One emerging ESG factor is a company’s strategy for plastic management or its “plastic footprint,” meaning how much plastic a company uses (both in its products and incidental to operations), what portion of that plastic is made from virgin feedstocks as opposed to recycled or plant-based plastic, the type of plastic used (important, for example, as it impacts products’ long-term biodegradability or recyclability), and where that plastic ends up at the end of its useful life.
Plastic waste continues to be one of the world’s fastest growing environmental and sustainability issues. Recent studies have drawn the public’s attention to the amount of unmanaged plastic that is disposed of or otherwise reaches the environment every year and its potential impacts, for example through the ingestion of microplastics. Only 14 percent of plastics are recycled at present, and it is estimated that over eight million tons of plastic are dumped in the ocean every year. Microplastic particles appear to be nearly ubiquitous, and have been found in deep-sea marine life, vegetables, rain drops and the human body.
The social and environmental justice elements of plastic production and waste have also garnered public attention. In March 2021, the UN released a report highlighting plastic pollution’s disproportionate impacts on marginalized communities. For instance, plastic production and waste management facilities like petrochemical plants and incinerators are often located near poorer or minority communities, and unmanaged plastic waste is more likely to impact subsistence communities that rely on local natural resources for survival. On a broader scale, developing nations are often inundated with single-use plastic products despite lacking the infrastructure to manage the resulting waste, sometimes while also receiving first-world plastic waste for recycling and incineration.
U.S. policy makers have recently responded to these issues in a number of ways, from large-scale global actions such as the Basel Convention Plastic Waste Amendments, to proposed domestic legislation like the Break Free From Plastic Pollution Act or California’s Plastic Pollution Producer Responsibility Act, to local ordinances banning plastic shopping bags or straws. Initiatives like India and China’s bans on importation of plastic scrap or the EU’s limitations on export of plastic waste to non-OECD countries also target social and environmental issues.
Amid these efforts is growing recognition that back-end municipal solutions such as recycling, landfilling and incineration are not enough. “We can’t recycle our way out of this problem” has become a common refrain in discussions about plastic. In the U.S., less than 10 percent of plastic waste is recycled, a larger amount is incinerated, and most—about 80 percent—ends up in landfills, with a small percentage ending up in the environment where it eventually breaks down into microplastic particles. The U.S. has traditionally relied on its ability to outsource its recycling to other countries. Now that several Asian countries have limited imports of plastic scrap, the U.S. lacks sufficient facilities to process all of the recyclables that end up in the bin, leading many U.S. municipalities to close their recycling programs. This will mean that increasing amounts of plastics will end up landfilled, incinerated, or in the environment.
At the same time, plastic production is expected to triple by 2050.
Like climate change, addressing plastic pollution will require myriad solutions tailored to specific applications, regions, and economic sectors. The private sector will play a key role. Companies will need to look at product lifecycles as a whole, and consider progress in areas such as molecular recycling. They will need to incorporate recyclability and reusability considerations into product design, as the initial design of a product has a major impact on where that product winds up once it reaches the end of its useful life. They will need to assess and track their plastic use and take actions to better ensure their products are properly recycled or disposed of by consumers– similar to the programs focused on electronics, such as the Waste from Electrical and Electronic Equipment program—or by following international standards intended to facilitate recycling, such as the International Organization for Standardization Plastics standards.
Even though manufacturers will play a major role in addressing plastic waste, very few companies today can provide an accurate assessment of their plastic footprint. For example, while a beverage company might know how much plastic it uses making bottles, that company is unlikely to have a clear idea of the total amount and types of plastic it uses across its manufacturing, packaging and shipping operations. This lack of clear metrics makes plastic management difficult to assess from an ESG perspective, but also creates risk for companies that postpone strategic considerations in this area.
Some early movers have taken action to assess their plastic footprint. In 2020, the World Wildlife Fund’s ReSource: Plastic initiative teamed up with five leading companies to track their plastic use and establish a baseline of plastic use and management. Notably, the participants in this project agreed to publicly share the data on their plastic footprints, and this data is being used to develop the WWF’s ReSource Footprint Tracker. Efforts like this may begin to create an expectation from consumers and investors that companies will evaluate and publicize data on their own plastic footprints and make improvements in their plastic management.
Various bodies such as The Principles for Responsible Investment (PRI) and Sustainalytics have also initiated working groups on the broader aspects of the circular economy in relation to plastic management. This is a further illustration of the growing interest in plastic management from a variety of stakeholders. Plastic management is one way companies can deliver value to stakeholders and increase their sustainability. Practically, companies getting ahead of this issue stand to benefit in three major ways.
First, they will be better prepared to adapt to the rapidly emerging regulatory schemes to address plastic management, and will be positioned to have a competitive advantage once such legislation is passed. For example, companies which now lock in long-term contracts to procure high-quality recycled material for use in products may ultimately pay less than others who wait until laws mandating recycled content minimums are passed.
Second, companies will better attract consumers who are concerned about the environmental impacts of their purchases. Companies leading plastic management efforts will be more likely to have their brands associated with environmental responsibility, a concept of increasing importance to consumers.
Finally, companies which proactively incorporate plastic management into their ESG criteria will be better able to attract capital and grow their share price or valuation as financial management companies continue to consider ESG in greater detail in their investment decisions. Plastic management affects a wide array of company stakeholders, from consumers who are tasked with proper disposal of products, to the local communities that bear the cost of waste disposal, to communities outside of a company’s supply chain which may be impacted by unmanaged plastic waste. Investors are already showing a preference for companies focusing on ESG criteria, and are also pushing companies to be more ambitious.
Plastic pollution has been popularized by recent documentaries like Blue Planet, and this adds to the public pressure on companies to address the issues. We believe that plastic pollution will be one of the biggest environmental issues over the coming years. Climate change has pushed concern over our ecosystem to a new pitch, and plastic pollution is both part of the climate change discussion, and has a separate range of environmental issues. As consumers, financiers and companies recognize the need for plastic management, this will drive pressure on plastic producers and users. Plastic management will be at the forefront of the ESG agenda going forward.