As initiatives to tackle plastic pollution proliferate, packaging is coming under increased scrutiny from investors and regulators.
In March, UN member states adopted a resolution to create an international, legally binding instrument aimed at ending plastic pollution. Later this month, an Intergovernmental Negotiating Committee will meet in Senegal to begin work on developing the instrument, which the UN hopes to be in place by 2024.
Among the topics to be discussed in Senegal will be the promotion of sustainable production and consumption of plastics, including product design and environmentally sound waste management.
One of the main contributors to plastic pollution is packaging; the World Business Council for Sustainable Development (WBCSD) says around 40% of global plastics produced are used in packaging.
While companies are beginning to ensure their packaging is more sustainable, more can be done. This explainer looks at innovations in packaging and the role asset owners can play in removing plastic from the environment – and their portfolios.
What is the scale of the plastic packaging problem?
Packaging makes up around one third of the municipal waste generated annually in the European Union and the US, says WBCSD, with the cost of adverse environmental effects caused by plastic packaging valued by the UN Environment Programme (UNEP) at around at US$40 billion.
In the UK, supermarkets produce 800,000 tonnes of plastic packaging per year, according to Greenpeace. The UK produces more plastic waste per person than almost any other country, it adds, with much of it sent overseas for disposal. Only 9% of all the plastic ever produced globally has been recycled.
UNEP says 400 million tonnes of plastic waste is generated per year. Around 85% of single-use plastics for food and beverage containers end up in landfills or as unregulated waste, adds UNEP. Moreover, around 98% of single use plastics products are produced from fossil fuel. “The level of greenhouse gas emissions associated with the production, use and disposal of conventional fossil fuel-based plastics is forecast to grow to 19% of the global carbon budget by 2040,” says UNEP.
What actions are governments taking?
WBCSD describes the policy landscape as “very diverse”, making it complex for multinational companies to comply with different rules. The UN’s efforts to create a legally binding instrument should help.
Many of the initiatives regarding packaging are related to the wider policy objectives. The European Union’s plastics strategy, for example, is part of its circular economy action plan. The strategy includes new rules on packaging to improve the recyclability of plastics and increase the demand for recycled plastic content.
In the UK, the government has committed to ensure all plastic packaging in the market is recyclable, reusable or compostable by 2025. Among the mooted initiatives are the reform of the UK packaging producer responsibility system and a plastic packaging tax.
A bill introduced to the US Congress in June 2020 to provide for a coordinated federal programme to accelerate plastics waste reduction and support recycling research and development failed to progress. More recently, legislators in New York state proposed two bills aimed at improving plastic recycling rates. The Extended Producer Responsibility Bill would require companies such as McDonald’s and Amazon to reduce their packaging and pay for the cost of its disposal and recycling.
“Public policy is an extremely important component in tackling plastic packaging pollution and is important to create a fertile investment environment for investors,” says John Ventress, Head of Legal Europe at Lombard Odier Investment Managers (LOIM) and Project Lead for the manager’s circular plastic fund. “Europe is setting the pace on policy-driven market shifts, with a combination of single-use product restrictions, high recycling rate targets for plastic packaging (55% by 2030), penalties (€800 per ton of plastic packaging that is not recycled), high extended producer responsibility fees and virgin plastic packaging taxes (e.g. £200 per ton in the UK).”
Is the private sector leading or following?
US shareholder activists As You Sow believe corporations are “beginning to step up to the plate” to tackle plastic pollution. Its Corporate Plastic Pollution Scorecard 2021 found a ninefold increase in plastic reduction goals among corporations (compared with its Waste & Opportunity 2020 results) and a nearly fourfold increase in support for extended producer responsibility.
The improvements represented less than one third of the 50 companies examined in the report. Only one company, Coca-Cola, is publicly reporting the units of plastic packaging sold. The drinks manufacturer was the highest ranked company, receiving only a ‘B’ rating.
Nearly 100 corporations support Roadmap to 2025, an initiative of the US Plastics Pact. The Roadmap is designed to help US industry to realise a circular economy for plastics by 2025. Measures include defining a list of packaging to be designated as problematic or unnecessary by 2021 and taking measures to eliminate them by 2025. By 2025, the intention is that 100% of plastic packaging will be reusable, recyclable, or compostable.
“To meaningfully address the plastic waste crisis in the US, we must unite the critical stakeholders — industry leaders, waste management systems, and policymakers — under a cohesive action plan,” said Erin Simon, Head, Plastic Waste and Business at World Wildlife Fund and one of the backers of the pact. “The Roadmap will be the key for setting a national strategy that reaches our set targets and measures our progress in a consistent, transparent manner.”
In April, the WBCSD launched Sphere, a packaging sustainability framework. Developed in collaboration with 12 companies, the framework helps businesses to choose the most sustainable option for their specific packaging needs and delivery systems by providing an overview of all environmental impacts and the trade-offs.
