By Jonathan Nichols (@JonNicholsEnv), Manager, Environmental Issues, PRI
“Plastic is a topic that brings investors to the table because it poses both significant risks to returns and major opportunities for harnessing innovative business models”. That’s according to one investor discussion group at this year’s plastics event during PRI in Person.
Global production and consumption of plastic has increased 20 times since the 1960s. Demand for plastic is forecast to continue rising, but inefficient waste management systems mean that less than 20 percent of the world’s plastic waste is being recycled. As plastic does not break down naturally, it is polluting natural systems such as rivers and oceans. Regulations and consumer behaviours have begun to change in response, with innovative business models appearing which aim to deliver solutions to the plastic problem.
Last month, the PRI launched The plastics landscape series which helps investors understand the plastic market and their exposure to it. The reports outline that risks and opportunities are prevalent throughout the plastic value chain and across sectors. Solutions to plastic risks can be found in the circular economy model, which also presents significant opportunities for investors through the development of innovative business models.
Whilst some businesses are already taking steps to adapt their business models to encompass a more circular approach to plastics, a lot still needs to be done to fully transition to a circular economy. A panel and roundtable discussion event at this year’s PRI in Person provided investors the opportunity to discuss with company representatives throughout the plastics value chain how we can make this shift.
Progress on plastics
The companies operating at each stage in the plastics value chain highlighted the progress they were making in managing plastics. It was recognised that used plastic has value as a raw material, and targets for producing raw materials from non-virgin feedstocks (i.e. used plastic) are being set at the company level. Plastics manufacturers, such as packaging companies, have begun redesigning their packaging products to be recyclable and are increasingly using recycled materials.
Next in the chain, some retailers have reduced the use of packaging for their products and are using alternative packaging materials, in addition to introducing deposit schemes. Some waste management firms have been able to improve waste sorting efficiency by making significant investments in technology and infrastructure.
But is this enough? No. The panel participants recognised they face challenges that can only be addressed collectively.
A new kind of business model
The transition to a circular economy will require concerted action across the whole plastics value chain, including the active participation of investors. This is because the scale of change required is nothing short of overhauling existing business models and even entire industries which are now almost entirely based on the linear “take, make, dispose” model.
The transition to a circular economy requires not only that we reinvent ourselves but also the businesses of our customers
Gilles Swyngedauw, Marketing, Innovation & Sustainability Vice President, Albéa
Transitioning to a circular economy is considered by some businesses in the plastics value chain as both necessary and inevitable. However, this presents a challenge as businesses at different stages in the value chain can’t all adapt at the same pace. For example, improvements in waste sorting, collection and recycling infrastructure are long-term commitments requiring substantial machinery, so it is often hard to respond to new ‘recyclable’ plastic products being put on the market relatively rapidly.
Also, new initiatives with good intentions may produce unintended negative consequences. For example, using alternative packaging materials like paper could have a higher environmental footprint than their plastic counterpart. So-called “plastics bashing” could lead us into the “fixes that fail” problem where an absolute dismissal of plastics leads to greater overall environmental damage and distracts us from coordinating and incentivising moves towards a circular plastics economy. It’s important then that those in the investment community are well informed when considering where to put their money and what to ask companies to do.
An added complication is that consumer recycling habits vary widely, both between and within national economies. In France for example, Parisians perform less well than the rest of the country when it comes to sorting their rubbish, and there are some perhaps surprising generational differences at the national level.
In France, it’s people between 18 and 25 that sort their waste the least. Everyone wants to save the planet, but no-one’s taking the bins out
Pierre Hirtzberger, Directeur Général des Services Techniques, Syctom
Part of the transition to a circular economy is therefore ensuring that all of us as consumers are correctly informed, enabled and incentivised to participate in the circular transition. That will require collaboration between businesses at different stages in the plastics value chain and their investors, as well as with regulators, government agencies and campaign groups.
What can investors do?
Delegates highlighted four actions that could help bring businesses together to collaborate on plastics:
- improve communication between businesses at different stages in the value chain;
- align targets between all stages of the value chain;
- map out how a change in one part of the value chain might impact another; and,
- be prepared to make big changes.
Institutional investors can help promote collaborative dialogues between businesses because they often have interests across different parts of the plastics value chain. They can also help businesses to align targets by ensuring they are asking consistent questions when engaging with companies. When it comes to preparing the industry for big changes, investors have a role to play in directing capital towards innovative business models and preparing for systemic changes in the plastics market.
The plastics landscape series consists of reports on the challenges and solutions presented by plastics and the risks and opportunities in the plastics value chain. A third report on plastic regulation and policies will also be released in the future. These reports are accompanied by an interactive data tool.
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