The ultra-long lifespan of plastics is proving an ecological challenge. As consumers become alarmed at the environmental contamination caused by synthetic organic polymers, we look at the alternatives and the role of investors in pushing for change.
6 minute read
The working life of a plastic bag is around twelve to fifteen minutes.1 Five trillion of them will be used around the world this year – equivalent to 160,000 a second.2 Most are used just once, cast aside, then the process of breaking down gets underway. If collected and incinerated, this stage could last nanoseconds, or stretch 1000 years3 if left to wind its own course.
This example illustrates the fundamental problem of using plastics, some of the most popular man-made materials ever invented. Since they first came to market in the 1950s, cheap, malleable, long-lasting products derived from fossil feedstocks (including crude oil, natural gas and coal) have been used all over the world. From construction and food packaging to toys, medical devices and cosmetics – plastics are everywhere. Evidence can be found on the floors of the world’s deepest ocean trench4, in the stomachs of camels5, guts of seabirds6 and in human food and tap water as well.7
Bear in mind that mankind has made around 8,300 million metric tons of virgin plastic, and the compounds take centuries to degrade. Our enthusiasm for the product has made a stamp on the planet that will be visible for millennia. Our water, soil and oceans are all affected.
Shifting away from linear resource use
Recognition of the deep-seated impacts of plastics has led to calls to end wasteful, linear resource use, particularly in single-use items like drinking straws or hard-to-recycle food packaging. The vision is to shift towards a more ecologically-sensitive re-use economy, perhaps by taxing virgin plastics (a move confirmed in the UK in October 2018), and using alternatives.
Moving to a re-use economy
The shift is not proving straightforward, as the re-use economy is in disarray. A large proportion of material collected for recycling is never used, due to contamination and poor sorting. At the same time, China has closed its doors to non-domestically produced trash. As it was once a destination for around 60 per cent of the G7’s plastic waste,8 waste is being diverted to other countries, including Vietnam and Malaysia – but it seems developed nations are likely to see more waste heading to landfill or seeping into the environment.
The world has a packaging problem. All companies, we have a responsibility to help solve it.
With the global system of waste management and recycling struggling, some of the world’s larger waste producers are beginning to step up and take greater responsibility. Coca-Cola recently proposed a vision for a utopian ‘litter-free’ world, in which it will collect and recycle the equivalent of all its packaging by 2030.9
This seems optimistic given the giant size of the problem. But the intent cannot be faulted; Coca-Cola has joined a group of companies, including Mars and Unilever, grappling with an issue that could cause reputational damage. They are setting ambitious and explicit re-use targets: Coca-Cola now hopes one of its plastic bottles sold in a shop could be used, cleaned, recycled, re-filled and back on the shelf within six weeks.10
Nevertheless, accelerating change is likely to take concerted action. “Plastic usage has catapulted from fringe to mainstream concern,” says Abigail Herron, global head of responsible investment at Aviva Investors, citing the BBC’s Blue Planet documentary as one feature that has been particularly effective in concentrating minds.
“To turn concern into concrete action, we need policymakers to create the equivalent of a Montreal protocol for plastics,” says Waygood. “That agreement gave some impetus to the idea of controlling ozone-depleting chemicals in 1987. We need something similar for plastics, and for investors to keep up the pressure through engagement with major plastics producers and users.”*
Meanwhile, efforts are being made to address legacy issues through new clean-up technologies, such as the innovative mobile ocean sweeper – called System 001 – scouring the Pacific Ocean for waste.12 These efforts are – literally – a drop in the ocean, only addressing the tiniest part of the problem. Much greater issues are how to reduce plastic consumption overall, and finding replacements for oil-based polymers.
Bioplastics: the shape of the future?
Bioplastics are a key area of focus, with particular interest in plastics developed from renewable sources, such as plant-based starches from sugar cane, wood cellulose, corn starch or tubers like sweet potatoes. Some have a distinctive advantage; in the right conditions, with enough water and a high enough temperature, bacteria can breakdown their essential components. Nevertheless, they are by no means a perfect solution.
“We need to remember these ‘alternative’ plastics do not address the problem of marine pollution or prevent littering,” says Eugenie Mathieu, senior SRI analyst at Aviva Investors. “Bioplastics do not biodegrade in the sea, they need higher temperatures and more oxygen, so do nothing for marine pollution. Even compostable plastics need the warm, oxygen-rich conditions offered by industrial composting facilities. Secondly, substituting plastic for bio-based materials such as corn or pulp, without addressing the issue of our reliance on single use plastics, simply leads to other problems like deforestation.”
Despite their limitations, some analysts believe bioplastics might eventually take substantial market share, from around three to four per cent of the polymer wrappings market today, to around 40 per cent by 2030.13
Why might it take so long? Hasso von Pogrell, managing director of European Bioplastics, believes change is possible now, but what’s needed is a different mindset: “For almost every conventional plastic material and application, an equivalent or even superior alternative made from bioplastics is readily available,” he claimed in an article for (European) Parliament Magazine published in July 2018.14
Formal assessments of substitution potential published in Biofuels, Bioproducts and Biorefining eight years ago suggested around 90per cent of conventional plastics could be replaced - and the universe has evolved rapidly since that point.15
If switching accelerates alongside better recycling, there could be significant market impacts. McKinsey Energy Insights has flagged the potentially disruptive effect on the oil market, for instance. It has suggested that if plastics recycling increases significantly, as many hope it will, oil demand might fall by around 25 per cent by 2050, as illustrated below.16
How much will plastics recycling dent oil demand?