The tool combines existing metrics, methodologies and databases in a single framework that can be used to identify priorities for action and monitor performance and progress over time. “As a result, companies can reduce the environmental pollution, greenhouse gas emissions and nature loss associated with packaging by placing their efforts where it matters the most,” said Maayke Damen, Director, Products & Materials, WBCSD at the launch of Sphere.
How can investors minimise the plastic pollution risks in their portfolios?
As You Sow says it is up to investors, policymakers, and the public to hold corporations accountable for meeting their stated targets and taking “tangible” action to reduce plastic pollution.
Plastics might not be as high on investors’ sustainability agendas as climate, but there are signs that they are leaning on investee firms to disclose more and use less. Next week, shareholders will vote on a resolution asking Amazon to report on how it could reduce its plastics use.
In August last year, the UN-convened Principles for Responsible Investment (PRI) published a set of engagement guides for investors in companies in the plastic packaging supply chain. The guides cover four sectors: petrochemicals, containers and packaging, fast-moving consumer goods (FMCG), and waste management.
PRI said investors should address plastic waste and pollution through their stewardship activities. Failing to do so, it said, would have an impact on the environmental systems and ecosystem services that support economic performance, investor returns and beneficiary interests more broadly.
Topics investors should raise related to governance around plastic packaging include a company’s commitment to tackle plastic waste and pollution, risk assessment and management, objectives, targets and action plans, and reporting.
On outcomes, investors are urged to ask companies about elimination of problematic or unnecessary plastic packaging (the proportion of current plastic production that is from post-consumer recycled sources and how it will be increased) and how companies will increase recycling and/or composting rates for plastics.
According to the PRI, investors should constructively engage with companies in the plastic packaging value chain and encourage them to act by 2025.
What are the challenges for investors in supporting the shift to sustainable packaging?
It is never easy investing in a space undergoing radical overhaul, where the long-term solutions are far from clear. In the beverages industry alone, there is a healthy debate about the future of packaging, with the merits of plastics, glass and aluminium widely discussed, alongside newer technologies. At the same time, investments are flowing to facilities involved in the development of bioplastics, which claim to be fully recyclable and degradable.
Ventress says one of the main challenges is “narrowing down the opportunity set”. Sustainable or circular plastic packaging cuts across multiple interconnected industries and disciplines, including raw materials, production, plastics chemistry and design, technology innovation and consumer delivery, as well as the many different types of recycling (mechanical, biological, solvent based and different types of chemical recycling (pyrolysis, gasification, hydrothermal etc). For some investors, it will be difficult to navigate the scale of the opportunity set and to identify, map and understand the technical aspects of the relevant parts of the plastics value chain for plastic packaging.
LOIM launched a circular plastic fund (which encompasses other sectors as well as packaging) in partnership with the Alliance to End Plastic Waste (AEPW). “We hope to catalyse private asset investment in circular plastic and to draw in capital from sources that might not ordinarily have the capacity to focus solely on plastic (both through investing into our strategy but also by creating pathways for other investors in the investments we make),” says Ventress.
The manager aims to raise US$500 million from institutional and other accredited investors and the fund will target upstream and downstream scalable solutions to remove plastic waste from the environment and drive the global transition to a circular economy for the plastic value chain.
What types of risks and opportunities are investors exposed to by plastics circularity?
Effective plastic circularity depends upon each of the inter-connected parts of the plastic value chain being joined up, says Ventress. For example, innovations and proven business models which are looking to scale up in the recycling sector will struggle if the plastic waste feedstock is not available for recycling. Understanding the full circular plastic value chain will enable investors to evaluate the different risks that the companies in which they invest in may be exposed to.
Investors also must be aware of the collateral impacts of plastic circularity and the risks posed by greenhouse gases connected with plastic production, waste and recycling so that companies in which they invest are not exposed to other indirect environmental risks, he adds.
Ventress believes industry is at an “inflexion point” where public policy, consumer demands and commercial imperatives are creating “significant tailwinds” to make the circular plastics landscape (particularly within the short-lived packaging sector) an attractive opportunity. “Investors will play a critical role in providing real economy funding to allow both innovations to be developed and proven technologies to scale. Historically there has been a capital under-supply as investors have been wary of structural/systemic challenges and dependency on public sector actors in the value chain.”
He says investments have picked up in Europe and in North America as investors have seen opportunities for growth and value creation as the industry ramps up to meet higher demands for recycled plastics. “Strategic investors are actively pursuing vertical integration investments in the recycling sector (waste managers, polymer producers, consumer goods producers, convertors, retailers). Industrial, private equity and infrastructure investors have increased their attention on this sector in Europe and there is now a much increased ability to unlock significant funds for European transactions.”