The plastic waste issue is currently one of the fastest growing environmental topics on the political and business agenda. Plastic is a vital product to the global economy; however, the way it is being produced and managed is unsustainable, especially at the use and after‐use phases. The carbon footprint and emissions associated with plastic production along with the issue of the environmental and potential health impacts of plastic waste are a matter of growing concern for investors. In light of the environmental, social and financial challenges, the linear “take, make and dispose” approach cannot continue. The alternative is a circular economy approach, which focuses on maximizing resource value, making resource use more efficient and extending product value during use.
The Problem with Plastics
Carbon footprint: The carbon impact of plastics is a key challenge since 90% of its production is dependent on virgin fossil feedstocks and they are responsible for around 6% of global oil consumption (the equivalent of the entire aviation industry).[i] If plastic production continues to grow, it will make it more difficult for global economies to reach the goals of the Paris Agreement.
Human health impacts: Although the link between plastics and health issues is still being debated, the presence of microplastics in food and its effect on the human body is also a growing concern. Additionally, air emissions and water toxicity from waste are increasingly linked to the plastics and consumer goods industries.
E-waste issues: According to research, plastics correspond to 20% of the current 50 million tons of e-waste produced globally each year and is expected to reach approximately 110 million tons by 2050.[ii]
Financial impacts: There are also financial implications for plastics mismanagement. Only 14% of plastic packaging is collected for recycling and economic losses due to material plastic waste in packaging is between EUR 72‐108 billion.[iii]
Plastics and the Circular Economy: Recent Developments
Several significant developments related to plastics and the circular economy in recent months demonstrate an increasing interest in these issues among companies, civil society and other stakeholders.
In July, the World Business Council for Sustainable Development (WBCSD) proposed a set of “Circular Transition Indicators”.[iv] The indicators were developed as a result of a collaboration of 25 global companies that convened as a part of Factor10, WBCSD’s circular economy program. Their objective had been to “establish a harmonized set of indicators that help them identify circular opportunities and linear risks and determine their circular priorities and targets.”
In September, the Circular Plastics Alliance (CPA) announced that more than 100 public and private partners covering the whole plastics value chain were to sign a declaration promoting voluntary actions for a well-functioning EU market in recycled plastics.[v] The declaration outlined how the Alliance would reach a target of 10 million tons of recycled plastic being used to make new products every year in Europe by 2025. The European Commission had set this target in its 2018 Plastics Strategy.[vi]
In October, the Ellen MacArthur Foundation (EMF) and the UN Environment Programme (UNEP) published the first annual progress report on the New Plastics Economy Global Commitment.[vii] The Global Commitment comprises six core elements, including making all plastic packaging 100% reusable, recyclable or compostable; reusing, recycling or composting all plastic packaging in practice; and decoupling the use of plastic from consumption of finite resources. Sustainalytics formally endorsed the Global Commitment in 2018 and we will continue to follow companies’ progress against its goals and, as noted below, encourage further action.
While moves to encourage and strengthen a circular economy approach to plastics may not always proceed at the desired speed or without impediment, it is clear that the issue has captured the attention of political leaders, business and civil society.
Investor Engagement on Plastics
In order to help investors understand the topic better and address the associated risks and opportunities, in January 2019 Sustainalytics initiated a three-year Stewardship and Risk engagement on Plastics and the Circular Economy. This engagement program focuses on encouraging companies in consumer-facing sectors, namely automotive, electronics and consumer goods and packaging, to improve their approach to plastics and plastic waste within their sourcing and waste management strategies. The basis of the engagement is the approach taken by the Ellen MacArthur Foundation’s New Plastics Economy initiative which suggests three primary steps for companies and other stakeholders to take, aligned with circular economy principles: decouple from fossil feedstocks; create an effective after-use economy; and reduce leakages.
Although the engagement program was still in its early stages, in August Sustainalytics was awarded one of Environmental Finance’s annual Sustainable Investment Awards for ‘ESG engagement initiative of the year’.[viii] We belive this sends a clear signal to companies that the investment community is interested – and expects – to know how investee companies are managing plastics and plastic waste.
During the course of the engagement, we have already noted certain trends in the target sectors. For example, car and tire companies are identifying the circular economy as a priority in sustainability risk assessment and strategy and setting operational targets related to recycling at their plants. Regarding the electronics industry, the initial phase of the engagement has shown that companies have considered circular economy principles to close the loop on materials such as plastics and disclose detailed information about their approach to managing plastics and plastic waste. As for the packaging sector, we see that some brands have adopted sustainability and circular economy goals and are searching for safer materials and ways to reduce packaging waste.
Our experience has shown so far that while companies in all three sectors have committed to tackling plastic and plastic waste issues, they could be more transparent in terms of reporting. We believe that investors can play an important role in encouraging improved practices, and by the end of our three-year engagement program, we aim to motivate companies to disclose more information about this topic.
[i] Ellen MacArthur Foundation (2016) “The New Plastics Economy: Rethinking the Future of Plastics & Catalysing Action” https://www.ellenmacarthurfoundation.org/assets/downloads/publications/NPEC-Hybrid_English_22-11-17_Digital.pdf
[ii] Kivner, Mark, “Electronics devices ‘need to use recycled plastic’” (15, October 2019) https://www.bbc.com/news/science-environment-50046859
[iii] Ellen MacArthur Foundation (2016) “The New Plastics Economy: Rethinking the Future of Plastics,” https://www.ellenmacarthurfoundation.org/assets/downloads/The-New-Plastics-Economy-Rethinking-the-Future-of-Plastics.pdf
[iv] World Business Council for Sustainable Development (2019) “Circular Transition Indicators,” https://www.wbcsd.org/Programs/Circular-Economy/Factor-10/Resources/Circular-Transition-Indicators
[v] European Commission (2019) “Circular Plastics Alliance: 100+ signatories commit to use 10 million tons of recycled plastic in new products by 2025”, https://europa.eu/rapid/press-release_IP-19-5583_en.htm
[vi] European Commission (2019) “European Strategy for Plastics – Voluntary Pledges”, https://ec.europa.eu/growth/content/european-strategy-plastics-voluntary-pledges_en
[vii] Ellen MacArthur Foundation (2019) “First Annual New Plastics Economy Global Commitment progress report published,” https://www.newplasticseconomy.org/news/first-annual-new-plastics-economy-global-commitment-progress-report-published
[viii] Environmental Finance (2019), “Best ESG Research; ESG Engagement Initiative of the Year; Best ESG data provider for investors (Joint winner) – Sustainalytics” https://www.environmental-finance.com/content/awards/sustainable-investment-awards-2019/winners/best-esg-research;-esg-engagement-initiative-of-the-year;-best-esg-data-provider-for-investors-(joint-winner)-sustainalytics.html