How investors can respond to the plastics invasion

The reduction and optimisation of plastic use remains a fundamental (if challenging) building block of any systemic change. Another possible transition opportunity for investors lies with plastics recycling. According to one study, only around 9% of the world's plastic is recycled; the gap to bridge is huge and may become an important profitability driver for many companies. Recycling is a complex process, which includes several steps from material selection and product design to effective and responsible disposal (collect-> transport-> process) and eventually to its ultimate reuse in new products. Industries can act at each of those steps, including scaling up collection and sorting as well as improving recycling to better include more complex plastics. The efficient recycling of plastics is fundamental for retaining the value of plastics as a feedstock, which is key for a transition to a more circular and sustainable plastic economy. 

The Ellen MacArthur Foundation, a specialist campaign group funded by charities, public bodies and corporates, has proposed a vision for a plastics circular economy that aims to show change is possible. The strategy introduces the idea that all the plastic items we use should be kept in the economy and out of the environment (making plastics endlessly circulate). This means that used plastic, as a raw material, would find new value as a feedstock into the economy for sustainable use. It would then find a place among the plastics alternatives that are steadily emerging today, contributing to the hoped-for reduction in new plastics production.¹⁴

From plastic waste to a new plastics economy

Demand from industrials for alternatives to virgin plastic is rising.¹⁵ Consumer packaged goods companies are progressively setting ambitions to increase the content of recycled plastic or alternatives in their products, to accelerate recycling, and to reduce packaging volumes. Companies representing 20% of all plastic packaging produced globally have committed to set total and/or virgin plastic packaging reduction targets – part of an initiative led by the Ellen MacArthur Foundation and the UN Environment Programme.¹⁶ Demands from stakeholders, including responsible investors, are pushing companies to better understand the impact of their products, while guiding the reporting of their Scope 3 indirect greenhouse gas (GHG) emissions and related reduction efforts. It is notable that the approach to crucial Scope 3 emissions is uneven among corporates.¹⁷ A growing number of large consumer goods companies, meanwhile, are signing supply agreements with service providers in the circular economy, such as companies with proprietary plastic recycling processes and technologies.

Of the almost-7.6 billion tonnes of plastic waste we have produced globally since the 1950s, more than six billion tonnes are in landfills or the environment. Plastic waste remains a significantly untapped raw material, with just about 9% of all plastic waste ever produced having been recycled.¹⁸ We however see some trends indicating a growing commoditisation of plastic waste, which may help tackle the rampant pollution problem – in short, it makes no economic sense to throw away a potentially valuable material.

Multiple actors throughout the plastics value chain are shaping and formalising the plastic waste economy. In some countries, regulation or taxes on virgin plastic aim to gradually incentivise recycling and encourage the uptake of alternative materials.¹⁹ The EU’s plastic tax system should also encourage EU-based plastic users to change their practices.²⁰ Many countries – France included – have long relied on waste exports to other, emerging, nations. However, the commoditisation of plastic waste should contribute to greater recycling rates locally, shifting waste from being a by-product of economic activities to becoming a viable resource in its own right. For that to work, and to effectively achieve circularity, waste collection, recycling and treatment capacity must also dramatically increase.

The waste management industry will likely continue to need capital to grow local recycling capacity and develop more efficient ways to recycle plastic. Mechanical collection and recycling will continue to represent the most common methods; however, there are positive developments in chemical techniques and in alternative recycling methods such as enzymatic recycling.²¹ Companies involved in these innovations are now trying to secure capacity and make their technologies commercially viable as soon as technically feasible. We also observe early-stage developments in waste-to-fuel technologies, such as liquefied waste plastic as an alternative to crude oil, or hydrogen production from plastic waste. However, current chemical recycling processes require high temperatures, thereby lots of energy, making them expensive and inefficient at this stage.

The global plastic waste problem has rekindled interest in alternative materials. The use of aluminium and glass, some of the two most widely recycled materials, is steadily increasing. These materials have advantages, and caveats, but manufacturers are also working on circularity. For example, using waste glass pieces to make new glass products significantly reduces the energy needed in the raw material melting process. This can help glass producers reduce their Scope 1 GHG emissions and their operational costs linked to energy use. In packaging, innovations in pulp- and paper-based products as well as bio-based plastics are emerging as alternatives. Some of these alternatives, namely bioplastics, come with their own set of challenges:

• New bioplastics are emerging from the variety of feedstocks used to offer solutions in packaging, coating, resins, medical equipment, etc. The use of natural and renewable feedstocks is one of the main attributes of these polymers. Some can offer comparable levels of quality and similar barrier properties to commonly used fossil-based plastics (PET). But significant output growth could also imply accelerated impacts on land and water use to produce sufficient raw materials, given that production relies on virgin feedstocks only.
• Some bioplastic producers communicate on the optimised decomposition capacities of their products. Solutions vary and some bioplastics can biodegrade in industrial composting but also home composting settings, others can even biodegrade within natural environments at much faster rates than their oil-based counterparts. However, these variations also create challenges for proper handling of bioplastic waste which, till now, has been only rarely recycled. Bioplastics needs to be in specific and controlled environments to efficiently biodegrade, and proper waste treatment capacity is still insufficient.

Still, manufacturers are working to accelerate biodegradation rates, to use alternative natural feedstocks (cover crops, biomass waste and secondary sugars), and to accelerate recycling. With rising demand for such solutions,²² we believe this creates opportunities for investors to support a much sought-after overhaul of the world’s plastic system.