Waste management may be among the more promising investments out there, according to Goldman Sachs. The major U.S. investment bank recently upgraded its stock recommendations for three of the largest waste management companies to Buy, sparking a new wave of investor interest.
But why should investors pour their money into the trash industry?
For one, it has traditionally demonstrated high profitability. The market is increasingly consolidated, dominated by a handful of players including those that Goldman Sachs singled out, namely Republic Services (RSG), Waste Connections (WCN), and Waste Management (WM). The top four companies control 56% of the market, and over the course of 15 years have increased their collective profits by approximately 5% annually by acquiring smaller players.
According to Forbes and Barrons citing Goldman Sachs research, market consolidation increases the margins of large companies by around 5-10%. In the case of these three companies, this has translated into excellent shareholder returns: over the past five years, Republic Services, Waste Connections, and Waste Management have delivered investors annual returns of 22%, 20% and 19%, respectively, while the S&P 500 has returned 17%. With this consolidation set to continue in the years ahead, the outlook of these companies is extremely promising.
The industry has also been flush with innovation in recent years. Driven in part by global trends in ESG, it has seen a rise in the number of rapidly growing circular economy start-ups providing sustainable waste management solutions that contribute to the UN’s sustainable development goals.
Terracycle: the all-around recycler
One of these is New-Jersey-based recycling firm Terracycle. Growing from a small startup to one of the largest circular economy companies in the industry over the course of a few years, Terracycle recycles materials traditionally considered to be unrecyclable.
According to its website, the firm is capable of recycling “almost any form of waste”, “from dirty diapers to cigarette butts”. It recently announced a collaboration with French pharmaceutical company Sanofi to recycle personal care products.
Regrained: from beer grains to granola bars
A smaller, and perhaps even quirkier peer is San-Francisco-based startup Regrained. It collects unwanted beer grains discarded from breweries and transforms them into granola bars and crisp puffs that are as healthy as they are sustainable – boasting high levels of fibre and prebiotics, with none of thetrans fats typically found in these snacks.
Entoprotech: feeding waste to the Black Soldier Fly
A third company driving innovation in the industry is Entoprotech. This Israel-based biotech company partners with corporations to upcycle their organic waste via the voracious Black Soldier Fly. The decomposed waste can then be turned into a variety of high-value products including sustainable fishmeal, fertiliser and insect oil suitable for use in cosmetics and other industries.
With global food waste accounting for approximately 6% of the world’s greenhouse gas emissions, Entoprotech is managing waste while helping to solve one of the biggest global climate challenges.
So, not only is the waste industry very profitable, but it boasts a number of new players that are disrupting the way we handle waste.
The industry’s shift towards greater sustainability places it in excellent stead to capture growth in 2021, as retail investors become increasingly keen to use their money to effect positive change and institutional investors work to align their portfolios with global climate targets.