Investors should worry about a rising plastic tide. The pandemic and a war in Ukraine have focused money managers’ attention on supply chain disruption and energy security risks. Yet as the world continues to drown in packaging waste, the public and private sectors may come after big users like PepsiCo , Coca-Cola and Mars.
Four years after the consumer goods giants signed up to voluntary reduction targets under the New Plastics Economy Global Commitment, progress is disappointing. Ellen MacArthur Foundation data shows that the packaging employed by companies like PepsiCo, Mars and Coca-Cola increased its usage of virgin plastic, made from fossil fuels rather than recycled materials, by 5%, 3% and 11% respectively between 2019 and 2021. That makes it unlikely they can meet their commitments to curb its use by 5%, 20% and 25% by 2025.
Big plastic users are also making insufficient progress in using recycled material. The latter amounts to just 10% of plastic packaging used by pact signatories. Reusable containers, the most environmentally friendly form of packaging, amounted to only 1.2% of the total in 2021, and that figure is decreasing.
Despite citizens’ effort to sort out used plastic for collection, especially in Europe, only 9% actually gets recycled each year, the Organisation for Economic Co-operation and Development says. In the United States 73% of plastic waste ends up in landfills, where it takes up to 500 years to decompose. The rest gets incinerated or washes up on developing countries’ shores. That will only worsen as annual demand of about 450 million tonnes a year is expected to treble by 2060.
Solving the plastic challenge is complex and expensive. Plastic comes in different types that cannot be bundled together. Certain materials or additives make it difficult to recycle. Substituting plastic with biodegradable material can be expensive. Using recycled plastic, while less energy-intensive than creating virgin plastic, can cost more overall.
Yet, having pledged to act, big corporates are in a vulnerable position. Danone is facing a legal challenge over its plastic use. In March, 175 governments agreed to work out binding laws to end plastic pollution by end-2024. Around 70% of citizens surveyed last year in 34 countries want new anti-plastic rules.
European investors’ greater focus on sustainability means they are more likely to hassle domestic laggards. But if governments decide to implement mandatory recycling quotas, rival US late-starters would suffer the most. In a worst-case scenario, companies could face a collective $100 billion annual bill if lawmakers ask them to cover waste management costs in full, the PEW Charitable Trusts says.
For investors, plastic inaction could become toxic. — Reuters