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Building the Business Case for Zero-Plastic Waste Investing

Solving the complex plastic pollution challenge is possible with ambition and concerted efforts.

Even if there is no simple solution to plastic waste existing today, responsible investors can still develop business cases to support zero plastic waste.

The dimensions of the environmental disaster from plastic pollution are immense, raising questions how soon the issue could prompt more regulatory intervention, accelerate innovation and disrupt concerned sectors.

“Between 1950 and 2015, the world disposed of 6.3 billion tonnes of plastic polymer resins and fibres, of which only 9% have been recycled once and 1% more than once. A staggering 60% has accumulated in landfills or the natural environment,” according to a report by NGO As You Sow citing Science Advances.

But creating scalable solutions to pollution requires a shift in the profitability of plastic production, says Christian Lim, Founding Partner of Blue Oceans Partners.

Business models and technologies need to be invented to make reuse and recycling more competitive than single-use plastic.

“This is the condition to achieve market-wide adoption. The current economics of plastic packaging are overall in favour of single-use plastic, as opposed to models based on reusing or recycling packaging,” he explains.

Regulation on plastics is increasing but has so far lacked teeth.

David Czupryna, Head of ESG Development at Candriam, explains that plastic regulation is regionally scattered and timid.

Whereas companies can align with clear and measurable objectives in regard to climate change, there is a lack of a “unique target” and “single metric” with plastics, he explains.

The World Business Council for Sustainable Development, a global, CEO-led organisation of over 200 leading businesses working to accelerate the transition to a sustainable world, has developed circular transition indicators for companies.

Joost van Dun, Circular Economy Lead at ING Sustainable Finance, explains that the EU taxonomy will be expanded to include circular thresholds. The transition to a circular economy is one of the taxonomy’s environmental objectives and will help steering capital towards circular projects.

Together with the EU Green Deal and the new circular action plan, Van Dun says that this will support with “identifying circular activities” and provide “more structure”.

The EU Directive on single-use plastics bans certain plastic, such as cutlery, cotton buds, straws and stirrers by July 2021. It also sets a collection target of 90% recycling for plastic bottles by 2029, with an interim target of 77% by 2025.

China announced last year plans to ban and restrict single-use plastics over the next five years.

Demand assumptions

But without any radical regulatory measures implemented to date, companies’ response to the plastic issue has been slow.

Lila Holzman, Senior Energy Programme Manager at As You Sow, explains that firms are not investing sufficiently in solutions and still assume that there will be a need for virgin plastic.

“They might be investing a fraction of their capex into these types of new technologies, while they are hugely building out new production assets,” she says.

BP’s ‘Energy Outlook 2020’ foresees that, although global oil demand will decrease, plastics will dominate the growth in non-combusted use of oil through 2050 under business-as-usual, the As You Sow report says.

Oil and gas companies, which are intertwined with the plastic industry, are allocating significant resources to boost petrochemical operations to hedge against shrinking demand from the power and transportation sectors, the report notes.

Plastic production accounted for two thirds (10 million barrels per day) of petrochemical demand, with single-use plastics accounting for one third of total plastics produced, according to As You Sow, citing a 2020 Carbon Tracker report.

The industry’s “core priority is to continue the extraction of fossil fuels and increase the production of fossil-derived plastics”, the report adds.

But demand assumptions by the plastic industry would be heavily impacted if actors join forces and carry out concerted efforts and support solutions.

Systematic solutions

A 2020 report titled ‘Breaking the Plastic Wave’ says there is no single solution to end ocean plastic pollution and that action across upstream (pre-consumer, such as substitution) and downstream (post-consumer, such as recycling) solutions is required.

However, its so-called ‘System Change Scenario’ finds that eliminating, reusing and new delivery models is the most attractive solution from environmental, economic and social perspectives.

From a finance perspective, Alina Donets, portfolio manager at Lombard Odier Investment Managers, explains that plastic pollution is a systematic problem which needs to be tackled in several equally important approaches simultaneously.

This includes replacing plastic in consumer goods to reduce plastic waste; re-thinking industrial processes with the goal of minimising or completely displacing micro- and nano-plastic pollution in wastewater and industrial waste; and through enhanced awareness, altering human choices and behaviour, all the way down to remediation of the already polluted resources.

“All of these steps require different forms of financing. Cleaning up water resources and natural habitats can be most effectively financed with government-supported forms of financing, or charitable institutions,” she explains.

According to the ‘Breaking the Plastic Wave’ report, a near-zero ocean plastic pollution scenario would require technological advances, new business models, significant spending, and importantly accelerating upstream innovation.

“This massive innovation scale-up requires a focused and well-funded R&D agenda exceeding $100 billion per year by 2040, including moon-shot ambitions, to help middle-/ low-income countries to leapfrog the unsustainable linear economy model of high-income countries,” it notes.

Blue Oceans Partners’ Lim points to the key role of start-ups: “Start-ups, with their disruptive innovations, are key contributors to such systemic solutions. Another benefit is that, if successful, start-ups create massive economic value, and therefore can scale with private capital, at the scale and pace of private capital.”

But As You Sow warns investors to assess any potential for greenwashing, especially in the case of bioplastics and “advanced” recycling, also referred to as chemical recycling.

While this is not necessarily a widespread issue at this point, Holzman cautions that the perception does not always reflect reality that newer materials can break down and biodegrade.

“The inability to distinguish between polymers that are bio based or fossil based presents an opportunity for companies to make circularity claims about products when only a portion comes from renewable feedstocks,” the report explains.

Scaling circular solutions

ING Group believes that, for the recycled plastic market, special purpose vehicles (SPVs) are an efficient instrument to scale circular solutions and overcome major challenges, including generating large investments.

Van Dun explains that “every player in the value chain holds a part of the puzzle to solve the problem” and that the bottleneck to the development of circular solutions is currently in the collecting, sorting and recycling part of the value chain.

Marc Borghans, Head of Sustainable Structured Finance at ING, says that SPVs, where partners cooperate based on longer term contracts, share risks, which allows to establish a business case to scale innovations through joint investments.

“You need to [have] supply and off-take agreements that need to be committed in order to make the best case economically viable and also secure enough to attract financing for that.

“The SPV structure offers the opportunity to place an investment, e.g. in a recycling plant, in a separate entity where the risks can be shared with various parties in the plastic value chain. In this way, the innovative recycling companies can for example connect to both plastic producers and the waste management companies,” he explains.

Numerous ways exist for investors to actively support reductions in plastic waste.

Candriam’s Czupryna explains that asset managers should work on developing plastic-related metrics and integrate these when engaging with companies to measure their progress.

“We need to develop the whole value chain to make plastic more recyclable and [we] need the collection, treatment, recycling and reuse value chains to make this happen. This can be achieved through a mix of engagement, investments and regulation,” he says.

Blue Oceans Partners’ Lim adds: “Institutional investors should screen their portfolio to identify companies with the largest plastic footprint, require measurement of this footprint, commitments to reduce it, and work with companies to help them achieve their objectives.”

As You Sow coordinates investor engagement through its initiative Plastic Solutions Investor Alliance.

Action can lead to significant results, the ‘Breaking the Plastic Wave’ report says.

It shows that an approximately 80% reduction in projected plastic leakage is possible—without compromising social or economic benefits.

However, to achieve this, the next two years will be pivotal for breaking the trend.

“If we want to significantly reduce plastic leakage, we have the solutions at our fingertips.

“An implementation delay of five years would result in an additional ca. 80 million metric tons of plastic going into the ocean by 2040,” the report predicts.

 

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