Waste management is evolving as one of the more interesting sub-themes within the climate change are...
Waste management is evolving as one of the more interesting sub-themes within the climate change arena. Such companies - as defined by the HSBC Climate Change Benchmark index - include a sphere of businesses ranging from those that deal with municipal waste to waste recycling companies, including those that are engaged in energy recovery.
This subsector is undergoing major changes as a result of regulatory change, and fresh opportunities for growth are emerging.
Certainly, private sector companies operating within this area enjoy a market that is expanding structurally due to both increasing volumes of waste and strong environmental pressures.
EU authorities have set up a legal framework defining a number of overall and sector targets, essentially for the reduction of biodegradable waste placed in landfills, minimum recovery and recycling rates for different categories of waste (packaging, glass and so on), and stricter operating conditions for incineration plants and landfill sites.
This regulatory pressure is also good news for waste processing companies, since it sets new obligations for industrialists in the management of their waste and gives rise to new lines of business - notably in the processing of certain types of hazardous waste, such as airbags and surface treatment products. New entrants from Eastern Europe have to adapt their waste processing outfits to meet EU standards.
In developing countries, the waste processing market is becoming increasingly professional as more restrictive processing standards are adopted. The number of major players is growing, ranging from urban waste management to recycling and expanding essentially into the European markets that are the most fragmented, least privatised and trailing behind with respect to EU regulations - namely the UK, Italy and Spain.
For local players, their positioning on a certain treatment segment is still the key to their profitability, prompting them to invest in the more lucrative areas such as storage, energy recovery and treatment of hazardous waste.
To conclude, the waste management sector is a particularly fragmented market, traditionally very local at the collection level and international at the sales level. Of course challenges remain - for example those companies relying on transporting waste are impacted by higher fuel costs.
However, overall, there are numerous opportunities for growth via acquisitions in this segment. In the coming years, the structuring of treatment chains and the privatisation and consolidation of the market are expected to continue. Although no company will be immune from a downturn in the global economy, waste management is a significant issue and these companies should display defensive qualities.
- By Farley Thomas, global head of wholesale at HSBC Global Asset Management
- Waste management companies are beneficiaries of EU legislation
- Major changes in the approach to waste provide opportunities
- However, the sector is not immune from a global slowdown, and some companies are affected by higher fuel costs.
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