17 Nov 2022
Many investors appreciate the predictability of the returns that the waste industry generates, even in a post-pandemic market.
Investing in waste management is the perfect example of how “one man’s trash is another man’s treasure.” Many investors appreciate the predictability of the returns that the waste industry generates, even in a post-pandemic market. Call it trash, waste, recyclables, sewage, or garbage—waste is big business. Consider the global waste management market size in 2020: $1.6 trillion. By 2030, it’s expected to grow to $2.5 trillion (1).
Worldwide, more than 2.2 billion tons of municipal waste are generated every year. If you’ve forgotten how much a ton is - it is 2,000 pounds. By comparison an adult male elephant is generally 2 to 7 tons, so 220,000 5-ton elephants worth of municipal waste. By 2050, global waste is estimated to grow to 3.74 billion tons (or 374,000 elephants). This waste is concentrated in high-income countries, who generate about 34% of the world’s waste, despite being only 16 percent of the world’s population (2).
In response to this growing crisis, waste management has become more than waste collection and disposal. Sustainable waste management is and will be vital for the health of the planet. Waste management innovation now plays a major role in supporting sustainable materials management and reducing the impact of climate change—and presents major opportunities for the sector.
Waste management incorporates a range of strategies and processes aimed at reducing and managing waste, from garbage trucks picking up trash—the paper, food waste, plastic, metal, and glass that are the principal categories of Municipal Solid Waste (MSW)—to recycling, energy recovery, and disposal. An infrastructure of transportation and disposal facilities for garbage, sewage, and other waste products incorporate MSW landfills and industrial waste landfills, industrial wastewater treatment systems, and facilities that dispose of nonhazardous solid waste via combustors and incinerators (3).
As with any business sector, seasonality affects waste management. For example, construction-related waste decreases as construction slows in the winter months and increases when construction picks up in warmer seasons. After storms, the need for waste removal also increases. Investors watching funds that include waste management learn to recognize and anticipate the patterns that follow these events.
Government regulations to reduce global warming have spurred innovation in the waste sector and surfaced opportunities to capture additional revenue (4). According to the EPA, landfill gas (LFG) is a natural byproduct of the decomposition of organic material in a landfill, and composed of roughly 50% methane and 50% carbon dioxide (5). Converting waste materials into electricity and heat is one way that municipal waste systems have helped reduce the use of fossil fuels and mitigated the effects of LFGs. Collected at landfills, methane gas can be used as fuel, mitigating the effects of landfill emissions and providing yet another source of energy (6).
Waste management is an attractive investment strategy, despite trash’s smelly reputation. No one wants to see garbage in their backyard, but as an investor you might agree with the CFO of Waste Management, the leading provider of waste management services in the U.S.: “Garbage really is great” (7).
Residential pickup is a steady business. Residential accounts are typically negotiated in multiyear contracts with municipal governments or homeowners associations. Sometimes, waste management companies have direct subscription services to individual customers. Even there the churn is relatively low, because usually customers don’t switch providers when their contract is up (8).
Waste management revenues tend to remain stable even if the economy dips (9). The pandemic hit many businesses hard, but compared to airlines, cruise lines, and restaurants, the major waste management companies took less of a hit (10). This is because larger companies are able to incorporate multiple revenue streams; for example, during the pandemic, industry and business waste needs cut back, but residential waste increased exponentially. And as people return to work in offices, industries are resuming full-capacity production. In that capacity, the industry is considered recession-proof in some ways. After all, even if you lose your job, your trash will still need to be picked up.
Waste management companies typically own the landfill sites, acting as a landlord for other companies that pay for a portion of landfill capacity. Take the company Waste Management (WM), for instance. WM has 20 million customers in 48 states and Canada as well as a team of 45,000 employees. It may not be the most glamorous company, but its business model is easy to understand. Waste Management owns nearly 400 collection operations, nearly 250 active solid waste landfills, more than 300 transfer stations, and 100 recycling centers, making it the largest non-hazardous waste operator (11). New landfills are hard to establish, make it hard for smaller competitors to gain market share, and so investors look for major waste management companies that can offer stable and reliable dividend stocks.
The waste management industry also holds opportunities for implementing renewable technologies in sustainable materials management. Every year, methane emissions from landfills are equivalent to the greenhouse gas emissions from more than 20 million cars on the road (12). The good news is that waste management companies can do something about it. Waste Management, for example, captures landfill gas and uses it to power residences, businesses and even trucks. Waste is growing, and with it, so too will the need for waste management and innovation.
For many investors, waste management has a resilient, steady track record that is especially appealing in today’s uncertain markets. There are a growing number of funds that incorporate waste management as part of their strategy. To find investments in waste management, try searching:
Recent blog posts
Geothermal energy is gaining market share as the world reduces dependence on carbon energy sources.
Uranium powers nuclear reactors, which generate about 10% of the world's electricity
This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. Investors should carefully consider the investment objectives and risks as well as charges and expenses of all innovation-related securities before investing. Read the prospectus carefully before investing. ETFs and mutual funds are actively managed and there is no guarantee that the manager’s investment decisions will produce the desired results. All investments involve risks, including possible loss of principal. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below their net asset value. Brokerage commissions and fund expenses will reduce returns. You should carefully consider a fund’s investment goals, risks, charges and expenses before investing. Download a summary prospectus and/or prospectus, which contains this and other information and read it before you invest or send money.