Electronic waste recycling – a global challenge

E-waste management has both economic benefits (e.g. the recovery of metals which then re-enter industrial supply chains) and costs (e.g. waste collection, sorting, and pollution treatment). The main costs consist of $78 billion in externalized costs to the population and the environment, stemming from lead and mercury emissions, plastic leakages and contributions to global warming, particularly in cases where hazardous substances are not properly managed⁶.

E-waste streams contain valuable and finite resources that can be reused if they are recycled appropriately, thus becoming an important income stream for individuals and communities in low- and middle-income (LMICs). Studies have showed that African countries, particularly West African countries, have become e-waste dumping sites for developed countries⁷. Despite international regulations targeting to control the transport of e-waste between countries, the transboundary movement of e-waste to LMICs continues, often illegally. The presence of hazardous materials in e-waste makes it difficult and expensive to treat safely, and unfortunately the market price for these materials is still too low to support larger-scale commercial recycling operations. Whilst legislation tackling this issue has improved, enforcement is still lagging in developing countries, which are the most burdened by e-waste exports.

Whilst e-waste recycling is traditionally viewed as a positive and is encouraged, the answer to who is responsible for the poor recycling conditions currently taking place globally, is not an easy one. Once companies have sold the products to the consumer, it is no longer in the hands of the company, thereby making corporate responsibility more difficult to manage and assess. Consumers are then able to discard the products in whichever way they choose, and therefore do not always choose to recycle the items, and in some regions of the world, consumers might face physical accessibility problems to e-waste recycling. Even once choosing to recycle the items, consumers are not aware of where the product ends up, as they have no visibility of the process. Companies that do offer customers with take-back schemes would have the best control over this issue as they would choose their suppliers, and can choose suppliers with good environmental and social standards.

On the one hand, companies are encouraged to increase their proportion of recycled raw materials as a result of a sustainability push, but due to the price premium of recycled materials, companies may resort to using cheaper suppliers, who recycle e-waste using poor labour conditions. Companies tend to have partial visibility over their supply chain with regards to recycling of e-waste or purchase of recycled materials with limited public disclosure on the locations of their e-waste supplier recyclers.

Poor management of e-waste can become financially material for companies, as it forms part of product lifecycle design, operational efficiency and long term product related liabilities. Research shows that the durability of products has been changing, with the average lifetime of a washing machine, for instance, falling from ten to seven years between 2000 and 2010, indicating planned obsolescence. At the same time, consumers are becoming frustrated with short product lifespan and want more durable products¹². Whilst day to day this is another area for companies to manage, sometimes an unusual catalyst can catapult the issue to share price change level materiality.

For example, the fashion world was not shocked when it came to light that Burberry burned excess products to restrict supply¹³, and whilst the public outrage caused the company to change their policy¹⁴, this issue surprisingly did not alter the share price. For e-waste to result in a share price drop, it took an industrial accident for Vale involving a $7bn compensation payment for the victims to make the issue significant enough for the market to value it¹⁵. E-Waste management and incoming regulations can result in altered product design, such as the Apple charger change to USB-C¹⁶, but it appears that if the change is not significant enough, it will not necessarily impact the share price, as with the case of Apple.

More broadly, we have positively seen an increasing shift to full-lifecycle responsibility for corporates, particularly in regulation with supply chain management and end-of-life product. The EU’s 2050 circular economy plan is looking to reduce pressure on natural resources whilst creating sustainable growth¹⁷. The UK government has also recently announced that it is establishing the world’s first UN-based centre for circular economy research¹⁸. Whilst this may not always appear financially material currently for companies, on a look forward basis, we believe that this topic will become more important and are therefore focusing our research on it currently.

We have performed an analysis of the most impacted sectors and higher risk holdings in our portfolios. Out of these holdings, we reviewed company sustainability and annual reports to identify whether corporates acknowledge the social and environmental risks of e-waste recycling and how they tackle the risks. We then engaged with the higher risk holdings to confirm whether they send e-waste to Ghana or purchase recycled e-waste from Ghana. Our first set of interactions highlighted the challenges of tracking waste streams following the sale of the product to consumers with companies have little visibility over consumer recycling of their products once the sale has occurred. Companies that do have better control over this issue, are those who operate product takeback schemes. This provides the companies with visibility over their supply chain, they are able to choose reputable recyclers and are able to conduct social and environmental audits at the recycling centres. For example, whilst we do not hold it in our funds at the time of writing¹⁹, Apple provides product take-back and recycling collection programmes in 99% of the countries they operate in²⁰. Additionally, the company has developed a disassembly robot, named Daisy, which is capable of taking apart 23 iPhone models. Each Daisy robot can process up to 1.2 million iPhones per year, and the company operates two models²¹. Samsung is another example of a company which operates e-waste takeback schemes, operating these programmes in over 50 countries²².

Overall, this is a multifaceted topic, which provides challenges to companies, consumers, governments and investors. As an active asset manager, we continue analysing our holdings to understand their product lifecycle analysis process, their sourcing practices, how they manage their supply chains and whether there is a risk for labour right violations in their supply chain (e.g. by sending recycling to illegal facilities in Ghana). We also continue engaging with companies where suitable.