The plastics transition: Sustainable investing in the midst of change

In the face of an urgent global environmental crisis, the plastics transition is at the forefront of global discussions, affecting decisions from individual households to institutional asset managers. Today’s release of the Ellen MacArthur Foundation’s latest annual progress report on its Global Commitment provides a stark perspective on where we stand.

The Global Commitment, which boasts the support of over 1,000 organisations, aims to combat global plastic pollution. An impressive list of brands and retailers participating in the initiative account for approximately one-fifth of the global plastic packaging industry in terms of material consumption.

However, the report highlights a worrying trend: the collective use of virgin plastics by the Global Commitment signatories remains unchanged since the inception of the initiative. Moreover, only a mere 27% of the involved businesses have either reached their reduction goals or are on a trajectory to achieve them by 2025. This stagnation contrasts with non-participating companies, which have upped their virgin material use by 11% since 2018.

Challenges and barriers

To meet the 2025 target, the report suggests an urgent need for substantial progress, emphasising the critical role policymakers must play in driving this change. Central challenges pinpointed by the Foundation include insufficient recycling infrastructure in certain markets and a predominant reliance on flexible plastic packaging formats.

But not all is bleak. The report acknowledges the progress made by brands and retailers in phasing out some of the most challenging single-use plastics. Moreover, the anticipated ratification of the UN Environment Programme’s (UNEP) global plastics treaty in 2024 has garnered attention, especially after the recent unveiling of its first draft in September.

The UNEP paints a promising picture, proposing the possibility of slashing global plastic pollution by a whopping 80% come 2040. Such a transformative change could usher in over $4.5 trillion in cost savings, albeit contingent on pivotal policy changes and market recalibrations.

The Plastics Transition’s vision for the future

A recent roadmap from Plastics Europe sheds light on a “potential pathway” to achieve net-zero by 2050. This vision encompasses a 28% reduction in lifecycle emissions by 2030, increasing to a 32-40% cut by 2040, and finally aiming for a 55% reduction by 2050. Notably, the roadmap acknowledges the potential of offsetting and onsite carbon capture and storage (CCS) technologies to tackle residual emissions.

However, this strategy diverges from the ambitious Science-Based Targets initiative’s net-zero standard, which mandates a 90% reduction in total emissions by 2050.

Rethinking the status quo

Plastics Europe identifies primary avenues for emission reduction as maximising energy efficiency, electrifying production via renewable electricity, and transitioning to alternative fuels. Currently, over 80% of feedstocks used for plastic production are fossil-derived. The report envisions this figure declining to 35% by 2050.

While Plastics Europe concedes that plastic reuse will likely burgeon in the future, leading to 12Mt less plastic production by 2050, it fails to outline specific targets for decreasing production or bolstering reuse.

Both UNEP and Plastics Europe underscore the importance of amplifying both mechanical and chemical recycling. However, the underlying sentiment suggests the plastics industry’s inclination to maintain the status quo, potentially at the expense of sustainable progress and real-world impact.

Implications for sustainable investing and asset managers

In an era where sustainability is a requisite, asset managers and investors must interpret these developments in the plastics transition with discernment. While opportunities abound in industries pioneering sustainable plastic alternatives and recycling technologies, caution must be exercised.

For asset managers, the challenge lies in evaluating which companies are truly committed to genuine sustainable transitions and which are paying mere lip service. SI Engage facilitates engagement between stakeholders, providing a transparent medium for companies to showcase their sustainability initiatives and progress. The differentiation between these will determine long-term investment success in an ever-evolving landscape where sustainability and profitability increasingly intersect.

While the plastics transition is fraught with challenges, it offers transformative opportunities for a sustainable future. The role of informed and conscientious asset managers and investors in this journey cannot be understated – get in touch to find out how SI Engage can support you along the way.

Photo credit: Nick Fewings

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