208629

Vehicles

procured for recycling as of Q2 2021

658000

Batteries

were recycled by LKQ in 2020

90%

of materials from total loss and end-of-life vehicles are recycled in LKQ’s North America operations


The Path to Drawdown: Industrial Recycling

Project Drawdown defines recycling as the recovery of recyclable post-consumer waste (like metals, plastic, glass, etc.) from the industrial and residential sectors. Recycling replaces the disposal of recyclable materials in landfills and reduces the need to extract new material for production.

Waste from manufacturing, construction, office buildings, schools and mines accounts for about half of all waste. All that is grouped together as “industrial and commercial waste.” Much of it, though not all, can be recycled and several strategies can enhance recycling rates.

Some of these strategies include creating marketplaces for secondary materials to facilitate the exchange of recyclable and reusable goods, innovation in conversion technologies to make more materials recyclable, and adopting circular business models to recapture “waste” as a valuable commodity.

Recycling industrial and commercial material can reduce emissions because producing new products from recovered materials often conserves energy. For instance, forging recycled aluminum products uses 95% less energy than creating them from virgin materials.

Project Drawdown estimates that, by 2050, serious efforts to recycle can help avoid 6.02 gigatons of GHG emissions. To get there, recycling practices need to be adopted much more widely that they are now:

  • In 2014, 27% of recyclable waste was recycled
  • By 2050, 68% of recyclable materials should be recycled
  • That’s 2.6% CAGR between 2014 and 2050

If we can achieve this 68% recycling scenario, we can avoid up to 6.02 gigatons of GHG emissions.

About

LKQ Corporation (stock ticker: LKQ) provides alternative and specialty parts to repair and accessories automobiles and other vehicles. Headquartered in Chicago, Illinoi, they have operations across North America, Europe, and Taiwan.

LKQ's Role in Drawdown

LKQ’s revenue comes from the sale of vehicle parts, the sale of scrap and other metals to mechanical manufacturers, and offering services and service-type warranties.

Their sales of vehicle parts consist of a broad range of replacement systems, components, equipment and parts to repair and accessorize automobiles, trucks, and recreational performance vehicles. Customers can purchase from five options: new products produced by original equipment manufacturers, new products produced by companies other than original equipment manufacturers, recycled products obtained from salvage and total loss vehicles, recycled products that have been refurbished, and recycled products that have been remanufactured.

LKQ’s sales of recycled vehicle parts have been growing steadily, increasing by 6.26% annually between 2016 and 2020. In 2020 (p. 7), LKQ procured 818,000 vehicles, recycled 305,000 gallons of antifreeze/washer fluid, 2.3 million gallons of fuel, 2.3 million tires, and 2.3 million gallons of waste oil.

LKQ: What We Like

LKQ is slowly introducing (p. 9-10) low- and zero-emission technology and energy sources into their operations and distribution:

  • In 2017 LKQ purchased a number of propane trucks to begin transitioning to a lower emission fleet. They have also placed orders for a limited number of electric semi-trucks and pick-up trucks to use in their North America operations
  • In their European segment, LKQ has started to measure its direct fuel consumption and is working on a fleet management solution to reduce mileage, fuel cost and CO2 of its fleet
  • LKQ is designing their warehouse near Rotterdam with sustainability in mind -- its roof will be fully equipped with solar panels to make the building completely energy self-sufficient, and it will have EV charging infrastructure


Thanks to these efforts, LKQ seems to have succeeded in reducing some of its carbon emissions. Between 2019 and 2020, their scope 1 and 2 CO2 emissions combined declined by 15.4%.

LKQ: What We Want to See Improve

Switch to Renewable Energy


LKQ currently does not use any renewable energy (p. 20) for their operations. Their distribution fleet also still runs almost completely on gasoline and diesel (p. 10). We urge LKQ to make the complete transition to renewable energy a top priority in their sustainability agenda to be achieved within the next few years.

Set More Aggressive Sustainability Targets


We applaud the commitment by LKQ’s European segment to reduce CO2 emissions by up to 30% within the next ten years. But beyond this relatively modest goal, the company sets no specific sustainability targets. Their annual ESG report should contain bold targets for emissions reduction by a specific date.

Report Scope 3 and Overall GHG Emissions


To their credit, LKQ adheres (p. 20) to the Sustainability Accounting Standards Board’s disclosure standards in reporting their scope 1 and 2 carbon emissions. But since LKQ has a particularly large supplier network from which it procures vehicles and vehicle parts, investors should know what LKQ’s scope 3 emissions are. And given that natural gas is the predominant fuel type that LKQ depends on -- a source of methane, a potent greenhouse gas -- we need to know LKQ’s overall GHG emissions, not only CO2 emissions.

Other Industrial Recycling Stocks in the Climate Index

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