But what if you could take the mountains of clothes and paper that are discarded and turn that into clothes and paper again, leaving those endangered forests alone to do much more important work?

It’s already happening. And a major cash investment into a Canadian non-profit is designed to help scale up this innovative engine of the circular economy at a critical time in climate action. 

Last month, Vancouver-based Canopy received US$60 million from The Audacious Project, a funding initiative affiliated with TED Talks, to accelerate the commercial-scale production of fabrics, pulp, paper and packaging from textiles and food scraps that usually end up in landfills or are burned. 

“If we’re going to protect 30 to 50% of the world’s forests, which is what the world’s scientists are calling for, then we have to stop mowing them down to make pizza boxes and T-shirts,” says Nicole Rycroft, founder and executive director of Canopy. “And the only way that we’re going to actually do that is if we have an off-ramp – alternative raw-material inputs to these supply chains that carry a fundamentally lower environmental footprint.”

They are known as “next-gen” solutions – everything from making viscose from the cellulose in old cotton jeans to take-out containers from agricultural residue like straw after a food harvest. We are surrounded by materials that have forest-saving capacities, and harnessing those new raw materials is crucial for us to meet our climate targets. On average, next-gen solutions produce 95% to 130% less greenhouse gases, have 88% to 100% less land-use impacts, and typically use much less water, says Canopy. 

Canopy has been working to protect forests for 20 years and now partners with some 900 brands – including fashion giants H&M and Zara, along with publishing stalwart Scholastic and home furnishing icon IKEA – to ensure that the oldest trees remain standing. It has done the deep work of mapping out where these discarded materials are abundant and where facilities such as decommissioned wood mills exist to prime them for second lives. 

The targets – like the stakes – are massive. The Audacious investment is intended to help Canopy spur the production of 60 million tonnes of low-carbon next-gen pulp, packaging and viscose by 2030. That, in turn, will alleviate the pressure on trees and enable the protection of 90 million hectares of forest, says Rycroft. It’s not just about the carbon-absorption capacity of forests, but the fact that old-growth trees are vaults of carbon, and releasing that into the atmosphere is the last thing we all need.

If we’re going to protect 30 to 50% of the world’s forests, which is what the world’s scientists are calling for, then we have to stop mowing them down to make pizza boxes and T-shirts.

 

– Nicole Rycroft, founder and executive director of Canopy

 

“A lot of people are really surprised to find that there’s more than 300 million trees that are cut down every year to make textiles and clothing,” says Rycroft, like rayon and viscose. “We are looking to transform the relics of the 20th century.”

Canopy’s work falls under three main areas: strengthening the market conditions for next-gen production, scaling that production up, and supporting NGOs on forest conservation. 

It’s not just about building a single mill. Canopy will focus on developing six regional hubs – first in India, North America and Europe, followed by Latin America (in particular Brazil), Southeast Asia and China. “You need to actually build the systems that divert clothing from landfill, that actually aggregate the straw, and have there be a standard of fibre quality that is being delivered to the mills,” says Rycroft. 

Canopy already has a roster of 35 innovators it is supporting, including ones that are turning microbial cellulose into a viscose fibre “that is stronger than wood and finer than silk.” One of its partners, Renewcell, the world’s first next-gen mill for viscose production, opened in northern Sweden last year, in the bones of an old wood mill. 

Of course, this transition will take money, and lots of it. Canopy estimates some US$78 billion will be required in new infrastructure and retrofits, and its work includes drumming up investor dollars. But change is happening: the European Union is currently debating whether to ban the destruction of unsold or unused clothing. The proposal is in the EU’s strategy for sustainable and circular textiles. Every year, 60 billion items of new clothing end up in landfill within the first 12 months of their production, says Rycroft. 

“That’s a lot of fibre for next season’s clothing that is about to come online, so I think we’ll see things change quite quickly,” she says. And not a moment too soon. “We don’t have to wait decades for supply chains to change, and we don’t have that luxury.”  

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Before we get started, I need to communicate that cannabis stocks are much riskier investments than the typical big companies we look at in this column. A high Beta suggests heavy volatility, so only invest if you’re ready to put on a safety belt and go along for an intense ride.

Canada-based Canopy Growth (WEED:TSX) is the largest cannabis company on the stock market today. I first heard about Canopy in 2014 when they purchased the abandoned Hershey’s chocolate factory in Smiths Falls, Ontario and turned it into a massive greenhouse for growing medicinal cannabis. Their share price was hovering around $2 at that time, and what a ride it’s been for investors with the share price reaching a high of $67.74 in October last year just before legalization in Canada. On April 15, it opened at $55.74. With popular brands like Tokyo Smoke and Tweed, Canopy is well-positioned to blaze a trail in the now-legal recreational market. Alcohol maker Constellation Brands, which we profiled in our St. Patrick’s Day showdown, recently made a US$4 billion investment in Canopy.

But how sustainable is Canopy? Not very, according to this report from sustainable investment research firm Sustainalytics. Canopy scored poorly on several measures, including energy intensity and the use of pesticides. Canopy does not publish an annual sustainability report, so lots of important data goes unreported. A quick look at their Corporate Social Responsibility webpage shows a focus on educational partnerships with groups like Mothers Against Drunk Driving (MADD) and the Canadian AIDS Society, which is laudable. However, the only environmental initiative I found was a partnership with TerraCycle to develop recyclable packaging. With a lot of question marks around energy/water consumption and a lack of policies that ensure safe growing practices, investors have cause to be paranoid.

A much smaller Canadian company, The Green Organic Dutchman (TGOD:TSX) is a medicinal cannabis producer that only grows certified organic product. It, too, has yet to deliver a formal sustainability report to date, but they do publish specific sustainable principles like recyclable packaging (their glass jars should avoid the overpackaging backlash that Ontario Cannabis Store products have faced), and a commitment to efficient technologies like heat transfer and water reuse. Most importantly, all of The Green Organic Dutchman’s farms and greenhouses are certified organic. They’ve just started selling to medicinal customers and have short-term plans to enter the recreational market. Sadly, stoners won’t be able to smoke a legal organic joint from TGOD this weekend.

You’ll notice on our scorecard (below) that both companies have pretty high CEO-to-worker pay ratios, but Canopy’s has definitely raised eyebrows. Canopy’s CEO, Bruce Linton, collected over $6 million in total compensation in 2017, equivalent to 15% of the company’s $40 million revenue that year. Love that TGOD’s CEO pay was only $1 in 2018, but some will argue that the $2.5 million in shares he earned as a bonus that year tipped the scales, considering the company had yet to earn any revenue or launch their IPO.  In contrast, the median total compensation of 101 other high-growth companies at IPO stage (including LinkedIn, Yelp and Google) was US $564,000 (C$750,000), according to Crunchbase.

There’s no doubt that The Green Organic Dutchman wins this week’s Sustainable Stock Showdown, but a big question remains. Will cannabis consumers live up to their tree-hugging stereotype? If so, then I expect the organic certification to be valuable as consumers should be willing to pay more for The Green Organic Dutchman’s product. That said, the legal cannabis market is still young and it’s impossible to predict. If consumers don’t care about their green being truly green (namely certified organic), then we’ll find ourselves in a “race to the bottom,” whereby companies compete to grow the cheapest crop. The race to cut costs is all too common for traditional commodities like wheat and oil. Cannabis is still just a commodity at the end of the day, and, in this scenario, The Green Organic Dutchman will have a much harder time competing.

Have a company in your portfolio that you want to replace with a more sustainable option? Write us an email or send us a tweet!  

Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing. Tweet him at @timenash.

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