In the meantime, new developments continue in so-called ‘second generation’ bioplastics. They include an announcement of edible ‘plastic’ food wrapping, announced by the National Agrarian University in Ukraine.17 Recently-developed products include cups and straws moulded from seaweed and starch derived from algae. They decompose swiftly; for example, taking 21 days for the cup to disappear. But should you wish to dispose of the product faster, you can eat it; the starch-based mix reportedly tastes similar to al-dente noodles.
Nevertheless, there are no ‘ideal’ solutions and complex trade-offs may still be needed. For now, existing bioplastics can cost as much as three times more than products made from the by-products of oil refining, although cost dynamics will change as processes scale-up.18 The shift to ‘bio’ source crops will bring pressure on agricultural land, forests and water, and rapid carbon dioxide release as decomposition of the finished products takes place. (These are all environmental pressure points flagged by John Beddington, the UK’s former Chief Scientist, back in 2009.19) And, of course, bioplastics will not solve littering issues in arid areas, where high temperatures exist but there may not be enough rainfall to kick-start the decomposition process.
In these zones, there has been interest in oxo-biodegradable products – plastics with controlled life. These products are essentially conventional plastics produced in a way that ensures graded resilience. The time taken to degrade can be graduated, depending on the products’ expected use. That could be as little as one month for a plastic bag or longer for bailer twine used in agriculture during harvesting.
Our trigger is oxygen.
“We don’t need moisture and hydrolysis for degradation to take place,” explains Symphony Environmental Technologies’ chief executive and founder Michael Laurier. The interest in ‘oxo-bio’ from export markets like Saudi Arabia and the United Arab Emirates, where it is now illegal to export goods made of or packaged in products that are not oxo-biodegradable. Essentially, these countries are attempting to maintain the health of the established petrochemical industry, and address littering head on.
In Europe, the reception for oxo-bio has been mixed. It has been subject to scientific-challenge and counter-challenge, and the claims are not yet resolved. Concern the technology may create tiny, persistent particulates that could be harmful is the crux of the matter; a charge Laurier refutes.
“People say, ‘You are creating plastic fragments.’ Our answer is: ‘No, we are not. It’s a continuous step-change process. It’s quite rapid. It means moving from a plastic material to biodegradable materials and, in the end – this is nice part – the carbon is sequestered back into the ecosystem.’”
Winners and losers in a plastic-sensitised world
With over 50 per cent of all consumer packaging worldwide made of plastic, but diminishing consumer appetite for it, there is little doubt the future will be different. What might that mean for thousands of companies that make up the industry worldwide? Certainly – leaner times for some.
It seems inevitable demand for fossil-based plastics will fall. The speed at which that happens is partly dependent on policy actions (note that a number of countries have already introduced outright bans and/or financial penalties to ‘nudge’ consumers away from single-use plastics) and on the oil price itself. If the price stays subdued, the transition is likely to delayed and drawn out.
Conversely, bio-plastics are expected to increase in popularity, as will oxo-bio products in certain jurisdictions outside Europe. In the bio-field, look out for companies aiming to utilise low value or waste inputs, as part of the transition to a circular economy. For example, in the US, Renmatix (a private company in which BASF’s venture arm has invested) promises lower-cost solutions using sugar cane waste or straw,20 while others are using waste from agricultural feedstock.21 For the moment, though, there are few listed companies in which it is possible to invest at scale.
Investment in greener packaging might be easier via companies producing wood-based products like corrugated paper. These products are easier to recycle than conventional plastic, and the plant cellulose can potentially be used and re-used multiple times.22
According to Trevor Green, UK equities portfolio manager at Aviva Investors, companies that produce recycled corrugated packaging are beneficiaries of the move away from single-use plastic.
The majority of shoppers are prepared to pay a premium for sustainably packaged goods. In Europe, this is leading to ‘plastic-free’ aisles. This momentum shift is forecast to materially help corrugated packaging volume growth for the foreseeable future.
Positive earnings expectations meant the multiples on the companies producing corrugated packaging lifted in the first half of 2018 (e.g DS Smith, UK: 14.5; Klabin, Brazil: 16.6; Orora, Australia: 19)23, before markets retreated later in the year.
These changes signal the re-shaping of the packaging landscape. The companies in the conventional plastics supply chain - from chemical raw material suppliers to packaging manufacturers and the providers of waste collection - will be forced to evolve.
“For effective solutions to the plastics problem, we are going to need three things to take place,” according to Mathieu. “Reduce plastics use in the first place, in particular by designing for re-use rather than single use. Where that cannot be achieved, substitute with more sustainable alternatives. Using types of plastic that can be easily recycled and re-used is best, but if that cannot be achieved, for example, in food wrapping, oxo-biodegradable plastics will be useful. And thirdly, we need to vastly improve our recycling infrastructure and create demand for recycled plastics.”
* With shareholder engagement in mind, Aviva Investors joined the As You Sow initiative, designed to promote collaboration among stakeholders on environmental issues.11 On waste, key priorities include focusing listed companies on more responsible use of packaging, and encouraging better recycling and composting.
8 Can we fix it? Financial Times. October 27/28 2018
13 Schroders. Plastic phase-out: which companies will be most affected. 20 April 2018
14 Europe’s bioplastics industry needs a level playing field. The Parliament Magazine. 6 July 2018
15 L. Shen, E. Worrell and M. Patel. Biofuels, Bioproducts and Biorefining, 2010, 4(1), 25-40
16 McKinsey Energy Insights, 2017
18 Symphony Environmental Technologies.
23 Morgan Stanley Plastic Report. May 2018.