that human beings are using up the earth’s natural resources at a faster rate than they can be replenished. In fact, the rate can be calculated precisely – as Earth Overshoot Day, the date in the calendar each year when our demand for the planet’s resources exceeds what can be regenerated in that 12-month period.

This year, Earth Overshoot Day will be 2 August, according to the latest National Footprint and Biocapacity Accounts.¹ This is encouraging news, as it is later than last year when it fell on 28 July, and in 2021, 30 July, meaning there has been an improvement in the way we use our planet’s resources.² The date had been creeping forward as the situation worsened – with an exception in 2020, when COVID-19-induced lockdowns pushed back Earth Overshoot Day by nearly a month to 22 August.

However, while the date has been delayed by five days this year compared to 2022, research organisation the Global Footprint Network says, in reality the improvement is the equivalent of one day with the remaining four days due to integrating new datasets into their calculations.

Each country has its own Overshoot Day – developed markets with higher living standards are typically at one end of the spectrum with developing countries at the other. The milestone for the US was reached on 13 March this year, meaning if the global population consumed resources at the same rate as the US, we would run out on that date. Germany, France, Japan, the UK and others reached that point in May, while Qatar was the earliest, on 10 February – conversely, Jamaica will not reach that gap until 20 December.³

It underlines the fact that the way we are using natural resources is unsustainable – and governments, companies and investors need to take action.

How investors can help shift the date

The Global Footprint Network identifies various areas which it believes are the most pertinent to reducing our use of natural resources, including protecting biodiversity, decarbonising the energy sector and more efficient food production alongside reducing food waste. These are all areas critical to responsible investing and where we believe investors can make a difference, while still aiming for long-term financial returns.

Over half of global GDP depends on high-functioning biodiversity and ecosystems - degradation costs the global economy more than $5trn each year. The collapse of three such natural services alone – wild pollination, timber and fish supply – could cost 2.3% of global GDP by 2030.⁴

There are many ways we as investors can help to protect biodiversity, such as directing our capital towards companies in areas including water treatment, precision agriculture (which as well as producing higher yielding crops to feed our growing population, reduces the use of harmful fertilisers and pesticides) and sustainable forestry management by companies in the paper and packaging industry.

The energy transition towards renewables and away from fossil fuels is a critical step towards reducing carbon emissions and also using less of the earth’s natural resources.

And as more and more countries reduce their reliance on fossil fuels, there is a myriad of potential investment opportunities, from renewable energy companies to those that supply technology and services for the sector.

A more circular approach

But it’s also the ‘take-make-dispose’ approach that the global economy is based on that is in part to blame for the overshoot of Earth’s resources. Instead, we should be thinking more ‘repair-reuse-recycle’ – the idea behind a circular economy model - to keep materials and products in circulation, eliminate waste and regenerate nature.

The 2023 Circularity Gap Report from the Circle Economy think tank and Deloitte suggests that moving to a circular economy model can meet society’s needs using only 70% of the raw materials we now extract and use from the Earth – meaning we would not overshoot the Earth’s limits. However, a fully circular economy is a long way off – the report estimates the global economy is currently only 7.2% circular.⁵

There is momentum however behind this movement. In 2020, the European Commission adopted a Circular Economy Action Plan, including measures to ensure products are designed to last longer, be easier to recycle and to use recycled materials in their production where possible.⁶ In March 2023 it then proposed a ‘right to repair’ directive to make it easier and more cost-effective to repair goods rather than replace them.⁷

Circular solutions can not only address some of the issues around the way we use the Earth’s resources but also help reduce carbon emissions, protect biodiversity and more.⁸

Potential benefits for investors – as well as the planet

As an asset manager, we can invest at scale and also engage with companies in these areas – biodiversity, energy transition, food and agriculture and the circular economy - and beyond, including governments via their sovereign bond issuance.

We believe companies at the forefront of the transition could potentially see strong growth while the laggards are likely to experience lower demand for their goods and services, a higher cost of capital, and potentially fall foul of regulatory or policy changes, including higher taxes and tariffs.

In this way, we believe that companies and therefore investors can potentially reap financial rewards, while helping to combat climate change and to reduce our drain on the planet’s natural resources.